California Apparel News

Gov. Arnold Schwarzenegger proposed an ambitious $12 billion health insurance reform program on Jan. 8, and many apparel retailers and manufacturing executives are now wondering how the plan might affect their bottom line.

Businesses are guaranteed to play a key role in Schwarzenegger’s vision of health reform, which he has repeatedly described as a “shared responsibility” for business, government and individuals.

In its current form, the plan states that employers with 10 workers or more must either provide health insurance or pay an amount equal to 4 percent of their payroll to a state fund that would provide health insurance. Businesses employing fewer than 10 workers would be exempt. These companies’ workers would seek individual health insurance at a rate that might be subsidized.

For small businesses, health care reform represents opportunity and risk, said Christine Price, president of the 1-year-old Los Angeles–based fashion company Christine Price Inc.

“It’s the right thing to do. Everyone should have health insurance,” said Price. “But it could kill a lot of small companies.”

Price worried that new companies operating on a shoestring budget may not be able to afford new health care. They would be forced to raise their prices, which may make them uncompetitive with larger, moreestablished companies.

For businesses with a longer history, the plan may not affect them because they already have insurance plans in place. Or perhaps insurance cost increases would represent the price of doing business in a major metropolitan state, said Fred Levine, a coowner of the Agoura Hills, Calif.–based retail chain M.Fredric, which operates more than 20 boutiques in California.

Schwarzenegger’s initiative may not have a big impact on Levine’s company. M.Fredric has been offering its 200-plus employees health and dental insurance and 401k plans for more than 10 years, according to the retailer. “My controller called me recently and said that the cost of our workers’ compensation insurance plummeted,” Levine said. “The state has been successful in reducing the astronomical workers’ comp a few years ago. And if they raise the requirement for health care, it may be a trade-off.”

Workers’ compensation reform was one of the issues in the recall election of former California Gov. Gray Davis in 2003. The election brought Schwarzenegger to office. Yet workers’ compensation costs may be small potatoes compared to the cost of health insurance, said Scott Hauge, president of San Francisco–based advocacy group Small Business California.

He claimed that workers’ compensation cost $25 billion at its peak, while health care is a $169 billion industry in California.

The rising cost of health insurance is the reason why small business owners regarded it as the most important of six issues facing small business, according to a 2006 survey commissioned by Hauge’s group. The concern has not subsided.

“If costs aren’t controlled, businesses might might continue to look at double-digit increases in insurance,” Hauge said. Prices for health insurance have soared in the past five years, Hauge said.

Reform efforts are not merely an issue for small- and medium-sized businesses. Major, multi-state retailers reportedly have their eyes on California’s health-care reform. It won’t be enough to merely comply with the law at California locations. If California’s health-care reform efforts are successful, they may be used as a model for health-care reform in other states.

However, the discussion of health-care reform has just started. Hauge said he expects hundreds of health-care reform bills to be sailing through California’s Assembly and Senate throughout the 2007 legislative year. Several have already been proposed.

The most prominent are the initiatives proposed by Schwarzenegger; Fabian Nuntilde;ez, the speaker of the state Assembly; and Don Perata, president pro tem of the state Senate.

The state Legislature also is hearing bills with smaller goals than Schwarzenegger’s proposal. Assemblyman John Laird proposed a bill that would mandate universal health care for all of California’s children.

Republican state Sen. Abel Maldonado submitted a bill that would ask for state tax deductions for federal health savings accounts. In 2003, President George Bush created health savings accounts, tax-free accounts allowing people to deduct from paychecks savings for possible medical emergencies.

While businesses with fewer than 10 employees would be exempted from paying for health care under Schwarzenegger’s proposal, other health-care reform proposals have required more participation from small businesses. Nuntilde;ez’s bill would seek exemptions for companies with two or fewer employees.

The health-care reform debate may not be finished in 2007. Many Sacramento veterans believe that it will be an important topic in the election year of 2008. Whatever happens, M.Fredric co-owner Levine said that a strong health-care package is one of the most compelling offers an employer can make to an attractive job candidate.

“It’s costly, but it’s a necessary thing to have. A lot of applicants expect it,” Levine said.

Many Choices in Health-Care Debate

When Gov. Arnold Schwarzenegger recently invited a vigorous debate of California health care, the state Legislature was prepared for his challenge.

More than 10 health-insurance bills were submitted to the Legislature in December, and perhaps hundreds are expected to be written before the 2007 legislative year ends. The California Apparel News has compiled a list of some of the leading bills being considered in Sacramento.

bull; Governor’s Health Initiative—Universal health care in California, covering everyone, including illegal immigrants. Requires employers with 10 or more employees to offer insurance. Or companies would submit amount equal to 4 percent of payroll for statepool. Pool would help in buying insurance for those without it. Price tag: $12 billion.

bull; AB 8. Author: Fabian Nuntilde;ez (D–Los Angeles), speaker of the Assembly. Called Fair Share Health Care proposal. Will cover all workers and their dependents. Self-employed workers and companies with two or more employees can find insurance through state-level purchasing cooperative or private-insurance market. Expand state’s Medi-Cal and Healthy Families Program to cover all of California’s children.

bull; SB 48. Author: Don Perata (D–Oakland), Senate president pro tem. All working Californians and their dependents covered. A state pool will seek best health-care coverage plans for businesses, including small businesses, individuals and uninsured. This pool to be financed by businesses, individuals and maximizing funds by federal government. Business contributions not determined.

bull; SB 25. Author: Abel Maldonado (R–San Jose). This bill would give state tax deductions for those with health savings accounts, which are offered by the federal government. Health savings accounts are like a 401k. They are tax-free accounts deducted from paychecks. Funds pay for catastrophic medical events. If not used, the accounts will accrue interest. With state tax breaks, Maldonadohopes more California small businesses will be offer health savings accounts.

bull; AB 2. Author: Mervyn Dymally (D–Compton). Restructures the state’s Managed Risk Medical Insurance for those deemed uninsurable with pre-existing conditions.

bull; AB 13. Author: John Laird (D–Santa Cruz). Universal health care for children.

bull; AB 20. Authors: Mike Eng (D–Monterey Park) and Ed Hernandez (D–West Covina). Provides health care for all working Californians and their dependents. Makes health care affordable by placing limits on out-of-pocket costs.

bull; SB 32. Author: Darrell Steinberg (D–Sacramento). All children will have access to comprehensive health-care coverage.

bull; AB 30. Author: Noreen Evans (D–Santa Rosa). Makes health insurance more affordable by minimizing administrative overhead. Identifies and reduces health care that is high-cost and low-quality.