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Small Business Strategy: Health Insurance Helps Boost Bottom Lines

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Most mornings, Michigan small business owner Mark Hodesh meets a group of friends for a cup of Joe at the local coffee shop to shoot the breeze. The conversations are casual and friendly, but as is often the case, talk invariably turns to politics and more than a few mornings over the past year or so have been spent wrangling over the vicissitudes of healthcare reform.

Mark is one of the few members of a group who supports the Affordable Care Act, a stance he explains in a bottom-line oriented way only a small business owner could. Mark provides health insurance to his employees because it makes good business sense, not because he feels like he has a responsibility to do so or because it makes him feel warm and fuzzy inside. He does it because it hones his competitive edge. Offering coverage helps him hire and retain good employees and that, in turn, helps boost his profits.

Many small business owners offer their employees health insurance for the same pragmatic reasons Mark Hodesh does, and support the new healthcare law because it will lower their costs and allow them to keep more of their profits--especially when the law is fully implemented in 2014 and health insurance marketplaces are available for small businesses to buy lower-cost, higher-quality plans. These examples contradict a recent study by McKinsey & Co., which claims there will be a 30 percent drop in employer-sponsored health insurance because of the new law.

When Mark Hodesh -- who this year received a $10,000 tax credit thanks to the new law that allowed him to hire a new employee -- can purchase health insurance for his employees at an even lower cost, you better believe he's not going drop the coverage he sees as making his business more competitive.

McKinsey's report contradicts credible independent analyses, not to mention the real-life experiences in Massachusetts. Healthcare reform in the Bay State is the closest thing to the federal law in effect, and despite similar speculation before its enactment, employer-sponsored health insurance didn't drop once the law was implemented. It rose. Massachusetts's law is weaker than the ACA, yet employer-sponsored insurance grew by 100,000 people, according to MIT economist Jonathan Gruber. Nationwide, the impact should be even greater because the ACA offers employers much stronger incentives to provide insurance, such as tax credits.

What's more, the McKinsey report is an outlier at odds with studies by well-respected groups including RAND Corporation, Urban Institute and the Congressional Budget Office, which found the ACA's effect to range from an insignificant loss in coverage to a major increase--nothing like the 30 percent drop McKinsey predicts.

Recent media reports have shined a light on the controversial study. Time reporter Kate Pickert asked McKinsey to reveal its methodology and other details about the survey -- basic questions that should be asked of any credible poll -- and firm representatives refused. A Talking Points Memo report quoted sources close to the poll who claimed McKinsey wasn't releasing the data because "it would be damaging to them" and that the poll wasn't conducted using McKinsey's "typical, meticulous methodology."

But, contradictory studies and undisclosed methodology aside, the study ignores the current reality: employers have been dropping insurance left and right under the status quo. In 2000, 69 percent of small businesses offered benefits; in 2008, only 63 percent did--a trend sure to accelerate without reform.

The nattering nabobs of negativism will latch onto anything -- no matter how questionable -- they think bolsters their case against healthcare reform, but the fact remains that the status quo was not working for small businesses. History and the majority of research show the Affordable Care Act will. And that means Mark Hodesh's employees don't have to worry about losing their insurance and Mark will be able to keep his competitive advantage, and perhaps score a point or two during his morning political debates.