Orange County Voices : COMMENTARY ON BUSINESS : Clinton's Health Care Plan Threatens the County's Recovery : Employer mandate puts unfair financial burden on small firms, with job and wage cuts and higher prices the likely result.

Just when Orange County businesses are finally beginning to recover from the worst recession since the Great Depression, they are being confronted with a new economic threat: President Clinton's plan to require every employer to participate in the financing of health care reform.

Under Clinton's plan, employers would have to pay 80% of health insurance costs (up to 7.9% of payroll), while employees contribute 20%.

For employers who are not currently providing health benefits or are providing less generous benefits than those Clinton's plan would guarantee--i.e., the smaller firms that are the lifeblood of Orange County's economy--this will mean facing a significant increase in labor costs on the heels of a prolonged economic slump.

The Clinton Administration has shown little sensitivity to the enormous financial burden its "employer mandate" would place on small businesses. When First Lady Hillary Rodham Clinton was questioned some time ago about how this mandate might injure small firms, she said: "I can't go out and save every undercapitalized entrepreneur in America."

Mrs. Clinton may not be concerned about whether entrepreneurs can survive health care reform, but anyone who has a stake in Orange County's economic health must be. State Employment Development Department figures show that firms with fewer than 20 employees--those most likely to be without health insurance--account for 86% of the county's estimated 71,650 companies, and firms with fewer than 100 employees account for 98% of businesses in the county.

Because large companies have downsized and learned that they can get by with fewer employees, we have been looking to small businesses to lead the rebound in jobs as the economy recovers. But instead of growth, we are certain to see more job losses if Clinton's employer mandate is adopted.

Clinton's plan attempts to provide some relief for small businesses by offering subsidies that make the employer contribution as low as 3.5% of payroll for the smallest firms with the lowest average wages.

But even with subsidies, many Orange County companies would suffer under Clinton's plan. Stuart Butler, vice president of the Heritage Foundation, pointed out during the recent Health Care Forecast Conference, sponsored by UC Irvine's Graduate School of Management, that two-thirds of all firms not currently providing health insurance would face annual costs, after all subsidies, of at least $1,000 per employee, and 15% of those firms would end up paying more than $2,500 per employee.

Companies are likely to respond to this increase in health costs in three ways that would be detrimental to Orange County's economy:

* By hiring fewer workers or laying off low-wage and part-time workers to avoid the cost of providing health benefits.

* By reducing salaries--the Heritage Foundation estimates that 88% of the cost of the employer mandate would be passed on to employees through salary cuts--or deducting more from paychecks for health benefits.

* By passing extra labor costs on to consumers in the form of higher prices.

One way or another, companies eventually will shift the cost of the employer mandate onto workers or customers, and we will have what amounts to a regressive tax, with the low-income population bearing an unfair share of the cost of health care reform.

President Clinton has made it clear that he considers the employer mandate the most crucial element of his plan to provide health insurance for every American. He apparently views it as the only way to provide universal coverage. But there is an alternative that would enable us to achieve this important goal in an equitable manner--without deceiving the public about who is really bearing the cost.

What we need is a mandate that places the responsibility for obtaining basic health coverage on the individual rather than the employer. Insurance should be portable, with guaranteed renewability, and those who can't afford coverage (including Medi-Cal patients) should receive vouchers or tax credits.

The cost of providing coverage for the low-income population could be financed through the tax system, either through a direct tax increase or by limiting the deductibility of health insurance premiums. (Health insurance premiums paid by employers are now excluded from employees' taxable income and from payroll taxes, a practice that costs the federal government more than $66 billion a year.)

We don't hear President Clinton talking about an individual mandate because, for political reasons, he must preserve the illusion that we can guarantee universal coverage without increasing taxes. The idea of employers being required to pay 80% of premiums doesn't carry the shock value of a tax increase, because people who have insurance through their employer tend to forget that they are paying for it in the form of lower wages and higher prices.

But the fact is that if we are to have universal coverage, all of us--as purchasers of insurance for ourselves and as taxpayers who care for the poor--will have to pay for it.

Clinton's employer mandate would place a disproportionate share of the financing burden on small businesses and their employees. Orange County's small firms, which face the costs of operating in a highly regulated business environment, will find it hard enough to recover from the recession without this added burden. And so will the low-wage workers who end up losing their jobs or having to do without necessary income.

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