The rising cost of health insurance has been at the top of the worst-problems list for small-business owners for more than a decade.
Every five years, the National Federation of Independent Business has surveyed its 350,000 member firms to identify top problems. On a random list of 75 problems, the cost of health insurance has always ranked among the worst. And, it will probably continue to hold top billing with the new health-care law, regardless of how the Supreme Court rules on its constitutionality.
A firm can afford to pay a worker no more than the value he/she brings to the firm. Otherwise, it will go bankrupt.
That pay has two major components: cash and benefits. If a salesperson can bring $100,000 in net income to the firm, then $100,000 in compensation can be justified. That compensation will include cash income and benefits that the firm provides the employee.
When the state or federal government requires new coverage, the cost of the insurance benefit goes up. The owner cannot just add these costs to compensation without losing money. So, as the benefits? cost rises, cash compensation must fall. Some employees may not want insurance coverage since they are covered by another family member, so they prefer all-cash compensation. That may be harder to get when more of the health law takes effect.
The current debate over whether religious institutions can be compelled to cover contraception costs in their insurance benefit highlights many of the problems we face in our health system.
The government is going to decide the minimum that insurance carriers must provide in their coverage. And, the administration?s spokesman said that the president wanted women to receive this preventive care/contraceptive benefit without having to pay anything to get it.
But the cost of insurance will rise as regulators add more and more benefits like this one to the required package.
About 40 percent of small firms (50 or fewer employees) offer some type of health-care benefit. Many plans will not qualify under the health law?s requirements and will be dropped; others will be upgraded to meet the minimum, raising the cost of the insurance benefit that small-business owners must pay. Opting to offer no insurance still raises worker costs, and small firms will have to pay a ?fine? for each worker not covered if the mandate begins in 2014, as planned.
For me, what we call ?health-care insurance? should be more like car or home insurance. Health plans should cover catastrophic illness, but not preventive care.
When you change the oil in your car, does your car insurance cover that? New tires? A battery? That?s maintenance.
But if you have a serious accident, that is ?catastrophic,? involving potentially large and uncertain costs, and insurance covers that.
Your home insurance does not pay for new paint. But if it burns to the ground, that is covered.
Protection from ?catastrophic? health-care expenses is likely quite inexpensive.
All of us should be responsible for health maintenance, including exercise and weight control as well as periodic visits to the doctor and dentist. This kind of ?accident prevention? lowers health-care cost if undertaken, but we should not force people to drive safely or to get a medical checkup.
For small-business owners, the health law has some perverse incentives. Do not grow beyond 15 workers to get the maximum break on health-care costs if you do offer insurance. And don?t grow above 50 employees or you will have to provide insurance without subsidies or pay a fine.
All of which ensures that health insurance will retain its place atop the worries of small-business owners.
Bill Dunkelberg is a professor of economics at Temple University and a nationally recognized expert on small business. Contact him at dunk@temple.edu . of his columns at www.philly.com/dunkelberg
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