When shopkeepers in Bristol, R.I. saw Clinton health czar Ira Magaziner walk through their doors recently they greeted their old neighbor with something less than affection: “Ira, what are you going to do to us?” Then, says Magaziner, he’d sit down and explain the coming revolution in health care. “By the time I left,” he says, “they were by and large ecstatic.” Ecstatic? That’s not the mood of the nation’s No. 1 small-business spokesman. If employers are forced to provide health insurance, warns John Motley, top lobbyist for the National Federation of Independent Business, “businesses will close” and hundreds of thousands will lose their jobs.
As the health-care debate kicks into high gear, small-business worries are getting lots of attention. That’s partly because small businesses have some real worries. But it’s also because small business has become the ideal “victim” championed by conservative voters and politicians who want the market, not the government, to solve social problems. Their argument: government mandates hurt small business–and if small business suffers, so does everyone else, because small businesses create most new jobs. The NFIB is likely to paper the capital with letters from its members’ saying just that. A group of 41 Senate Republicans said it earlier this month in a letter hand-delivered to Hillary Rodham Clinton. Conservative Democrat Jim Cooper of Tennessee said that requiring small businesses to pay for health care amounts to “a bailout for Chrysler” and other big companies. The Employment Policies Institute, funded by restaurateurs, issued a study projecting 3.1 million lost jobs.
To anyone who has followed the debates over family leave, clean air or the minimum wage, this should sound familiar. Presidents Reagan and Bush, carefully nursing Americans’ romance with entrepreneurs, found that small business had the same power in the political lexicon as Mom and apple pie. The argument for shielding small business from regulation appeared to be bolstered by big-company layoffs and one major study–since discredited–showing that small companies create most new jobs. But the discussion is based on faulty premises, skewing the debate. “There’s too much talk about small business,” says health consultant Larry Lewin, “and not enough concern about the large businesses that have been bearing this burden.” Relieved of some of their healthcare bills, some big companies will create more jobs, while small businesses that now pay through the nose for coverage may also find relief That’s why some greet Motley’s apocalpytic remarks skeptically. “That’s like the gun lobby saying that everybody should have an AK-47,” says Denney Willis of Arbuckle Coffee Service in Tucson, Ariz. “It’s just a knee-jerk reaction.”
No question, small business will have some adjusting to do–and some of it will cost big bucks. Boston restaurateur Michael Gillen, who covers health care only for his chefs and managers, says he might have to cut jobs if he’s forced to pay insurance for other employees. But many smallbusiness owners picture themselves navigating in the current nightmarish system. The Clinton plan would phase in the employer mandate over several years and cap the premiums small businesses would pay at about 4 percent of payroll, with employees and the government covering the rest. (An automaker, for example, would pay about 12 percent, down from about 19 percent now, according to Magaziner.) Meanwhile, cost-cutting reforms would be up and running. Erin Curtis, co-owner of the Texas giftware chain Nuvo, looks forward to standardized policies that will simplify shopping for insurance. insurers will have to cover everyone, and purchasing cooperatives will give small employers new clout.
If it’s all so great, mandate foes retort, won’t employers join up voluntarily’? A California cooperative program begun in July has already attracted hundreds of companies. But proponents point further west, to Hawaii, where businesses must provide health coverage–and about 95 percent of residents are insured. Mandates are “an essential ingredient for success,” because they keep rates down, says Dr. Jack Lewin, head of Hawaii’s
Department of Health. Which is the better model? Before you decide, ask yourself
The NFIB is the biggest small-business group. But last week Motley said he was speaking for the entire small-business community, and that’s hardly the case. “I think the lobby groups to a large extent misrepresent” small businesses, says Steve Sands of Standard Meat in Lincoln, Neb., who covers his employees. Without a mandate, he says, “doing the right thing” for workers puts him at a competitive disadvantage.
Definitions range from 500 employees on down. But the economics of a plant with 120 workers differ sharply from those of a florist with two clerks. That’s critical to the debate. NFIB argues that most small businesses don’t provide health insurance now, and will be hit with brand-new costs. The Employee Benefit Research Institute, funded by labor and business, says that 68 percent of firms with fewer than 10 employees already provide some coverage.
Obviously, if the cost of doing business goes up, the bottom line gets socked. Firing employees is a sure way to save money. But companies often find other ways to save, from raising the price on blackened redfish to cutting back on the chairman’s country-club fees. The minimum-wage debate is one where dire predictions were unfounded. In 1990, Congress created a “subminimum” wage for teenagers after business groups warned that the higher minimum would devastate industries like restaurants. But a study for the National Bureau of Economic Research showed that only 2 percent of employers used the teen wage. When it expired, no one noticed.
This idea, now repeated as gospel by the Senate Republican group, among others, comes from a celebrated study that said that 80 percent of new jobs are created by small business. But the study’s author, David Birch, has spent years backtracking, and told The Wall Street Journal in 1988 that the figure is “silly.” A recent Dun & Bradstreet study found that only a tiny share of small business furnishes large numbers of new jobs. Small companies collapse at a higher rate than big ones, while the ones that create jobs are, by definition, soon big; companies the size of most NFIB members (eight employees) show little or no growth. Many jobs that are created at small companies come from work fanned out by big ones–often to avoid the cost of employee benefits.
The jobs most at risk if employers are forced to pay for health coverage are low-wage, part-time positions. But if the burden is eased on big companies that compete internationally, says James Buckley of the accounting firm Peat Marwick, “the economy will be better off.” if a company like General Motors saves money, and can make new investments, it may provide jobs that add to the ranks of the middle class, not the working poor. Even if some jobs vanish, says Dun & Bradstreet economist Douglas Handler, “the question is what magnitude and whether it’s worth it.” The president, among others, has decided that health-care reform is worth it.
Of course, that assumes that the reforms promised by the White House work as planned. Sure, employers “would save money if the plan is looked at carefully”, says Jeff Lewis, owner of Vision Computer in Woburn, Mass. “But I don’t have any confidence in a bureaucracy to look at it carefully.” If the government this time can make Lewis a believer, the politics of small business may never be the same.
