Small business clients are deeply divided and conflicted on this topic. They want quality health insurance at an affordable price for their families and employees. But they have concerns about excessive government involvement, healthcare delivery, choices and costs.

The concerns are valid and real. Even so, you should have a healthcare conversation with your small business clients soon, focusing on four truths.

When clients acknowledge these truths, they will be better equipped to keep emotions in check, focus on facts, and make sound plans for the future, with your help.

Here are the first three truths:

1. The current U.S. healthcare system puts small businesses at a competitive disadvantage.
2. The cost of this competitive gap will keep growing, unless something changes. Eventually, it will become ruinous for some small businesses.
3. Every serious healthcare reform proposal bends over backward to treat small businesses fairly and eliminate the competitive gap.

The fourth truth affects your livelihood as much as your clients'. You'll learn what it is, and how to turn it into stronger client relationships, at the end of this column.

Separating "Money and Sense" from Other Loyalties

Small business owners are complex beings. They tend to be independent-minded, self-reliant advocates of free-enterprise. Their interests often align with big business in opposing over-regulation, higher taxes, and investment disincentives. Most business owners also have a strong self-preservation instinct driven by an intuitive understanding of their companies' economic realities

As you speak with business owners about healthcare reform, you may find that they are conflicted because they are philosophically opposed to Big Government solutions and skeptical about the ability of the federal government to fix a broken healthcare system. At the same time, they can feel the gut-level "money-and-sense" issues in this debate that are negatively impacting their companies on a day-to-day basis.

Discussing the "four truths" will help owners understand why they feel torn on this issue, which specific proposals they may want to support, and how to make employee benefit decisions and plan for growth going forward.

Truth #1: The current U.S. healthcare system puts small businesses at a competitive disadvantage.

In his weekly radio remarks of 7/25/09, President Obama asserted that U.S. small businesses "are getting crushed by skyrocketing healthcare costs." He added:

"Because they lack the bargaining power that large businesses have and face higher administrative costs per person, small businesses pay up to 18% more for the very same health insurance plans…As a result, small businesses are much less likely to offer health insurance. Those that do tend to have less generous plans. In a recent survey, one third of small businesses reported cutting benefits. Many have dropped coverage altogether. And many have shed jobs, or shut their doors entirely."

In this radio address the President cited a detailed analysis by The White House Council of Economic Advisors, which you can find here:

• www.whitehouse.gov/assets/documents/CEA_Health_Care_Report.pdf

Here are two key points from this report:

• "In the United States, almost 96% of firms with 50 or more employees offer health insurance as compared with 43% of firms that have fewer than 50 workers."
• "In a large majority of states, current insurance market practices disadvantage small employers (including the self-employed) relative to larger firms with respect to purchasing coverage."

The Employee Benefits Research Institute has reported that among an estimated 46 million Americans who have no health insurance, 60% work for small business. According to a poll conducted by the National Association for the Self-Employed (NASE), 25% of responding small business owners admitted that they had no health insurance themselves.

If you listen closely to the great national healthcare debate, you'll find that virtually all of the issues are on the table – except this truth. Opponents of reform have not even tried to refute the argument that there is a "competitive gap" that small businesses face in today's U.S. health insurance market.

Truth #2: The cost of this competitive gap will keep growing, unless something changes. Eventually, it will become ruinous for some small businesses.

In June of 2009, the Small Business Majority released a comprehensive report authored by Jonathan Gruber, a Massachusetts Institute of Technology economist and professor, based on his micro-simulation model. The model evaluated the impact of maintaining the healthcare status quo on U.S. businesses with 100 or fewer employees.

You can download it here:

• www.smallbusinessmajority.org/econ_research.php

Dr. Gruber began his report with this warning: "More than any other sector of the economy, small business suffers from our broken healthcare system. From spiraling premium costs to inadequate access to quality healthcare for themselves and their employees, small business owners have seen their prospects for growth diminished and their profits slashed by today's patchwork of inefficient healthcare options."

Without any healthcare reform, Dr. Gruber estimates that future healthcare costs for small business would increase by 9% per year, in line with historic increases. Under this "no-change" scenario, his model indicated:

• The total cost of health insurance benefits for small businesses will increase from $156 billion in 2009 to $339 billion by 2018.
• The annual job loss for small businesses due to healthcare costs will increase from 39,000 in 2010 to 178,000 in 2018. Over the same period, annual small business wage losses will increase from $12 billion to $172 billion – representing $834 billion in cumulative wage losses over a decade.
• U.S. small businesses will lose a cumulative $52.1 billion in profits over a decade due to healthcare costs.

