Understanding Small Business

06 July 2010

To effectively communicate and engage with small businesses it is helpful to understand the men and women who start up, own and operate our nation's 27 million diverse small businesses.

Small Business Owner Profile

Business owners are optimists and have a dream. They are risk takers or they would never have launched out on their own. They dream of being successful and creating a great product or service in their business venture. They want to control their future and destiny. They see employees as being family and an integral part of their team.

They want their company to be successful so their employees can succeed also. They want to be able to recruit and retain capable and qualified employees. No business owner wants to lose their skilled, trained and qualified employees. That is expensive and counterproductive for the business.

They are angry and frustrated about the ever increasing health insurance costs. They see themselves just as much as a victim of the healthcare system and insurance companies as do consumers. On top of healthcare inflation they have been hit by globalization, high energy costs, regulations that favor big business and a government that does not seem to understand the problems of small business.

Also, small business owners are concerned about health insurance for themselves and their families. If they don't have a spouse or partner with employer-sponsored health insurance, this creates an impediment to leaving a larger employer to start a business; and it remains a constant worry once they have launched the business. Entrepreneurs who don't have employees and those who can't afford to offer health insurance to their employees must get their health insurance in the less-regulated individual healthcare market, just like ordinary consumers.

Small Biz – 'Main St.' to Hi-Tech Startups

The small business population of companies under 100 employees is, itself, extremely diverse. At one end of the spectrum are higher paid professional companies such as accountants, lawyers, doctors, engineers and architects that are much more driven by competition for employees than they are by benefit costs. Similarly, high tech, biotech and other entrepreneurial "knowledge worker"-based companies are part of a fast moving global economy where recruiting and retaining skilled employees is critical and health benefits are one of many competitive factors. On the other hand, small businesses on "Main Street" compete with low cost national chain retailers, restaurants, grocery and pharmacies. Personnel costs and health insurance inflation are major factors in their survival, and many of them simply cannot afford to purchase health insurance at current prices.

Small Business is the Backbone of the American Economy

26.7 million small businesses
52% of the private sector workforce (vs. 8% union membership)
50%+ of private non-farm GDP
75% of all net new jobs
14 times more patents per employee than big businesses
Central to American global competitiveness
Anchors of our communities

Small Business Fuels the New Economy

With the growth of the Internet and other technological innovations, the increasing inability of large corporations to provide long-term stable employment, and the desire by many more people to pursue their entrepreneurial passions, small business in the 21st century has been radically transformed. The small business sector is now where critical new technologies, products and services are developed, and where more and more people are choosing to work.

The Bottom Line for Small Business

58% of small business employees do not have health insurance.
55% of businesses with under 10 employees cannot afford to offer health insurance.
The health insurance small businesses do buy costs 18% more than big business.
Small businesses pay twice as much in taxes and regulatory costs per capita as big businesses.
Entrepreneurs struggle to obtain the capital necessary to launch and run their ventures. For example, the Small Business Administration (SBA) budget has been cut by almost 50% in the past seven years. In addition, small business has been disproportionately affected by the recent "credit crunch."

--- How Big and Small Business Differ---

Diverse Population and Resources

Despite the costly burden of rapidly increasing healthcare premiums, most businesses – large or small – still believe that providing healthcare benefits is vital to recruiting and retaining employees – i.e. "being a viable employer." An expanding number of companies are part of the "knowledge worker" economy where human capital is the key to business success. For these companies healthcare benefits are an important competitive factor.
Large businesses have many advantages over smaller companies to cope with healthcare inflation:

Self-insurance
Purchasing power
ERISA exemption from state health insurance regulation
Human Resources expertise

Moreover, larger companies operate in multiple states and this impacts their views on how to solve the healthcare crisis.

Smaller companies are often owner-operated and have very minimal financial and management resources to cope with the escalating costs and complexity of healthcare.

Lack of Consensus

For three decades the business community has failed to build an internal consensus for a solution to the growing crisis of the American healthcare system. In general, the larger the business the greater the level of healthcare benefit to employees, the greater the empathy and understanding of the plight of the uninsured and the greater the support for "progressive solutions."

On average, smaller companies provide less support for employee health benefits, are less willing to support the uninsured and have greater resistance to "progressive" solutions.

