Health Care's True Cost to Small Business

Consistent with their mission and values, most socially conscious businesses try to treat their employees well. For me, this means offering health care to all full-time employees. We all know that the health care system needs reforming, but I was shocked to learn this year that our health care premiums went up almost 40%. Why? The addition of one healthy employee in her forties to a pool of employees under the age of thirty, combined with health care cost inflation.

It should be clear that this rise in cost to the company is an unsustainable trend, but its consequences are equally strong arguments for reform that often escape the notice of political pundits:

1. If insuring older workers is so much more expensive, why would any small business hire them over younger workers? The status quo encourages discrimination in the hiring process. In the specific, this can ruin an older individual's chance of finding work -- and these people are more likely to have families to provide for. In the general, it encourages market inefficiencies, because the most qualified person might not be selected.

2. It advantages the largest businesses over small businesses, because large companies spread risk across a much greater number of employees. They also have the overall cash flow to absorb rises in health care costs. Not only can the larger competitor then achieve more favorable margins than a small business (and, perhaps, undercut its prices), but it can attract more qualified workers by offering better benefits.

3. It advantages small companies that do not offer health insurance over small companies that do. As my health care costs rise, those competitors' constraints remain the same; their margins become even more favorable relative to mine. The competition's competitive advantage is strengthened over time.

4. These huge, unanticipated rises in costs throw off any financial forecasting a small business does, leaving it subject to the whim of some insurance company's (proprietary) algorithm. Accurate forecasts have always been important for managing a small business -- for doing inventory, budgeting, and dealing with investors -- but they're even more necessary in this economic environment.

5. It pits employer against employee, and reduces the income of both. Even if a given business tries to absorb as much of the cost as possible, it likely will have to pass on some percentage to employees -- and this amounts to a cut in wages.

Reversing these perverse incentives in the system -- a system which prevents small businesses, the backbone of our economy, from growing, providing jobs with health care, and creating wealth -- is integral to any economic recovery. In many ways, with an employment-based health
care system, the two issues are one and the same.

 

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Comments

[Matt McKelvey]

I would encourage small business owners to look into two solutions:
- high deductible health plans with aggregate stop loss insurance

-medical travel plans

+ many brokers will encourage employers to elect a 1,000 deductible. employers should be encouraged to elect 5,000+ deductible and cap their liability by partially self-funding it with aggregate wrap stop loss insurance. They can save 50-60% on their rates and partially self fund at a level that will not exceed their otherwise fully insured renewal premium. This provides a no lose situation and they can keep the savings if claims run well but pay no more than before if claims run badly. the brokers won't tell you about this b/c a.) they don't know aggregate wrap insurance exists or b.) they are happier selling the lower deductible because it means more premium which translates into more commission.

+ medical tourism or medical travel came to fruition when media spotlighted individuals going abroad to Costa Rica for cosmetic surgery. why not apply the same idea and take the same reduction in costs to elective group surgical procedures? U.S. Health Options is a domestic competition based group medical travel plan option and AMF IHP is an international version for self-funded employers.

Thanks again for reading between the lines and sharing your thoughts with us.

[WorkingClass]

Why are so many small business owners Republicans? I worked the last eight years for a family owned printing company, about 50 employees. A couple of years ago the owner called us together and said "I just cant do this any more". He was talking about paying for our health insurance. Last March he laid me off. Last June he boarded up the shop and sent the remaining employees home. He remains a Republican, opposed to "socialist" health care reform.

[ncmom54]

It's because most small employers belong to our local Chamber of Commerce. that's where the information stream from the US Chamber of Commerce flows into Main Street. I didn't realize this until recently ... but called & cancelled my 20 year chamber membership­.. nothing from me will go toward sustaining & promoting the US Chamber. They do NOT speak for Main Street... gotta hand it to them (GOP), they can run the country in the ground & still make people feel like they're on their side.

the Democratic Party has done a lousy job of countering the mis-inform­ation... or even getting a clear message out there.

