08/29/2009 05:12 am ET | Updated May 25, 2011

Small Business: It's About Health Care, Not Taxes

I just read Scott Shane's First, Do No Harm to Small Business on the New York Times blog. And this is awkward because I like Scott, I've read and recommended his books, read his posts, and like his analysis. He does business numbers very well. But he's off base on this one.

The crux of the problem is this:

Under America's Affordable Health Choices Act introduced in the House of Representatives, "Businesses that do not offer health coverage to their workers would pay an 8 percent payroll tax to help subsidize coverage ..."

Scott takes off from there with numbers. He makes some educated guesses on how many companies are affected, what their payroll is, and what, from that, the tax would cost them. Total cost:

... the average payroll of the 647,000 firms with between 10 and 19 employees is $436,000. ... a White House study released over the weekend said that 22 percent of companies with between 10 and 24 employees don't offer health insurance to their workers. ... that's roughly 142,000 firms sized 10 to 19 that will be charged a penalty, which will average $34,880 per firm. ... the average revenue of firms of this size was $1,768,000 in 2002. So these businesses will pay about 2 percent of their revenue as a penalty under the new law.

So what's wrong with this analysis? A couple of gaping holes:

1. Covering health care costs is good for employers

I feel like I know small business because my wife and I own one, no outside investors, 40 employees. Paying health care is good for employers. It might seem expensive to the short-sighted but having better employees, keeping good employees longer, being able to recruit better, is worth it. Not to mention the better ethics. And the real world reality: as a business owner, you work side by side with somebody for a few years, and then they need health care and you say, what -- sucks to be you? Sorry, you should have thought of that?

2. Companies won't pay the tax, or the penalty; they'll buy the health care

Scott tries to measure how many companies pay the tax or the penalty. But what's going to happen is that companies that don't offer health care to employees will start offering it. And that's not so bad.

So I don't get it, frankly. The underlying assumption -- that this is about taxes and penalties -- is just plain flawed. I think that instead of doing these numbers, we should be looking at what it really means, which is making more businesses, maybe almost all businesses provide health care for employees, So instead of doing just a cost analysis: we should do a cost-benefit analysis. Because, yes, employers providing health care offers a lot of benefits on both sides: for employers too, not just for the employees.