Healthcare Reform: Is it worth it for small business?

Sometime this weekend, I lost track, our House of Representatives, approved a landmark health care reform bill Saturday night by a 220-215 vote.

Many provisions in this bill are landmark. The one we’re talking about today is the provision that mandates all employees, with any and every business, receive health insurance benefits.

• What does that add to the costs of doing business?
• Are these costs, investments in a company’s number one asset: their employees, worth it?

Let’s look.

According to the Bureau of Labor Statistics, employee healthcare benefits comprised 10.9% of employee compensation costs per hour. This percentage is compiled as an aggregated percentage from all employers, regardless if they offer healthcare benefits or not.

The bill passed this weekend would mandate employers either provide coverage or pay a tax of 8% of these same employee compensation costs.

Maybe, my math is off. But 8% of employee labor costs sounds less expensive than 10.9% of labor costs.

Now, those companies who do not offer health insurance benefits will now face an increase in employee compensation costs. They will be required to either offer healthcare benefits themselves (for on average a 10.9% increase in employee compensation costs) or pay 8% of their employee compensation costs to a government run pool to provide insurance.

What percentage of a company’s revenues is comprised of the combined wages and benefits paid to their employees? It depends on the industry, according to BizStats. Let’s benchmark employee compensation costs (wages and benefits) at 20% of a company’ revenues.

Healthcare benefits increase total employee compensation costs (wages and benefits) by 10.9%.

So, what percentage of total revenues would these possible mandated benefits equal?

Let’s look:

Mandated costs: 8% (mandated health insurance pool contribution) of employee compensation costs

Employee compensation costs as percentage of revenues: 20% (average employee compensation costs as percentage of total revenues)

Mandated healthcare costs as percentage of revenues: = 1.6% of total revenues.( .08 x .20 = .016)

For 1.6% of total revenues for those employers who now do not provide healthcare benefits for their employees, we will receive:

Job-lock elimination. Job-lock is that phenomena where talented employees remain at large companies, underutilitized and unmotivated, because healthcare benefits are not available at small businesses.

Now small business can compete on a more level playing-field against large companies for the number one asset it needs to grow: human asset.

50% of personal bankruptcies eliminated. Over 50% of personal bankruptcies are attributable to catastrophic healthcare costs. The majority of these costs arise from the lack of health insurance. By providing health insurance to all employees we eliminate the source of 50% or more of personal bankruptcies and the costs passed on to business and their customers.

Lower health insurance premiums. As much as 10% of our current health insurance premiums are due to the healthcare costs incurred from those not insured.

Lower healthcare costs. Costs for standard hospital treatments for the uninsured are often as much as three times higher as compared to the cost of the same treatments for those with health insurance. Why? Because the uninsured have a three times greater rate of non-payment. It is reasonable to assume, though I doubt it will ever be discussed in polite company, that the standard costs for hospital treatments even for those with insurance reflect the debt incurred by the hospital from non-payment.

Greater productivity. Fewer days lost from employee illness. Now, with health insurance they can receive the care they need, when they need it and before it blossoms into a major healthcare crisis.

Imagine their greater focus when they’re not worrying about their child’s healthcare needs because those healthcare needs are affordable?

Added revenues. Remember those personal bankruptcy costs? You know those are the costs passed on to your business from the debts to you left unpaid in your customers’ personal bankruptcy. 50% of those costs would disappear. That would be reflected on your P&L statements as either increased revenues and cash-flows.

Employees. Remember that cool startup or small business? That’s the one you met with 5-6 times. They had a great culture. You believe in their purpose. They have so few meetings you could accomplish more and have more time for your family. Well, now they would have the healthcare benefits you can afford. Maybe, there would be some out-of-pocket expense for you. But the return on that would be a meaningful career again, a company where you love the people, and more time for your family. Think you’ll be more productive? Yeah, so do I.

Granted, there are nuances. Some are favorable, some are not. If a company's total employee compensation expense is lower than 20% of total revenue then the costs from mandated health insurance will be less than 1.6%.

Granted, the benefits of some of these health insurance plans may not equal the benefits of the gold-plated plans of years past. But, those benefits are not affordable to the majority of those who can enjoy private or employee-sponsored health insurance. And for those previously without health insurance, any health insurance is a step in the right direction.

But the biggest benefit I can see is that first one: elimination of job-lock. Health insurance not tied to your employer frees each of us to pursue the opportunities where we can contribute the most. And it frees smaller companies to compete for the talent they need to grow their business.

That is critical. Why? Small business is the driver for job creation. We have a jobless recovery right now. Job-lock plays a large role in the inability of small business to create the jobs we need to grow our economy out of this recession. Eliminate it (and make credit available to small business) and we have a job-generating small business segment, again.

So, for 1.6% of total revenues...on average for small business I see positive ROI from a variety of sources. Here's a few more.

And for no increase or even a savings for businesses now able to offer health insurance, I see I see mandated health insurance as a cost-saver.

That's a pretty good days work for Congress.

Granted, it is not a perfect bill. The NFIB or National Federation of Independent Business, has some very good points about how to improve this bill. But, we didn't create our healthcare system in a day or even in 10 months. And like any journey out of swamp, it begins with the first step and the same amount of time is required to get out.