Senate Health Bill Could Hit Southland Workers Hardest

WASHINGTON —  The leading health plan being debated in Congress places a far weaker safety net under workers in Southern California than in other areas because it exempts the small businesses that account for an unusually large segment of the region’s employment.

The reform proposal crafted by Senate Majority Leader George J. Mitchell (D-Me.) and endorsed by President Clinton exempts firms with fewer than 25 workers permanently from any future mandates requiring businesses to help pay for health benefits.

Small employers are the primary engine of California’s entrepreneurial economy, accounting for a greater share of the work force than in most states. They are particularly prevalent in Los Angeles County, home to myriad tiny manufacturers, shops, restaurants, retailers and service firms, along with a growing legion of part-time and contingent workers who labor without health benefits.

The situation highlights a paradox of the health care debate: Often the workers who need coverage the most, because they have the lowest incomes, do not have insurance because their boss does not think that a small company can afford it.

In Southern California, such small firms frequently are unstable financially, often the newest companies with the most slender of profit margins and most likely to be staffed by low-paid Latino workers, according to the UCLA Center for Health Policy Research.

“In addition, many companies, both small and large, depend on part-time workers who are often ineligible for benefits, including health insurance,” the center reported recently. “These conditions are becoming more widespread, and the trend has accelerated during the recession.”

Some 31% of county residents currently lack health coverage, a far higher percentage than for the state (23%) and the nation (18%) as a whole, the center noted.

Because of the special nature of the Los Angeles economy, the fundamental objective of most health reform plans--guaranteed coverage--would be more of a wish than a promise for Southern Californians should Mitchell’s plan become law.

There is a direct link between the size of a firm and the likelihood that its workers are covered. Compared to the rest of the nation, California workers are more likely to be self-employed or work at a small company and less likely to have health insurance.

At Los Angeles County firms with more than 100 employees, just 16% of workers lacked health insurance coverage in 1992. In sharp contrast, there was no coverage for 47% of the workers at the smallest firms, those with fewer than 25 employees, according to the UCLA study.

The decision by Senate leaders and the White House to exempt small businesses from the mandate is a response to a hard-fought political offensive by small-business owners and their Washington lobbyists.

The National Federation of Independent Business, with 600,000 members, has been an outspoken leader in the fight this year against President Clinton’s proposal for employer mandates to guarantee coverage for all citizens.

It’s the hottest fight in decades for the organization, federation President Jack Faris said recently. Federation opposition found strong, sympathetic support among many members of Congress.

It now seems likely that this determined fight is tough enough to kill the House plan offered by Majority Leader Richard A. Gephardt (D-Mo.), which makes all firms, regardless of size, offer health insurance--with employers generally paying 80% of the cost of an average premium. Small companies, depending on their size and average payroll, would be forced to pay but would receive a financial subsidy.

Hoping to disarm small-business opposition, Mitchell then proposed that firms be given until the year 2000 to offer coverage on a voluntary basis. If that did not work, a mandate would take effect in 2002 in the states falling short of covering 95% of the population.

Even if the mandate is triggered, firms with fewer than 25 workers would be left free of any government compulsion under his plan.

Advocates of the Mitchell bill had hoped that its voluntary approach, complete with financial subsidies, would spur even the smallest companies to provide coverage.

California already has been a pioneer among states with laws limiting rate hikes and forbidding insurers to discriminate against small firms. Yet the success of voluntarism in the state is modest--about 250,000 previously uninsured residents get coverage each year, compared with a statewide total of 5 million uninsured, according to Mark Weinberg, executive vice president of Blue Cross of California.

“This is a voluntary system, and in a state that is still in a pretty disastrous economic situation, I think it is significant progress,” Weinberg said in an interview.

The state, through the Health Insurance Plan of California, offers low-cost coverage to firms with fewer than 50 workers. Tough negotiating by the insurance plan has helped drive down insurance premiums an average of 10% during the last 12 months.

About 3,500 companies have joined the state insurance plan, and Blue Cross also has been signing up small groups at the rate of about 1,000 a month. But, disappointingly for those who hope for universal coverage without compulsion, only about 20% of the small firms working with Blue Cross or the public insurance plan are getting health insurance for the first time. The vast majority of customers already have insurance and are simply seeking better coverage or lower prices.

The uninsured in Los Angeles County are a large army, some 2.6 million people. The majority--85%--are full-time workers and their dependents. And there is a great variation in ethnic groups, with 47% of Latinos lacking coverage, compared with 25% of blacks and Asians and 17% of Anglos.

A government mandate could guarantee that all these county residents are covered by insurance, but workers would pay the price in lost wages and sometimes in lost jobs. A law requiring companies to pay 80% of insurance costs could wipe out 100,000 jobs, while a 50% cost-sharing rule could eliminate 60,000 jobs, according to a study by the Santa Monica-based RAND Corp. think-tank, which will be published today in the Journal of the American Medical Assn.

“Recent experience with other employee benefit mandates suggests that almost all of the increased costs to firms will be passed on to workers in the form of lower wages,” according to the authors, Jacob Klerman and Dana Goldman.

However, when wages are already very low, in the range of $4.25 to $6.25 an hour, a mandate could actually wipe out jobs, the study said. The “working poor could end up paying most of the cost in the form of lower wages or lost jobs,” the study said.

This situation creates a painful dilemma for policy-makers and members of Congress who want health care coverage for all Americans.