Commentary | Health

Entrepreneurs complain of prohibitive health care costs

A recent study on the small business sectors in different countries has knocked down the notion that the U.S. economic policy welcomes and fosters entrepreneurs. Rather, the Center for Economic and Policy Research, which conducted the study, found that the United States has one the smallest small business sectors—as a portion of total national employment—in the world.

The study looked at 22 wealthy industrialized nations and found that the United States had the second lowest share of self-employed workers, ahead of only Luxembourg. The United States also ranked close to the bottom in terms of the portion of the work force employed in small business manufacturing: the U.S. share of 11.1% compares with 14.4% in Sweden and 18.1% in the United Kingdom

In other words, despite a long tradition of celebrating self-starters and business owners who create jobs and collectively serve as a powerful economic engine, the United States has a comparatively weak and small business sector.

While the study’s authors theorize that high health costs are to blame for the lack of a more robust small business sector, what’s even more striking is how many would-be entrepreneurs agreed. A New York Times blog earlier this month about the study generated a flurry of responses, which were overwhelmingly in agreement that unfriendly health care policies were choking the small business sector.

“For most entrepreneurs, the biggest cause of hesitation before starting a business is the lack of health insurance,” wrote one former small business owner. “You can plan for the loss of income while you start a business, but you can’t plan for a health problem. This becomes truly frightening when you’re out there by yourself. Entrepreneurs are famous for their ability to imagine they can overcome any obstacle, but it’s hard for any responsible adult— especially one with a family—to justify taking a chance like that.” The commenter stressed that for most small business owners, high health care costs represented a much larger impediment than corporate tax rates.

“It’s absolutely true that health care costs are stifling small business formations,” said another commenter. “I’m a 50-something male with routine health issues. The pre-existing screening of health providers makes me uninsurable, as a practical matter, for anything I’m likely to need coverage. The private pay fees are a multiple of the insurance reimbursement making the whole thing untenable.”

Both the study and the comments it generated support some recent EPI research that health care reform would be good for small business. EPI’s recent Briefing Paper, Health Care Reform: Big Benefits for Small Businesses, noted that only 35% of businesses employing fewer than 10 workers currently offer health insurance, and those that do usually pass on a higher share of the cost to workers than do larger businesses. A key problem, the research paper finds, is that small businesses typically pay more for health insurance because of the way policies are sold. Reform that would create more competition among insurers and reduce their administrative costs would significantly reduce the cost small businesses incur providing health insurance, it finds.

Other research from EPI’s director of health policy research, Elise Gould, challenges the popular argument made by opponents of health care reform, that reform would impose a heavy cost on small businesses. In Small Business and Health Reform, Gould notes that the proposed surcharge on high incomes contained in the House health reform bill would not affect the overwhelming majority of small business owners.

Although the level of self-employment and small business employment in the United States is already low by comparison to peer countries, it appears that even more of these self starters could be forced to abandon their work if health care remains so expensive. “After nearly a decade of self-employment I took a full-time job two years ago,” wrote yet another individual commenting on the study’s findings. “The primary reason was health insurance.”

See related work on Employer coverage | Health

See more work by Andrea Orr