Senior Fellow | Center for Healthcare Affordability
Time is of the essence. Right now, saving Indiana’s small businesses means saving Indiana’s economy. Nearly half (44.9%) of Indiana’s workforce is employed by small businesses — 1.2 million Hoosiers, according to the U.S. Small Business Administration. To say that the survival of small businesses is critical to Indiana’s economy is huge understatement.
Even prior to the corona virus economic shutdown, small businesses were on the front lines of navigating major challenges. Those challenges have included the massive weight of finding affordable healthcare for employees. Now, as the economy slowly reopens, small business owners are facing hundreds of new challenges, all pointing to the question, “How can my business survive?”
Representatives in Congress have been scrambling in Washington, D.C. to find solutions to help small businesses. Unfortunately, many of the solutions being proposed or implemented get caught-up in partisan rhetoric.
Indiana’s small businesses need a non-partisan, long-lasting financial boost, one that will never expire. It is time to address the immense, ever-burdensome line item in every small business’ budget…healthcare costs.
The need to address soaring healthcare cost for small businesses is not new. In 2018, the former President of the National Federation Independent Businesses (NFIB) wrote a letter to Congress stating, “Rising health insurance costs are small business owners’ top problem, according to the NFIB Research Center’s Problems and Priorities survey. Small business owners continue to face escalating health insurance premiums, which divert resources away from investing in their businesses and employees”.
Health insurance can cost a business anywhere from $10,000-$14,000 per employee for a simple, high-deductible plan. Now that many small businesses’ streams of revenue have paused or evaporated, health insurance costs scream all the more on balance sheets. Pair this with the 10%-15% year-over-year cost increase for health insurance policies, small businesses can no longer shoulder the burden.
Health insurance companies are not solely responsible for this burden on small businesses. They are one of three major players in a complex, interwoven healthcare system that also includes hospital networks and pharmaceutical companies. Finger pointing among these companies over who is to blame for the rising costs has been rampant, but that doesn’t help us find a true solution to the problem as our small businesses are in the midst of an economic crisis.
The healthcare sector accounts for approximately 18% of GDP; and yet, amazingly, it does not operate in a free-market system — a system in which consumers can make educated decisions on where to get goods and services driven by transparent pricing, innovation and quality. We need the healthcare sector to leave the oligopoly business model and enter the free-market system.
When two competing small businesses provide identical products or services of equal quality, what happens? The price for these goods and services becomes a major determining factor for consumers. As businesses recognize the need to be competitive on pricing, they look for ways to improve their services and products. This leads to innovation, efficiency and lower costs. In this scenario, consumers drive the need for competitive pricing because they are armed with the knowledge of what the products and services cost.
This is an oversimplified economic example, but our healthcare system provides many identical products and services of similar quality; yet, the cost of healthcare mysteriously increases every year, negatively impacting small businesses’ bottom line. There is no incentive for this sector to compete on pricing because the true cost of healthcare is veiled, preventing consumers from shopping around.
It is time for the healthcare system to be transparent on their pricing and to operate in a free-market system, ultimately reducing the cost of healthcare for our nation’s small businesses and their millions of employees. True price transparency, within a free-market healthcare system, will have a greater economic ripple effect than all the Covid-19 stimulus checks combined. It will set-up small businesses to once again thrive as the economic backbone of Indiana.
Mark Jay is a Senior Fellow at Sagamore Institute where he directs the Center for Healthcare Affordability.