As anyone who's been to Schneider's of Capitol Hill knows, there are many ways to make a case. Last month the Council of Economic Advisers (who know a thing or two about animal spirits) released a 56-page report making the economic case for reform. On Saturday, the CEA brought the case for health reform to small businesses.

The 20-page report begins by noting the importance of small businesses to the economy in terms of job growth and innovation. Firms with fewer than 20 employees accounted for 25 percent of net employment growth from 1992 to 2005. (For those of you still thinking about Schneider's, net employment growth is the difference between jobs created and jobs lost in a given period.)

Despite their importance to the economy, small businesses are ill-served by the current health care system. Higher brokerage fees, larger administrative costs and a smaller risk pool that leads to more adverse selection, mean small businesses pay on average 18 percent more than large firms for the same policy. As result small businesses are much less likely to offer health insurance to their employees and workers at small firms are more likely to be uninsured.

The report looks at the benefits of health reform for small businesses at two levels. First by improving the overall performance of the economy, health reform will improve living standards and take-home pay for families, prevent unsustainable increases in the budget deficit, and improve the efficiency of the labor market. Slowing the rate of health care cost growth and expanding health coverage benefits all of us.

Second, the CEA examines the specific benefits for small businesses from the health care reform proposals currently being debated. Briefly:

• Lower Premiums and Higher Quality Health Insurance Coverage in the Exchange.  A health insurance exchange would increase choice of plans available to firms by promoting competition in the small group market. Small businesses participating in the exchange would see lower premiums and more choice of plans that could not discriminate based things like a worker's pre-existing condition or health status. (To learn more about how exchanges could work,  we recommend the issue briefs Sarah Lueck has written over at the Center on Budget and Policy Priorities, including this one.)
• Tax Credits for Small Businesses that Provide Health Insurance. All of the plans in Congress offer a tax credit for small businesses that offer or decided to offer their employees health insurance. The size and eligibility requirements of the credit vary, but it would help lower costs, raising workers' wages and firms' profits.
• Exemption from Employer Responsibility Requirements. Small businesses with payrolls or employment levels below a certain threshold would be exempted from the requirements of larger firms to provide or contribute to their employees' health coverage.
• Subsidies for Employees in Small Businesses that Do Not Provide Health Insurance. Employees at small firms that did not offer coverage would receive a sliding scale subsidy to purchase health insurance through the exchange. Over half of workers at small businesses who are currently uninsured, would be eligible for the subsidies outlined in the House and Senate bills. Their out-of-pocket expenditures would also be limited.
• Increasing Entrepreneurship, Expanding the Pool of Workers Available to Small Businesses, and Eliminating "Job Lock." The high price of health insurance in the individual and small group market discourages entrepreneurship It also creates "job lock" where workers remain at jobs with large firms that offer health insurance even though they could be more productive and better paid working at a small business. For example, the percent of people over 60 working at small firms greatly increases after they become eligible for Medicare. Health care reform can remove these distortions and increase the pool of workers available to small businesses.
• Improvements in Workplace Productivity and Reduced Absenteeism.  Being uninsured is bad for your health. Studies have shown that the loss in workplace productivity stemming from poor health reduces total productive work hours by as much as one-fifth -- or four days a month for an employee working 40 hours a week. Increased absenteeism and lost productivity hit small business especially hard and health reform can help reduce these effects.

The CEA's bottom line:

Successful health care reform that genuinely slows the growth rate of costs will greatly aid the overall economy in general and small businesses in particular. Controlling costs will cause living standards and take-home wages to rise more quickly for American workers. Reform will lead to increases in entrepreneurial activity and to a more efficient allocation of workers throughout the economy. And by reducing future federal budget deficits relative to what they otherwise would have been, health care reform will serve to lower the cost of capital and reduce future tax increases for small businesses, which will lead to more investment and job creation in this key component of the economy.

Perhaps most important of all, health care reform will improve both the health and the economic well-being of small business employees through the expansions in health insurance coverage and reductions in health care costs. Employees of small businesses and their families are significantly more likely to be without health insurance than their counterparts at larger firms. The reform-induced expansions in health insurance coverage will lead to improvements in the health of these workers and their families and will reduce their exposure to the risk of medical bankruptcy. It will also allow them to enjoy the fruits of their productivity growth in the form of higher wages rather than spending that money on ever-increasing health insurance premiums.