Soaring health care costs keep would-be entrepreneurs stuck on sidelines

NEW YORK — Jeff Kushner seems perfectly poised to start a company helping families fight cybercrime, a business he’s long dreamed of.

With startup costs falling, Kushner, 46, can launch the business for less than $5,000 from his Houston home.

But Kushner, recently laid off from a tech job, is such a reluctant entrepreneur that he’s only committing to self-employment for six months while he continues job hunting. Why? It’s going to cost him $1,145 a month for health insurance for himself, his wife and two kids.

“A big shock,” he says after hunting for better deals.

As health costs soar, more would-be entrepreneurs are reluctant to quit Corporate America and its blue-chip benefits to start businesses, entrepreneurship experts say. That raises alarms about the impact on innovation and job growth, when both are of growing importance to the U.S. economy.

“This is a real problem,” says Carl Schramm, CEO of the Ewing Marion Kauffman Foundation in Kansas City, Mo., one of the USA’s biggest entrepreneurship advocates.

These concerns come as self-employment rates continue a decades-long slump.

About 8.8 percent of nonfarm, private-sector workers were self-employed last year. That was up slightly from 2002, when rates sank to a record low of 8.5 percent. Overall, however, rates have fallen in 30 of the last 50 years even as the work force mushroomed, Labor Department data show.

That’s worrisome because startups and other small firms have historically created most innovations and as much as 75 percent of new jobs.

The reluctance of budding entrepreneurs comes as President Bush promotes entrepreneurship in his vision of an “ownership society,” in which the nation would prosper as workers seek self-employment.

To be certain, not everybody is convinced health care costs are depressing entrepreneurship.

Economists who’ve studied the subject reached different conclusions.

Enter the Kauffman foundation. It decided this summer to settle the debate by funding research on a subject that’s received less attention than the impact of medical costs on existing companies.

“Would we have 100,000 more (business) starts next year if people thought they could go buy affordable coverage?” Schramm wonders.

Yes — and then some, says a study by Ohio economist Alison Wellington. She estimated in a 2001 study that the USA’s self-employment rate would rise by as much as 3.5 percentage points if universal health coverage was available. That would have boosted self-employment last month in the nonfarm private sector by about 3.8 million workers, based on July’s Labor Department count.

Princeton economist Harvey Rosen and other researchers reached the opposite conclusion, however. They did not find a link when they examined the matter more than a decade ago. Their 1994 research noted that entrepreneurs by definition are risk takers. Many are willing to fly without a health safety net, they said.

Since then, health costs have galloped even higher, rising at double-digit rates in recent years. Rosen said in a recent interview that he’s not convinced today’s higher costs are any more of a deterrent than before.

Trends among employers and insurers also could lessen the impact on entrepreneurs, experts say. Companies are asking workers to pay a bigger share of benefits, making employer plans less attractive.