As President Obama made clear at the bipartisan meeting on health insurance reform, and has emphasized all year, small businesses stand to gain substantially from his proposal for comprehensive health insurance reform.
Small businesses are essential to the nation’s economy and its recovery from the recession. They are responsible for a disproportionate share of economy-wide net employment growth, and account for a large majority of jobs in start-ups, a key source of innovation and economic growth.
Nevertheless, both a CEA report released last year and new analysis by the Council of Economic Advisers shows that the status quo of rising costs and declining coverage is unsustainable for small businesses. Over the past decade, average annual family premiums for workers at small firms increased by 123 percent, from $5,700 in 1999 to $12,700 in 2009, while the percentage of small firms offering coverage fell from 65 percent to 59 percent. As shown in the following figure, this insurance offer rate is especially low at small firms with fewer than 10, 25, or 50 employees.
While opponents of reform have raised concerns that some of the provisions in the President’s proposal will harm small businesses and their employees, the facts, figures, and discussion below show that the proposal will mean tax cuts, no new requirements, and numerous other benefits for small firms and their employees:
The President’s proposal makes more than 60 percent of small firms eligible for tax credits to help combat rising costs and declining coverage for their workers.
The President’s proposal exempts virtually all small businesses from any employer responsibility requirements.
Pooling together with other small firms and individuals through a competitive Exchange will reduce costs, increase plan choice, and provide pressure on insurers to reduce their markups.
The President’s proposal will reduce “job lock,” and spur entrepreneurship, job growth, and productivity at small firms.
Health insurance reform will benefit workers, firms, and the government budget in many more ways. For a discussion of these impacts, please read the CEA’s report on the Economic Case for Health Care Reform. Chapter 7 of the Economic Report of the President (pdf) also provides a comprehensive discussion of the challenges in the current health care system and the way that reform components work together to address these problems.
Christina Romer is Chair of the Council of Economic Advisers and Mark Duggan is a Senior Economist at the Council of Economic Advisers who focuses on Health