Healthcare’s Paralyzing Effect on Economic Growth

Even when passing into law multi-billion-dollar bailout programs for big businesses, politicians in the United States love to point out that small businesses are the engine of economic growth in America. Statistics from the U.S. Small Business Administration appear to bare this supposition out (emphasis added):

Small firms:

• Represent 99.7 percent of all employer firms.
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll.
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.

Those statistics are quite remarkable and represent the economic impact small businesses have even in an environment where many cannot afford quality health insurance for their employees. To my mind, that then begs the question of what small businesses could do in America if health insurance was not dependent on one’s employer. What could America’s small businesses do if workers didn’t have to choose between working at a small business and having quality health care? How many more small businesses would there be if no one had to choose between pursuing entrepreneurial dreams and quality health care? I believe that these choices have a paralyzing effect on economic growth at a fundamental level.

I think one of the more interesting statistics above is that 40% of high tech workers are employed by small businesses. I suspect this number is unsustainable with our current healthcare “system”. Many of today’s high tech workers are young, healthy twenty- and thirtysomethings who probably don’t pay very much attention to healthcare issues. As they “mature”, that will change.

Unfortunately, the healthcare bills currently being debated in Congress do not sever health insurance from employment and may have little impact on the affordability of health insurance for small businesses. As such, they are unlikely to address the questions I posed above. Given the likelihood that one of these bills will eventually pass, I take some comfort from the salient point of Ezra Klein’s recent essay on healthcare: success breeds success. In other words, perhaps the passage of any healthcare bill will make future efforts at reform easier. I can only hope that future reforms will focus on the ties between employment and health insurance, which I consider to be an inherently bad idea.