Many Small Businesses Won't Survive the Health Care Fix

Updated: December 11, 2009

Business seems in a race these days—to the bottom. Everything is measured by price—not quality. More small firms are still lowering prices in many industries instead of raising them, according to NFIB. If quantity sold is rising very slowly, and many prices are declining, it means that total revenue is also declining. Let's look at the supply side of the equation. Health care costs are rising, and most analysts agree that the present proposals on Capitol Hill in Washington will do little to bend the health care cost curve downward. Translate that as meaning that health costs will continue to rise, although possibly at a slower rate. For a small firm owner without revenue growth, that is a recipe for shutdown.

And it is not just rising healthcare costs. But rising taxes—higher income taxes for the most successful business owners. But higher excise taxes, property taxes, sales taxes increasingly on services and internet transactions.

And what about higher insurance costs? If this does not make you wonder how many small companies remain in business, it should.

How can productivity be increased? Increase the usage (utilization) of existing capital. That is fine in manufacturing. However it is not so fine in many service industries. Witness the transportation sector. Train rides are getting more expensive (less federal subsidy, newer capital), and airlines have cut flights about as much as possible to raise prices. Maybe productivity is increasing a bit in the latter. But there are rising costs; consumers are about fed up, and fewer on a percentage basis flew this Thanksgiving than last. Passenger railroads and airlines are not capital poor small firms.

Did unemployment rates over 15 percent in about 20 states have something to do with Thanksgiving tourist flights this year?

It is getting increasingly difficult to out-source services. You cannot outsource an airlines pilot's job. How about FED-EX deliveries? Or a firm

of bicycle messengers in urban areas? Or the corner gas station and fast-food restaurant? And of course, such establishments are among the least likely to offer health insurance let alone produce excessive profits.

While medical tourism has been occurring for wealthier folks, it has many drawbacks. Older workers and consumers needing long rehabilitation periods (knee, spine surgeries) may not want to be in India or Bangladesh to recover, despite generally comparable facilities with the U.S. Many of these anecdotal surgeries illustrate problems with the U.S. health care system: surgeries resulting from degenerative conditions and aging are sometimes not called illnesses. And obtaining the newest medical devices all over the world—instantly—may not be possible.

If a small employer has stagnant revenue from less consumer spending, and cannot outsource many labor-intensive services, what is he or she to do? Since the fastest rising component of benefit costs is healthcare, the owner who may not want to eliminate healthcare insurance tries to switch to a high deductible policy with a large $2500 family deductible. Difficult for many lower wage workers: of course. The trap comes if the deductibles are not affordable, and the family income is above Medicaid limits. Yes, you put the deductibles on credit cards—and hope.

Many new startup firms no longer offer health insurance—at least not right away. The have to survive first. What if the proposed health care bills pass? Firms with fewer than 50 employees are likely to be exempt. Where do the new employees of small firms in the 20 employee range secure health insurance? From an specified public option? Perhaps. From Medicaid? Perhaps. From a cooperative bare bones policy partly paid for by the employer, the employee, and government at some level? More likely.

Featured Research
  • The Role of Self-Service in Modern Contact Centers

    By 2020, 85% of customers' relationships with companies will be managed without any contact with human services representatives. What does that mean for your business? The data shows that companies need to offer effective self-service options in order to remain competitive. However, many contact centers are confused about how their core contact center software fits into self-service. more

  • 7 key questions to ask any ERP provider

    Having a fast-growing business is good. Having to overhaul your technology every time you need to scale is not. Upgrading to a more complete Enterprise Resource Planning (ERP) solution can help, but how do you ensure the solution you choose is exactly what you need? To help you with your search, we’ve pulled together 7 key questions every fast-growing business should ask before choosing a cloud-based ERP solution, including: more

  • How Finance Leadership Pays Off

    Oxford Economics recently surveyed 1,500 finance executives and it’s clear that small and midsize companies are growing significantly faster than larger companies. But, there are also big opportunities for finance to increase efficiency, boost financial performance, and work more strategically. Why is that? more

  • Professional Services Audience – Improve Profitability Infographic

    As a Professional Services Organization (PSO), you know the importance of customer satisfaction. In fact, 47% of PSO leaders say managing changing customer expectations is their top challenge. That’s why many firms are engaging smarter project management technology, even before deals are signed, to ensure project profitability. How are these leaders utilizing technology? Find out now. more

  • 9 Tips for a Compelling Video Presentation

    Face-to-face communication is the most effective way to collaborate and bring ideas to life in your business. Because of this, many businesses invest heavily in travel budgets so they can meet in person to create and nurture business opportunities. However, video technology has become more accessible, affordable, and user-friendly over the years. In fact, the enterprise video business market will reach $36.5 billion by 2018. more