[polwonk]

The Republicans keep carping about how health care reform, particularly the public option, will be harmful to small business. This made no sense to me, so I spoke to several small business owners in regards to the subject. To the last person, they all told me that health insurance as it is, is stifling their business and leaves them with the options of either not covering their employees, laying people off, or freezing hiring, all of which makes them less competitive. Seems like a no brainer to me.

[WorkingClass]

Go back and ask if they vote Republican.

[mld678]

Government run health care – the so-called “public option” - presents serious challenges for us. The private sector and competitive market forces are the best means to meeting health care needs. Watch this video from the U.S. Chamber http://www.friendsoftheuschamber.com/media/

[oldpol2]

Because it is working so well now. You can lead a thinking man to the corporate kool-aid but we don't have to drink!

[Andreams]

Good article and it echoes everything I've been saying and emailing about to congress for months. It never even gets in one ear to pass out the other.

I'm one of those older people who cause insurance rates to skyrocket on small businesses and it's not fair, either to me or my employer. With a national exchange we could all get insurance with reasonable rates due to the large pool. Without it, the only group to benefit will be the insurance companies.

I'm all for reform and have backed it until I saw the finance committee bill. I just can't support anything that doesn't cap rates, declares a mandate to purchase, and then refuses to allow Medicare for all or a public option. That's not fair to taxpayers and is a complete waste of money. Those of us who are older but under 65 could be charged higher premiums for Medicare, which would help increase the revenue.

[kbuffler42]

Finally someone who gets it. This is an issue we have struggled with for 25 years! Now we wait for our renewal quote, knowing we will see an increase of 25% & 40% again. What are our "options"? In 2008 revenue was down 23% . In the first quarter of '09 we dropped like a rock and debated giving up after 25 years. We cut wages, expenses; everything we could to stay open except healthcare. Our people have families and life is stressful enough without the fear that goes with being uninsured or under insured. Our efforts, some improvement in the economy in our sector and we are still "alive" and cautiously optomistic. Our renewal quote for health insurance, due any day, will have an increase somewhere between 20% and 40%. Again, we will see if we can control the cost: increase copays, cut benefits. We have avoided increasing cost to personell because, as you say, it amounts to lost wages for them and wage cuts made earlier have been hard enough. We wonder if now is the time to simply eliminate health care, roll what we have been spending into wages and help our staff purchase "private" insurance. We were hoping to get to the point where hiring would be an option, but as a company without a benefit plan we will be at a disadvantage for sure, even in this high unemloyment market. Some days it seems like time to say enough except we can't afford to.

[droftim]

So...what if everyone who was not in a large-company plan -- young, old, employeed, self-employed -- was in a single plan? What if the Medicare contribution was raised on everyone and were combined with mandatory employer contributions plus whatever the government is already spending on health care. In other words, what if we got rid of Medicaid, Medicare, SCHIP, and so on and set up a large, non-profit "sickness fund" like they do in Germany -- single-payer with private providers?

[kbuffler42]

What if we all had the coverage our representatives have, the ones who "work for us"; at the same cost to us as individuals they "absorb". Why don't we simply rise up and scream like he** about the ridiculous double standard that enriches our representatives and insurance companies, gives big business a clear advantage over small business, and leaves so many people un insured or under insured.

[alibeamish]

If we had one payer then everyone would have no worries on this and they could get back to working. Many people could start a business but cannot because of this. It is inefficient.
Workers are tied to jobs if they are 'lucky'
The gov't seems to have no interest in employment or well being of citizens, or smallbusiness, only some abstract 'economy' that we have little to do with.
Congress are shills for corporations.

[ncmom54]

Very well said!

excerpted from:
http://www.pnhp.org/news/2009/august/former_jasper_county.php

Former Jasper County Republican Chairman on Single Payer

"I am a Republican, former chairman of the Republican Party in Jasper County, Ga., and chair of that county commission.

Universal Medicare will both control costs and achieve universal access to high quality care. Congressmen would get the same insurance as you and I. You better believe your coverage would be just as good as or better than what you are getting now.
The problem is not technical; it is political.
It is high time we put the country ahead of ourselves and establish a single-payer system."