How the Health Care Debate Impacts Small Business

If you are a small business owner, or an entrepreneur seeking to start a business, you will be impacted by the current plans for health care reform.  There are no easy answers, and business owners will be required to shoulder a certain amount of responsibility.  The key questions are how much responsibility with small businesses be required to shoulder, and what are the long term impacts of this change.

There are two different points of view regarding health care reform and small businesses.  On one side are those who believe health care costs are skyrocketing out of control, and something must be done immediately to stabilize them.  On the other are those who are very concerned about current plans to require small businesses to provide employees with health care or face a payroll tax up to 8%.  Both have their benefits and challenges -- let's examine both.

Rhonda Abrams recently wrote in USA today that market forces have not worked, and without a public insurance option, small companies will not be able to afford health insurance within five years.  She believes it would be much better if small businesses had predictable health care costs on their books through a public health insurance option, rather than growing costs that the Small Business Majority predicts will double by 2018.  Ms. Abrams says:

Small businesses need reliable, predictable health care costs that are competitive with big corporations and foreign competitors. A public health insurance option — whether at 8% of payroll or $750 a year per employee — gives us that. If you want, and can afford, to purchase private insurance or supplemental insurance (which, like with Medicare, I'm sure will develop), you should be able to do so.

Another key component of Rhonda Abrams argument is high health insurance costs causes small businesses to not make health care a priority.  In some cases the co-pay and deductibles are so high that employees hesitate before going to to doctor, while in others small businesses decide health insurance will not be available to anyone through the company.  Ms. Abrams also feels current health care policies contribute to age discrimination, since older workers will require a higher health care cost burden than younger ones.

On the other side is the stark reality of the current economic recession.  The health care reform bill currently in the House of Representatives would require small businesses with annual payrolls above $500,000 to offer health insurance to all employees or face an 8% payroll tax.  The idea of a new tax in this business environment is not sitting well with many small business owners, as noted in Business Week:

Even so, talk of a payroll tax increase amid a brutal recession seems ill-conceived to David Prescott, chief executive of Talon LPE, a 130-person environmental and engineering consulting firm in Amarillo, Tex., that offers health coverage to full-time employees. "I agree that health care is broken and something needs to be done, but you can't put the entire debt load on business right now," says Prescott, who voted for GOP candidate John McCain last year.

Even some Obama supporters are disappointed by the direction of the health-care debate so far. Ava Seavey runs a five-person advertising firm called Avalanche Creative Services in New York City. A passionate Obama backer during the campaign and an advocate for reform, she now fears the health-care overhaul treats smaller companies as if they had the resources of bigger ones. Instead of tax increases and mandates, she "expected some help to move the onus of health-insurance costs off of small business."

Regardless of political persuasion, business owners are having a hard time accepting that the best answer is one which involves taxing small businesses.  The Obama Administration argues that proposed tax credits would offset the health care cost burden, and small businesses would be able to buy affordable health insurance policies through a proposed insurance exchange.  However in this economic climate, any ideas which require additional taxes on small companies is going to be a tough sell.

As I said at the outset of this post, there are no easy answers to the health care debate for small businesses.  I can understand Ms. Abrams position that in the long run, health care costs are going to increase for small businesses disproportionately relative to larger companies.  I also know entrepreneurs in a difficult financial situation will often decide to make the sacrifice of limited (or no) insurance for themselves and their employees, just to keep the business afloat.

On the flip side, I can empathize with small business owners who are looking at the immediate future, and are not sure if their business will survive the rough seas of the current recession.  The idea of having a clear picture of long-term health care costs is wonderful in principle, but not very realistic when an owner is unsure if he or she will be in business during the next quarter.

I think we would all agree something needs to change regarding health care in the United States, since the current system is broken.  While I certainly do not have all the answers, I'm not entirely sure a small business health care mandate and an 8% payroll tax are the right answers.