Small Business Health Insurance Problem
by Steve Rhodes
Through the debate on reforming health insurance for small businesses, an important piece of information was missing: Policymakers had little data on why only some young companies offer their employees health insurance. Common sense and much research indicate that cost plays a big role in business owners’ health insurance decisions. Why do some entrepreneurs choose to incur this cost while others do not?
Back in March, Congress passed the Affordable Care Act, which in 2014 will require all Americans to have health insurance or pay a penalty. Although many people would now like to put discussion of employer health insurance behind them, the question of why only some founders of small businesses offer insurance remains an important one. Its answer will influence how much of a role government will play in providing employee health insurance for years to come.
One part of the new law is a set of tax credits and penalties designed to encourage employers to provide insurance.The problem is that for most young small businesses, it won’t work.That’s the conclusion I reached, based on research I conducted with Alicia Robb of the Ewing Marion Kauffman Foundation.We examined the decisions of founders of young companies on whether or not to offer health insurance, using information from the Kauffman Firm Survey, which tracks a cohort of nearly 5,000 new businesses started in 2004.
The data show that very few new businesses offer employee health insurance. Nearly two-thirds of companies with employees did not offer employee health insurance at any time during their first five years of operation. Moreover, only one in five offered insurance to their workers in all of the years.
insurance: no performance benefits
The few young small businesses that offered health insurance differed dramatically from those that didn’t: They tended to be larger and higher-paying, structured as partnerships and corporations, and they offered their employees a wide variety of benefits. Most young businesses don’t fit this profile. The majority are sole proprietorships with few, modestly paid employees. Only a handful of young companies grow dramatically. A minority shift from sole proprietorships to other legal structures. Few ever add a lot of benefits. This means that only a small portion of young small businesses are health-insurance-providing types. Most are not.
One argument that’s often made to justify giving employees health insurance is that doing so helps companies perform better. Those that offer employee health insurance, the argument goes, get better and harder-working employees. We examined whether the provision of employee health insurance provides any performance benefits to young companies. We found that it does not.
Controlling for a variety of other firm and founder characteristics, we saw no significant effect from providing employee health insurance on firm survival, growth in assets, growth in sales, growth in profits, or growth in employment during the first five years of operation. Stated differently, offering employee health insurance doesn’t appear to do anything to improve the performances of young companies, despite what some observers argue. We shouldn’t claim that the new law will benefit small business owners by making their companies more successful.
low-paying, sole proprietorships
The data offer three key takeaways for policymakers. First, only a minority of new businesses offer health insurance to employees, even by age five. Fewer still move from not offering insurance to providing it. When thinking about how to manage small business health insurance, policymakers need to keep in mind that offering insurance isn’t something that young companies naturally evolve to do as they mature. Consequently, most of the employees at new businesses that don’t offer health insurance will need to be covered by government programs and state exchanges.
Second, new companies that don’t offer insurance tend to be smaller, lower-paying, sole proprietorships with a large share of part-time workers. These offer employees limited benefits. Policy makers need to recognize that offering employee health insurance is something that fits certain kinds of new companies and not others. Small business owners who don’t offer employee health insurance aren’t being heartless. They are responding to the economics of the industries they are in and the business models they are pursuing.
Third, offering employee health insurance doesn’t improve the financial performance of new companies. Policymakers need to understand that despite the many reasons why they want the founders of all businesses to offer health insurance to employees, requiring that entrepreneurs provide such insurance won’t benefit many of the business owners.
Hundreds of thousands of new businesses with employees are founded in the U.S. every year. Few of these companies are large enough, pay enough, or are structured in a way that would lead them to offer employee health insurance. Moreover, few will turn into businesses that provide health care coverage to their workers. As a consequence, most of the several million workers hired by young businesses annually will be getting their insurance from government programs and state exchanges for years to come.
Tom Megalis, a live on the edge freelance performer/animator guy, just purchased new health insurance after a four month lapse in coverage.
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This is all so true! I’m getting f***ed by Kaiser on a monthly basis, I feel? your pain!
