Health Insurance Could Be a Small Business Killer

This is why it's so frustrating to see Wal-Mart hailed as some kind of new paragon of responsible capitalism, just because it endorsed mandatory employer-based health insurance.

Professor Scott A. Shane writes on the NYT's Economix blog , employer-based health insurance does unfairly burden smaller businesses, while contributing to the ongoing decline of entrepreneurship in this country:

...Small businesses also pay more for health insurance than large companies. According to the Commonwealth Fund, small businesses now pay 18 percent more than large businesses pay to obtain comparable insurance.

A third effect of the tremendous rise in health insurance costs over the last decade has been to impose a huge financial burden on new companies. The cost for the average new company to provide its employees with family health insurance at the average cost for firms of its size (as reported by the Kaiser Family Foundation) is now $68,611 a year, more than double what it was 10 years ago. Granted, some of those costs aren't paid by the employers, and some employees have individual coverage, making the actual numbers paid by employers lower, but it's still a huge figure in comparison to new-firm revenue. According to the Kauffman Firm Survey, the average three-year old surviving firm generates only $152,000 in revenue annually.

Finally, because leaving a job to start a business causes one to give up employer health insurance, the employer-based health insurance system in this country is keeping some people from becoming entrepreneurs. A recent working paper by Rob Fairlie of University of California Santa Cruz estimates that workers with employer-provided health insurance have 2.5 to 3.9 percent lower odds of becoming self-employed than those without health insurance, suggesting that health insurance affects the start-up decision.

When politicians talk about small businesses and startups being the key to our economic future, are they being serious, or is it all rhetoric that sounds good? Because when you're basing health policy on what's good for Wal-Mart, which can buy healthcare cheaply, you're making a very big decision about employment economics in a manner that favors big, stable business, to the detriment of small ones.