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.

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Comments

[kbennett]

But this isn't about health care. Its about lowering the cost of what we currently offer so that everyone can afford it. Having health care is not a right, and by forcing employers to provide health care or pay a tax penalty is wrong. Everyone should have the choice to what health care they want, and we all know the government plan will run all the other providers out of business since they wont be able to compete on price. We need to build a strategy that lowers the costs of the health care we already have and give employers the option to provide it or not.

[dadw5boys]

But Business then would be not be allowed to know anything about the employees health or have a say in care or even FIRE SICK EMPLOYEES who miss a few days of work !!!!!!!!!

[shamanbart]

We must escape the employer-based health insurance coverage model ASAP. It locks employees into jobs and creates undo burden for small employers and the self employed.

The solution to this is only a public health insurance option, since private health insurance has proven too costly and unpredictable to manage or pay for.

All employers, large, small and self-employed, should instead be assessed a flat rate per employee, which would be considerably less than existing insurance payments. Tax breaks could be given for smaller businesses and self-employed.

Individuals would pay a flat fee for gov't insurance, tax breaks or lower fees for low-income or unemployed.

I bet if you added up a $ 6000 per employee per year business tax about ($ 800 billion) and a $ 100/month per person ($ 348 billion), it would pay for all persons under 65. Medicare picks up the rest.

Private insurance out of the healthcare industry now!

[Ben6768]

Good post Bart. This system is tying chains around the future of the U.S. There would be a surge of creativity in the country if people did not have to stay in a job where their skills are under - used, just to retain health care or retirement benefits.
In so many other countries you can move from job to job, and the years keep adding up and when the moment comes you have a state - guaranteed retirement. You also never lose your healthcare because it is government - run and guaranteed.
Time to create the conditions for the creativity and talent of the U.S. population to be put to the best use.
Cheers !

[Sundialsvc4]

Would you be able to drive to work in your $30,000 automobile knowing that at any moment you might have to pay the full and unrestricted cost of replacing your car as well as of repairing any other car (or person) that you accidentally hit?

No. You couldn't. And it is for that reason that many states require you to carry automotive liability insurance. The bane, nevertheless, consists of the many millions who are still driving around without any.

Exactly the same line of reasoning applies to health care. The only way to make it work is to guarantee that everyone can get care, and knows that they can get it. "Go fix your car. You can afford it."

We know that people every day cars will bump into other cars. We know that people cannot single-handedly afford to pay the financial consequences when (not if...) they do. But we know that it is fundamentally important that they "drive." Exactly the same reasoning applies (but "eversomuchmoreso") to being healthy. We need to block the transmission of contagious diseases, not to fan their flames and then boast of what we "saved."

If you did not save a person's life when you could have ... then you have not "saved" anything at all. And, what is it exactly that you "can't afford?" What you can't afford is: "this."

[scottshane]

Tim,

Thanks for engaging with me in a debate on small business and health care. It may be the most important public policy issue we are facing today.

I have responded to your post with an update to mine. You and your readers might want to take a look at it:

http://boss.blogs.nytimes.com/2009/07/29/first-do-no-harm-to-small-business/

- Scott Shane

[Tim Berry - Huffpost Blogger]

And we do agree, Scott, that health care costs should be cheaper. That's a much better framing of the problem.

[ImmanuelGoldstein]

The whole concept of employer based health care should be scrapped. It was an artifact of an attempt to get around a loophole in a price control schema decades ago. It kind of made sense when people worked for the same company for 30 years, which isn't the situation today.
Lets just go with the rest of the civilized world and have a national health care system. Protecting the insurance companies rice bowl should not be a priority.

[Binckeslaw]

Your comment is awaiting moderation.

I’m self employed. I pay $1,100 per month for a basic HMO that is one step above a hospitalization plan and one step below a PPO. I can’t take the cost of the insurance as a business expense the way that corporations and bigger businesses can. I can’t buy insurance as part of a group..so I pay top dollar rates for a modest plan. American workers who want to work for themselves are trapped in their jobs because they can’t afford the insurance to cover themselves if they do. Small one man shops like mine can’t afford to hire people because the cost of health insurance prevents us from doing it. I don’t care where the relief comes from…whether its single payer, government option, equitable tax treatment, something else. I’m tired of a bunch of pundits, ideologues, and public relations professionals screaming about policy when they haven’t walked in the shoes of the self employed. I need to write off my health care insurance as a busniess expense so that I don't have to pay the 15% self employment tax on the money that I use to pay my healthcare premiums before I can pay the premiums. I need somekind of option that affords me access to group rates. Me and millions of one man self employed businesses like mine are desperate. We will remember our friends come election time.

[PhoebeFay]

A few years ago, I saw companies trying to provide health insurance for employees, and it was costing them far more than 8 percent of payroll. A company with gross revenues of about $1.5 million was paying more than $20,000/month for health insurance. That's 16 percent of gross revenues and an even higher chunk of payroll. Given the general trend in premiums, I'm sure it's higher now. So, if I'm a small business with these kinds of numbers, I might skip the insurance all together and just take the payroll hit.

[americaforme]

Give us a break! If health care was better for small business's how come only 10% have it. Reaching into the bottom of the barrel for reasons,to keep the insurance company's alive and floating, business as usual for stock holders. All this rangeling from lobbyist is so slick. Even comments on Huff. are stictly moderated whats up for that? AMA doesn't labor for us, ADA could careless, we dont hear a peep from the ones who pick up the pieces every day in practice, whats with that? Money, Money, Money will sink this ship, if know one rises up.

[Tim Berry - Huffpost Blogger]

Actually, and it's in the post, according to Scott's statistics, 78% have it.