Consensus Areas

Businesses of all sizes and stripes share some broad based attitudes on healthcare reform:

They generally oppose government mandates or requirements, though there are signs that this may be changing.
They generally oppose new business taxes, though, with rising federal and state budget deficits, this may also be changing.
They generally support incentives for business to provide healthcare benefits.
They generally support government-sponsored healthcare insurance pooling solutions

Conflicting Attitudes

Businesses view providing healthcare as a major problem that needs solving. They may not be fond of government mandates or taxes, but government business assistance is fine. At the same time they realize their employees cannot handle the growing healthcare burdens they are shifting to their employees. Viola! - a perfect gridlock.

Businesses have traditionally opposed government mandates on health benefits and business taxes for health benefits. Many fear government subsidies for the uninsured and working poor will lead to future business taxes. At the same time they support government intervention and programs such as:

Tax incentives
Establishment of insurance pools
Elimination of third party payer system
Regulation and oversight of the insurance industry

Across the board, all businesses understand that healthcare inflation is a big burden for their employees and that their employees cannot afford more cost burdens. Additionally they understand the plight of the uninsured and the negative financial impacts to the overall healthcare system, particularly if they are forced to purchase their own health insurance in the individual market.

Small business is more supportive of a government program to supply healthcare for all if it is based on a general tax, not a business tax.
Despite the rising cost pressures, those businesses that believe health benefits are vital to employee recruitment and retention still balk at the notion of a government run universal healthcare system.

Many small businesses now see healthcare reform via some type of government intervention as a viable option. This is likely connected to the fact that many small businesses have been forced out of the health insurance market or financially hurt by healthcare inflation. Their pain is greater than other businesses that have found ways to cope, and hence these small businesses are more open to fundamental change.

Business Fears that Create Barriers

The literature on the attitudes of businesses towards healthcare reform indicates several common fears shared by business leaders and owners that are barriers to embracing healthcare system change.

Though the information is suggestive and anecdotal, it appears businesses have some common fears. Most businesses are economically suffering from chronic healthcare inflation. They believe that the healthcare system has many problems, is not sustainable and needs to be revamped. But, legions of businesses demanding healthcare reform are not marching on Washington DC. Why?

Part of the explanation is fear. Fear stands in the way of embracing change and solutions. Theses apprehensions become impediments to action. Businesses have many fears when it comes to healthcare and proposed changes to our healthcare system:

Higher taxes
Loss of control of their business
Loss of ability to recruit and retain employees

One of the most widespread fears is higher taxes. Business leaders fear that even if taxes do not increase now, future tax increases will be part of the price of healthcare reform. This apprehension is fueled by an overall distrust of government and is fanned by special interests that oppose changes to the healthcare system.

Business owners fear loss of control. They view new mandates and other regulatory requirements as restricting them and causing further loss of control over the destiny of their business. A common reason to build or buy a business is to "be my own boss", which to business owners means having more control over their work, economic destiny and the business they build.

Businesses also fear losing their competitive advantage in recruiting and retaining employees if their role in providing healthcare changes. This is especially true of businesses that compete in tight labor markets.

Fragmentation of Business Voices

There are many business voices across the national and state political spectrum. Many companies, especially large enterprises, belong to multiple business organizations:

Traditional National Business Organizations – these groups cover all business issues including healthcare and have advocated for business interests at the national and state levels for decades. Small business groups in this category are:
- National Federation of Independent Businesses
- National Small Business Association
- Chambers of Commerce (all sizes of businesses)
Industry Organizations – these groups are more narrow groupings of like companies, and many have healthcare positions. Small businesses also belong to groups like the Farm Bureau, mining and forestry organizations, franchise associations, tourism groups, restaurant associations, etc.
Leadership Policy Organizations – these are select groups of companies that have studied, issued reports and advocated for various public policy changes including healthcare.
"New" Healthcare Reform Organizations – There are some business organizations, such as Small Business for Affordable Healthcare, that have recently focused on the problems of our healthcare system, have developed principles of reform and, in some cases, have advocated for specific reforms. (These groups likely exist due to the frustration of businesses over the healthcare issue and the lack of progress achieved by traditional business groups.)
State Healthcare Groups – Some state groups and coalitions have been formed around state healthcare reform proposals and have engaged individual businesses in healthcare reform.