Next in California: Rolling Freakouts?

A bill for universal health care could whomp small business

All it takes to scare the daylights out of a small-business owner in California are three words: universal health care. That phrase has risen to the top of the agenda in Sacramento, where legislators are racing to get a health-care bill to Governor Gray Davis' desk before the recall election on Oct. 7. The bill would require most companies to provide health insurance for full-time and some part-time employees in California. And because it is supported by the powerful labor lobby, which is fighting hard to keep Davis in office, the governor just might sign it.

If he does, it could be the last straw for employers struggling to stay afloat in the Golden State. Many are buckling under high costs for energy and workers' compensation insurance -- twice the national average. The health-care bill could double and even triple the cost of providing benefits for some companies. "It would be catastrophic," says Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. The legislation is the most sweeping health-care proposal to get this far in the nation's most populous state. As such, its passage could also heat up the national debate over health coverage, just as the Presidential campaign season kicks off.

Business groups, including the California Chamber of Commerce, are trying to block the bill. As now written, it forces any company with more than 20 employees in California to provide health plans for all of its workers, or to pay a fee to a state-run health plan. Companies with 200 workers would have to cover dependents as well. What's more, employers would have to shoulder at least 80% of each employee's insurance premium. For example, a company that now provides family coverage but pays only 70% of the premium would see its health care costs jump an average of 15%, to $6,000 per employee per year. Employers who now cover only workers could see expenses balloon as much as 150% once dependents are covered, too.

No one would be harder hit than the state's 1.1 million small companies, which employ 79% of working-age residents. Mitchell Greif, chairman of Coast Converters Inc., a Los Angeles plastic-bag maker, reckons the proposed law would add 10% a year to the $300,000 he now pays for his 140 workers. He's not sticking around to see if the bill passes, though. He's moving his company to Las Vegas, where he'll save $1 million a year in health care, workers' comp, electricity, and other costs. "The writing is on the wall: We're not wanted here," Greif says. "So bye-bye, California."

The threat of more companies stampeding out of the state is likely to take a backseat to Davis' instincts of self-preservation. The bill is the pet project of Democratic state Senate leader John Burton, who sees Davis' weakness as an opportunity to pass the bill by Sept. 12 when the legislature's current session ends. More important, the bill is co-sponsored by the California Labor Federation, which has launched a $5-million campaign urging its 2.1 million members to vote against the recall. With recent polls showing 50% or more of voters in favor of his recall, Davis may have little choice but to sign the bill to keep labor on his side.

As the debate rages on in Sacramento, local businessmen and national politicians will be watching closely. The bill's passage could provide a talking point for Democratic Presidential front-runners Dick Gephardt and Howard Dean, who have put universal health care high up on their campaign agendas. Back in California, businessmen such as Kjeld Hestehave will be bracing for difficult decisions. The owner of Bomatic Inc., a bottle maker in Ontario, Calif., plans to move his company to St. George, Utah, next year. Hestehave was considering leaving one manufacturing plant in California, but if the health-care bill passes, he says he may have to shut it down. "I just can't afford to provide these benefits," he says. "I feel like the state is showing me the door." And mandated health care could be the final swift kick that pushes more employers like him out of the state for good.

By Arlene Weintraub in Los Angeles

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