Bill Targets Firms of All Sizes

Joe McClure has every intention of expanding his Montrose travel agency and adding to his staff of 150. But now he may think twice about hiring the 200th employee.

He says that’s because under the landmark health bill passed by the Legislature over the weekend, businesses with 200 or more workers in California would have to provide medical insurance to their employees’ dependents starting in 2006, when the law would kick in.

McClure figures that extra coverage would add at least $150,000 to his annual costs. If the measure is signed by Gov. Gray Davis, it’s going to be “a deterrent to growth,” said the president of Montrose Travel. “No good can come from this.”

From small flower shops to the giants of the retail industry, employers across the state said much the same thing Monday as they tried to calculate the potential costs of the health insurance bill.

The legislation would require employers with 21 or more workers to either purchase private health care policies for their employees or pay into a statewide pool that would buy insurance coverage on their behalf. Employers with 200-plus workers would have to extend the coverage to an employee’s dependents.

Davis hasn’t tipped his hand about whether he would sign the bill. If he does, supporters believe that the mandate will result in coverage for 1 million uninsured Californians.

Although smaller businesses are likely to feel the biggest pinch -- because more of them don’t provide any health benefits now -- larger employers, especially in low-wage industries, face significant expenses as well, according to analysts.

E. Richard Brown, director of the UCLA Center for Health Policy Research, said big employers sometimes put up barriers that make it tough for workers to qualify for coverage. What’s more, some of them pay part of the health care costs for their workers but less than the 80% of the tab that they would be required to pick up under the California legislation.

“It’s quite likely that the big corporations that are providing health care, but imposing so many rules that employees don’t take advantage of it, will be more affected by this bill than smaller businesses,” said Brown. “There’s this view that the employers not covering health care are small, but it’s often these larger firms that don’t.”

A spokesman for Wal-Mart Stores Inc., the nation’s biggest employer with 53,000 workers in California, says that as a rule, the retailer covers about two-thirds of the health insurance expenses for an employee as well as his or her dependents.

Bob McAdam, a vice president at the Bentonville, Ark.-based company, said he did not know how much it would cost Wal-Mart if it had to pay 80% of employees’ health insurance. He noted that the retailer offers full-time and part-time workers a choice of three HMOs, for which employees contribute about $13 every two weeks for single coverage and $57 for family coverage.

“We’ll have to try to figure out where we are today and where we will be in a couple of years when the bill takes effect,” McAdam said, adding that “we still consider California a growth area.”

Wal-Mart, which has major expansion plans for California, including the construction of 40 of its so-called super centers in various parts of the state, lobbied hard against the health insurance legislation. “We were aggressively opposed to this bill,” McAdam said.

Wal-Mart employees, however, were thrilled with the prospect of having less taken out of their paychecks for health care.

“The company says we’re part of their family, so they ought to be willing to help ours,” said a cashier at Wal-Mart’s store on Crenshaw Boulevard. The employee, who asked not to be identified, said she had not taken up the employer-offered health insurance because it was too expensive. She said, though, that she would consider it for herself and her children if Wal-Mart paid 80% of the coverage.

“I think it’s a good idea,” she said.

Of the estimated 3.8 million uninsured employees in California, more than 27% work in the retail field, including fast-food restaurants and big-box retailers such as Wal-Mart, according to data from the Kaiser Family Foundation, a research group in Menlo Park, Calif. There’s also a high percentage of uninsured workers in construction and certain manufacturing industries and service businesses.

Scott Hague, treasurer of the San Francisco Small Business Network, which has 17,000 members, predicted Monday that small apparel and security firms would go out of business if the health bill took effect.

“They will be backed into a corner,” said Hague. “It could mean laying off employees to get under the mandate,” he said.

Kirby Bosley, head of the health-care practice for Mercer Human Resource Consulting in Los Angeles, agrees that the measure is worrisome.

“The real question is whether this legislation is the straw that breaks the camel’s back for small businesses,” said Bosley. “This potentially will be very damaging to California’s economy. You could see businesses move out of the state.”

Kim King, president and chief executive of a family-run security firm in San Francisco, said her health care costs would more than triple to $1.5 million each year if the bill became law.

King said her company, King Security Services, will have 350 employees once she takes on a new account. That means that under the new health bill, she would have to provide health care to dependents.

“I’m sick to my stomach. How am I going to do that?” said King. “I’m sure some of us will choose not to expand.”

At Rita Flora on La Brea in Los Angeles, owner Rita Azar said she would love to provide health insurance to her roughly 30 workers at the flower shop and adjacent restaurant. But she said that the added costs could make it difficult for her to continue operating, given the high expenses she already pays for workers’ compensation coverage.

“Small businesses are being put into a really tough position here,” Azar said. “I want to provide health insurance, but it would be hard to stay afloat.”