Ballot-box showdown: California hotel industry fights mandatory health-care program

Hotel & Motel Management, Oct 18, 2004 by Shannon McMullen-Coyne

SACRAMENTO, CALIF. -- California hoteliers are facing a major dilemma in the form of a law enacted last year demanding employers pay 80 percent of health-care costs statewide via a mandated health-care program.

The new law, which has not taken effect yet, could cripple the state's lodging industry because most hotel owner/operators don't have the means to pay for the government regulated plan, according to those involved in the state's lodging industry.

However, all hope is not lost for California hoteliers. The measure, which essentially requires California employers and their workers to pay a $7-billion annual health-care tax to fund a government-run health-care system known as Proposition 72, will be on the November ballot. If passed, it would cast in concrete the employer health-care mandate. If Proposition 72 is not approved, the bill would be repealed, saving California employers millions of dollars. The law applies to employers with 200 or more employees beginning Jan. 1, 2006, and applies to employers with 50 to 199 employees on Jan. 1, 2007 and 20 to 49 employees the same time if a tax credit is enacted.

The California Hotel & Lodging Assn. has been educating hoteliers on the matter and trying to stop the measure from passing, including sending newsletters and e-mail updates.

California has more than 410,000 hotel rooms. About 75 percent of the hotels in California are 150 rooms or less in size, and about 50 percent are less than 70 rooms in size, according to the CH&LA. Even though the bill allows employers with fewer than 50 employees to make smaller contributions, the majority of small properties don't pay for health care, which means the legislature would hit these properties hard in their wallets, said Jim Abrams, president and c.e.o. of the CH&LA.

"This could have a large negative impact on the hospitality industry in California," he said. "The majority of hotels in the state are small and right now, don't provide health care for their employees, so from the get go, this bill would be a big change and a big problem for them. Even for those hotels that do provide health care, most have a structure where employees kick in more than 20 percent, so this will be a burden on those properties as well."

Proposition 72 imposes an annual health-care tax of $6,803 per employee for those employers with 200 or more employees and $2,482 per employee for smaller employers, according to the Los Angeles County Economic Development Corp.

It also would force companies consisting of more than 200 employees to provide health care for employees' dependents and domestic partners as well.

Under the measure, companies of any size that do not wish to participate in the mandatory program will be allowed to decline, but will then be taxed the equivalent of 80 percent of what it would cost to provide the health care.

"Our industry is one that faces a lot of turnover, and many small hotel properties find it too difficult to offer health care," Abrams said. "Requiring them to do so could be detrimental to their businesses."

The impact of the new law has reverberated throughout the industry. The Asian American Hotel Owners Assn. has received phone calls from several members in California who are concerned.

"Our members are concerned because even though this bill is set up to tax large employers at a higher rate, they could be brought into that bracket since they have two or more hotels," said Stephen Parker, v.p., fair franchising and government affairs for AAHOA.

He said the association's board is meeting to discuss the best course of action to educate members and deal with the law.

For properties like the Marriott Anaheim Suites in Garden Grove, Calif., which already provides comprehensive health- care coverage for employees through its corporate benefits package, the new law will not shake their business, said Pat Seminario, g.m. of the 371-room property.

"We already offer a good health-benefits package, so it will have a minimal effect on us," Seminario said. "But for those hotels in our area that don't, it could be very harmful."

Such is the case for Bill O'Connell, who owns four Best Western hotels in California comprising approximately 700 guestrooms and about 200 employees.

"This law would be utterly devastating," he said. "Tourism has suffered since the events of 9/11, and is just coming back. This would be another blow that sets us back."

While O'Connell does offer health coverage for his employees, he only pays 50 percent of the cost. Employees kick in the other 50 percent.

"It'll be very difficult to absorb the cost associated with the program," he said. "It will really be a job killer. We'll have to look at other ways to cut costs, and that will likely mean some jobs."

hmm@advanstar.com