State-Mandated Health-Care Proposals Rankle Apparel Businesses
Even though the Los Angeles Chamber of Commerce has endorsed a controversial statewide program making all businesses pay for employee health-care coverage, most people in the apparel industry believe it would push more manufacturing overseas, where labor and other costs are cheaper.
“The input I get is that any additional expense is another hard nail in the coffin,” said Joe Rodriguez, executive director of the Garment Contractors Association of Southern California, a nonprofit association in Los Angeles that represents small, independent garment contractors.
On Sept. 10, the California Legislature passed a bill that would require that all but the smallest employers contribute as much as 7.5 percent of their payroll to cover the cost of health-care insurance for employees or pay into a state pool that would provide coverage.
Assembly Bill 8 would “apply to employers of any size (except for self-employed) and for both part- and full-time employees,” according to a spokesperson for Assembly Speaker Fabian Nuntilde;ez (D–Los Angeles), who proposed the bill with state Senate President Pro Tem Don Perata (D–Oakland, Calif.).
Gov. Arnold Schwarzenegger said he would veto the bill and called for a special Legislative session to work out an alternative to this health-care bill.
The governor is pushing a proposal that would call for all state residents to obtain health insurance.
Under his proposal, everyone would be required to have health insurance. Employers with 10 or more employees would have to contribute 4 percent of their payroll to health insurance or pay into a state pool.
While the Schwarzenegger proposal has won kudos from the Los Angeles Chamber of Commerce, the apparel industry isn’t too happy about it.
“Even as the president of this company, I don’t have health insurance,” said Jorge Pierce, president of Hazco Corp., a 5-year-old Los Angeles garment contractor that sews primarily bridesmaids’ dresses for Aria Bridesmaids in Pasadena, Calif. During his peak season, between January and September, Pierce employs 19 people. The rest of the year he operates with a skeleton crew of three to five employees.
“My employees are getting paid more than the minimum wage, about $9 an hour, but with workers’ compensation, city taxes and state taxes, there’s no room for medical insurance,” said Pierce, who gets his health-care coverage through his wife’s employer.
While many of Los Angeles’ larger manufacturers already provide health coverage for their employees, they wonder about the rules and costs of a state-mandated plan. It might send more apparel makers to use cheaper overseas factories.
“It is definitely going to hurt business,” said Steve Barraza, owner of Tianello, a $12 million women’s-apparel manufacturer in downtown Los Angeles with about 200 employees. All of Tianello’s production of its casual Tencel-fabric fashions is made at the company’s headquarters on South Broadway.
Barraza said he pays for half his employees’ health-care coverage. They pay the other half. Dedicating 4 percent of his payroll to health insurance would be difficult. “It would be another thing that keeps pushing us from doing business domestically,” he said. “Workers’ comp is already killing us.”
Another domestic manufacturer, Raj Manufacturing, which makes swimwear under the labels St. John, O’Neill, Tommy Hilfiger and Guess, said any additional costs hurts its bottom line.
The Tustin, Calif.–based company already provides health-care coverage for its 400 employees, but a mandated health-care program would be burdensome. “I think the proposals circulating around Sacramento are not good for business in general,” said Alex Bhathal, the company’s executive vice president. “We’re just emerging from a period where policy makers were extremely tough on business, with everything from over-regulation and frivolous lawsuits. We are finally getting over that hurdle, and now the mandated–health-care issue is a return to that period. It’s counterproductive for those companies like ours that are trying to maintain manufacturing in the state and employ as many people as possible.”
At Just for Wraps Inc., a juniorswear maker in Commerce, Calif., the owners pay for 70 percent of the company’s employee health-care costs. While Rakesh Lal, the company’s executive vice president, doesn’t believe the health-care reform proposal would affect his company, he believes many smaller businesses wouldn’t survive. “The contractors would get killed,” he said.
Small contracting firms and designers are in a quandary. Many would like to offer health-care coverage, but they just can’t afford it.
“It’s not that employers don’t want to offer health care, but for small businesses like mine, it can be a pretty tall order,” said Jennifer Evans, head of the Evans Group, which houses a vertically integrated design development and production facility for high-end fashion in downtown Los Angeles. She looked into coverage for her nearly 30 employees but figures she could only afford to cover four. “As a fairly generous small-business owner, I generally believe in contributing to the greater good of society. But a reasonable limit must be set to determine what is too much to ask of the business owner as not to put the entire responsibility on us.”
But she notes something has to be done.
At Stony Apparel Corp., a Los Angeles company that makes childrenswear and juniorswear under the Great Escape and Eyeshadow labels, the 100 employees are covered by health insurance, said the company’s co-founder Steve Maiman.
But he asks what does a company do if it is spending less than 4 percent of its payroll on health-care coverage?
“I see no reason to overpay for health care already provided,” he observed. “I am certainly not going to give our insurance carrier additional money not required. I’d rather have a bigger Christmas party.”