I lost my health insurance when my work hours were reduced two years ago. I begged and pleaded for them not to do that, because I needed the insurance.
It’s been hell on earth living without health insurance. Knowing that going to the doctor without health insurance would bring financial ruin and bankruptcy. Imagine being in horrible physical pain and not having health insurance…. imagine what that would be like. 
Awesome!
don’t mind these guys. every idiot is entitled to an opinion our days.
Thanks for watching and commenting.
Dane Cook, Damon Wayans,Chris Rock, and George Lopez are funny. You sir make me want to play Russian Roulette by myself, but keep trying.
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haw haw haw
Hahaha! super funny!!!!great job!! lol
Back here in Greece, freelancer or not you have to get health insurance no matter if you like it or not! You have to even if you cant afford one!!! lol, yup it is THAT crazy!!!! (cause they need to collect money and pay the health insurance of people that have health insurance and never pay for it!!! craaazy crazy world
well ok, Greek crazy world.
lol
I am an accomplished trial attorney. I AM UNABLE TO GET MY OWN HEALTH INSURANCE. Period. End of Story. I am not disabled. I had to spend a fortune on medical bills. I had to close my lucrative law practice. I want to reopen my law practice in Coeur d Alene, Idaho or Spokane, Washington. I AM WILLING TO MARRY A GREAT LADY TO GET HEALTH INSURANCE. Richard
It is kind of amazing some people think health costs are like buying a car or any other commercial proposition (eg: all the insurance co-sponsored posts on Youtube, by varying “people”). You can plan to buy a car or a house: it’s your own responsibility and your money allocation–but you can’t plan a medical affliction. Not the same. I simply note one anti-health plan person on Ytube had her two fave videos as a) a revolver shooting into a tank, and b) a clip of Milton F’man on “Greed”. True!!
thank you…..i wll keep up the junk
you could totally be a comedian. seriously lol its hilarious keep the videos coming
thanks man………and gooooooooooooooooood luck!!!
haha
let me know
Funny Funny Funny! I am hunting for self-employed medical insurance … again. To see if I can find something cheaper than Kaiser’s $375 for me and my spouse. When I came across your post. You nailed it! All the f’n crazy hoops that you have to jump through. Ahh I can’t wait to see what I have to go through this time.
I just wear Alex Chiu’s immortality rings and H have no health problems what so ever. No health insurance needed.
well good luck man–the insurance game is a strange—–
thanks for the great comment!!!!
Tom, great video, you’ve got talent & you’re quite a character. I’m about to change employers and will soon have a lapse in coverage. It looks like I will have to just insure my wife and kid. As for me, it’s just 3 months, right? So, I figured it’s cheaper for me to cross my fingers and my toes…maybe my eyes as well
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hey thanks man
appreciate the pointers
you sound like a pro in the business—
thanks for watching…!!!
Peace
Dude…very funny. Just hope you actually didn’t buy your health insurance that way. Association plans (sometimes) aren’t the best way to go and health insurance rarely involves any kind of physical. Check out that plan and make sure it covers everything…outpatient, hospitalization, physicians, etc.. and make darn sure it doesn’t put limits on anything except maybe at a minimum $1,000,000 lifetime. If it pays ‘X’ amount per visit or hospitalization then you bought poo poo. Funny though…
Margie—wow, thanks so much for the nice note—
I nailed it? Sweeeeeeeeeeeet.
So glad to be part of your team!!
be well—and if you aren’t at least YOU HAVE COVERAGE!!!
peace
Oh my God! Tom! I am an insurance agent and I was laughing so hard that I have shared your video with new agents that I train. I love it, love it and I want to share this with the world! You nail every single aspect of what it is like to obtain health insurance. Lunked the urine test???Wow, Peace and thanks, Margie Mack
One payer system is the only way to go.
Private health insurance is a private tyranny that only exists in United States. It’s a rather barbaric system that tells you you’re health is only worth what you can afford.
People in United States should get behind, and support, HR 676. If you don’t know what it is learn about it! GM & Ford are going bankrupt because of the rising cost of health care. If United States had single-payer system, the companies wouldn’t have to worry about it.