Stopping Reform Before It Starts

Small biz is emerging as a powerful opponent of universal health care

Big business CEOs are lining up left and right in favor of health insurance coverage for all Americans. But there's a big barrier to a sweeping overhaul of the U.S. health-care system: small business.

While activist CEOs of major corporations have changed the debate over health care by entertaining the idea of comprehensive reform and universal coverage, small-business groups remain committed to blocking broad government involvement. And small businesses have a surprising amount of political muscle. "When small-business owners feel threatened by major government intervention, they really show their strength," says Karen Kerrigan, president of the Small Business & Entrepreneurship Council, a conservative advocacy group. "If any health-care plan includes government mandates or costs on the small-business sector, it's going to be very difficult to pass."

Fear of this reflexive resistance is one reason why Charles N. "Chip" Kahn III, president of the Federation of American Hospitals, and Ron Pollack, director of the liberal advocacy group Families USA, invited the National Federation of Independent Business to join secret talks in 2005 to create a bipartisan coalition to push for universal health coverage. The NFIB, the nation's largest small-business organization, with a half-million members, turned them down cold.

NFIB Executive Vice-President Dan Danner says his group steered clear of the talks because it worried the coalition would back government-run health care. Only about 50% of small businesses pay for workers' health insurance, and the NFIB feared that all of its members would be forced to bail out old-line manufacturers saddled with billions of dollars in legacy costs. "At the end of the day, that's always the rub with these proposals: How are you going to pay for them?" observes Danner. "It's the proverbial whose-ox-gets-gored, who pays for what."

Many small-business owners agonize over health care. Joe Balsarotti, who has owned a computer consulting business in St. Louis since 1983, provided health care for his four employees until the coverage costs quadrupled for one, a diabetic. When that employee left the company, Balsarotti ended the benefit. "It was either that, or cost exceeds profits," he says. Balsarotti knows that reform is necessary in health care but worries what kinds of remedies Washington might apply. "I can't run a business if I don't know what my costs are," he says. "I also don't like the idea of a government bureaucracy running things."

With small businesses conflicted or opposed to change, big businesses are moving ahead. Even without the NFIB, the Kahn-Pollack talks resulted in a 16-organization coalition for universal insurance coverage. Members include the U.S. Chamber of Commerce, the American Hospital Assn., and America's Health Insurance Plans as well as large companies such as Johnson & Johnson, (JNJ ) Kaiser Permanente, and Pfizer. (PFE )

But even Big Business is divided. The National Association of Manufacturers left the coalition during the secret talks. Says the NAM's CEO, John Engler: "The idea that we're going to trust the government that gave us the Post Office, the Transportation Security Administration, and the IRS is just not likely."


Advocates of change realize they can't succeed without persuading small business to join them or remain neutral. Says one business coalition representative: "Small business has a lot of power and helped to kill Bill Clinton's health-care plan" in 1994, when many big businesses were open to government action.

Republican consultant Frank I. Luntz, whose client list includes both large and small businesses, says elected officials see small-business owners as "the American Dream occupation. Politicians want to help them."

Maybe so, but small businesses also deftly deploy campaign contributions to friendly lawmakers and cooperate to pressure their hometown representatives. Small businesses know "it's crazy not to be actively participating in the debate at this time," Danner says.

Congressional leaders are giving small-business groups plenty of opportunity for input. The NFIB is working with Senators Max Baucus (D-Mont.), Dick Durbin (D-Ill.), Mike Enzi (R-Wyo.), Olympia J. Snowe (R-Me.), and others to win approval of new health-care tax breaks for small business. And Senator Ron Wyden (D-Ore.) has regularly consulted with the NFIB to get feedback on the group's concerns about his reform plan.

But what small businesses really want, says Kerrigan, is for Congress to pass a series of small measures that would give small businesses more insurance choices and make the system more affordable.

Among the top priorities: allowing entrepreneurs to lower their insurance premiums by buying into larger pools of multiple small firms; breaking down regulatory barriers by allowing small businesses to pick insurance offerings in any state, not just in their home base; giving sole proprietors the same kind of health-care tax break that larger employers get; and expanding health savings accounts and giving small employers more tax incentives to offer HSAs to their workers.

Ed Gillespie, a Washington lobbyist who is set to direct a coalition of CEO reformers led by Safeway Inc.'s (SWY ) Steven A. Burd, thinks entrepreneurs can be brought to the table. "Small businesses always have to be leery of mandates," says Gillespie, a former Republican National Committee chairman. "But they want to be part of the solution, too."

By Richard S. Dunham and Keith Epstein

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