The report by The White House Council of Economic Advisors looked at the historic trend toward shifting healthcare costs from employers to employees. It found that the average family deductibles for employer-provided health insurance in 2006 were about $700 higher per year in companies with fewer than 50 employees, compared to larger companies. Between 1999 and 2006, this gap increased by about $200 per family. It concluded that: "Small employers appear to be shifting to less generous plans even more dramatically than large employers."

Opponents of healthcare reform rarely discuss how small businesses can reverse the trends that are putting them at a competitive disadvantage, costing workers more money out-of-pocket, and undermining profitability.

Truth #3: Every serious healthcare reform proposal bends over backward to treat small businesses fairly and eliminate the competitive gap.

All credible healthcare reform proposals, including bills now before Congress, contain two benefits designed exclusively for small companies.

• "Shared responsibility" relief – Under the shared responsibility concept, most employers would be mandated to make minimum contributions to employee healthcare or else pay a tax. However, the proposals greatly reduce (or eliminate) this tax for the smallest employers.

Under a healthcare reform bill adopted by the House Ways and Means Committee, firms with payrolls greater than $750,000 would be required to either cover employees or pay an 8% shared-responsibility tax. But the tax would scale down to 2% for firms with annual payrolls of $250,000 to $300,000, and it would be eliminated for smaller firms. A competing proposal sponsored by the House Energy and Commerce Committee would exempt from the tax all firms with annual payrolls below $500,000.

• Business tax credit – Most proposals include a business tax credit to help small companies narrow the competitive gap. For example, the House Ways and Means Committee bill offers a partial tax credit to firms with fewer than 25 employees and average annual wages of $40,000 or less. A proposal made by the House Republican Study Committee in July of 2009 would provide a one-time $1,500 tax credit to help firms with 50 or fewer employees enroll workers in an employer health plan.

To date, there have been two regional efforts in comprehensive healthcare reform in the U.S. – in Massachusetts and San Francisco – and both plans have helped small businesses narrow the gap. For example, San Francisco's plan requires companies with 100 or more employees to pay at least $1.85 per hour toward employee healthcare, but the requirement drops to $1.23 per hour for companies with 20-99 employees. (Even smaller companies are exempt.) Massachusetts requires companies with 11 or more employees to pay a "fair share" of up to $295 annually per employee. (Smaller companies are exempt.)

Dr. Gruber's micro-simulation model (moderate reform scenario) assumes that small firms with less than $250,000 in payroll would pay a fair-share tax of 1% of payroll, and firms with fewer than 50 employees would receive a tax credit for 50% of the employer's share of healthcare costs. Based on these assumptions, he projects that healthcare reform would save small employers $807 billion in cumulative 10-year costs on healthcare spending.

Truth #4 – Unless something changes, healthcare will become the only employee benefit that some small businesses can afford.

When you talk to your business clients about the first three truths, ask them to rank the employee benefits they consider most valuable to the company, its owners, and employees. For the majority of clients, you will probably find health insurance near the top of the list.

To prepare for these discussions, you may find interesting a recent survey of 1,200 small business owners conducted by The Main Street Alliance. In addition to in-depth data, it offers case study interviews with business owners. Here are a few key points from the survey:

• Currently, just 34% of small business owners surveyed offer health coverage to some or all employees, and only 43% of owners receive coverage through their own companies. Yet, 73% said they would be willing to contribute to quality health coverage for employees, if coverage were accessible and affordable.
• 92% of small business owners said the affordability of coverage is a "very important" consideration and 85% said comprehensive coverage is very important.

You can download the full survey results and case studies here:

• http://mainstreetalliance.org/wordpress/home/publications

On the whole, the survey shows that many business owners equate having health insurance coverage with personal financial security. They can't achieve real security for their workers or themselves without it.

Whether or not you offer health insurance coverage to small businesses, your client relationships are affected by it. Rising health insurance costs are squeezing other types of employee benefits out of the menu. They include qualified retirement plans, group life, disability, dental/vision care, and non-qualified executive benefits. If healthcare costs keep eroding small business profits, they will also reduce demand for personal investment and insurance services among owners and key employees.

If your small business relationships depend on these services, recognize that they are vulnerable – unless something changes.

To help small business clients accept these four truths and protect and grow your relationships, you don't have to advocate for or against healthcare reform. Just help clients understand the pressures they are feeling and the fact that they probably won't let up unless something changes. Business owners' self-preservation instincts are valuable, and you can use honest discussion to bring them to the surface.

Then, you'll be ready to help clients take advantage of any healthcare reforms and build stronger relationships – based on a complete, competitive menu of employee benefits and other financial services.