October 23, 2014

How Would Healthcare Reform Affect New Business Startups?

How Would Healthcare Reform Affect New Business Startups?The recently passed health care reform legislation will have an effect not only on millions of existing small-business owners and their employees., but also on an untold number of businesses that haven’t yet started. At least, that’s what some experts contend, such as in this MarketWatch article by Kristen Gerencher.

The issue is so-called “job lock” – people who stay in their corporate jobs to keep their health insurance coverage, rather than starting businesses of their own or going to work for small businesses that may not offer insurance today.

Will the health care overhaul propel more people to become entrepreneurs-or to work for entrepreneurs? According to the Kaiser Family Foundation, in 2008, 28 percent of self-employed Americans were uninsured; so were one-third of employees at companies with fewer than 25 workers. Overall, the proportion of uninsured Americans is much lower (15 percent), suggesting that being involved with a small business puts a person at greater risk of being uninsured.

Robert Fairlie, an economics professor at the University of California-Santa Cruz, told Gerencher job lock is hurting business creation and job mobility. “We’re finding reasonably consistent evidence that people who are employed are delaying or not starting a business because of their fear of losing health insurance,” he said.

According to Fairlie, government data shows the likelihood of starting a business increases by some 10 percent during the month when Americans turn 65 and qualify for Medicare. His research also showed that people who get health insurance through their spouses are more likely to start businesses than those who don’t.

Fairlie says the lack of affordable health insurance is causing a “brain drain” of sorts among young Americans who have families and can’t afford to leave their jobs to start a business if it means losing their health coverage.

A study by John Schmitt, senior economist with the Center for Economic and Policy Research, found that the U.S. has among the lowest share of small-business employment among its international peers. “The data don’t support the idea that universal health care is bad for small business,” Schmitt told Gerencher, “because almost every country that has universal health care has a demonstrably larger small-business sector than the United States.”

Economics professor Scott Shane, at Case Western Reserve University in Cleveland, said in the article he thinks the impact of job lock may be overstated. Shane says just 30 percent of people who plan to start businesses actually get their ventures off the ground.

I’m not surprised by these different opinions. I will go out on a limb and make a prediction. I predict we will see only a minimal uptick in startup rates once the healthcare reforms kick in.

That because healthcare is just one of many risks involved in starting a business. Startups by nature are risky. Entrepreneurs know this. Even if healthcare risk lessens under the new reform legislation, that doesn’t mean all the other uncertainties and challenges of a startup magically go away. You will still have to find customers and sales. You will still have to develop and enhance your products and services. You will still have to compete in the marketplace. You will still have to find cash flow for operating expenses and to grow your business. And the list goes on.

On the one hand, I know some of you are aspiring entrepreneurs who would make GREAT business owners, if you didn’t have to worry about putting your own and your family’s healthcare at risk. Up to now you may have held back from making the entrepreneurial leap due largely to health insurance (or at least, the fear and uncertainty of the situation). You may have to wait a while longer before acting on your dream of starting a business, since some key provisions don’t go into effect until 2014 – and some provisions could still change during the Reconciliation process.

On the other hand, many who mentally were ready to take that big leap didn’t let the insurance issue stop you. Somehow you found a way. You may have researched, for instance, the existing tax benefits available to the self-employed in the form of the Federal income tax deduction for health insurance premiums. Also, high deductible plans coupled with health savings accounts have been available for several years – such plans provide tax benefits for setting aside money toward deductibles and out of pocket expenses. These tax benefits do not address every issue – for instance, they don’t address pre-existing condition exclusions – but they have made the transition to self-employment easier for many.

However, let’s not get overly comfortable with this concept of “help.” There’s a lot of talk in the media and among policymakers these days about “helping” small businesses. But if you go into a startup with the idea that society needs to “help” you, how are you going to deal with the endless stream of challenges of running a business? You know and I know — help won’t always be there. Ask any successful entrepreneur: in the end, you have to rely on your own resourcefulness in your startup.

Editor’s Note: this article was previously published at OPENForum.com under the title: “Will Health Care Reform Mean More Startups? Probably Not” It is reprinted here with permission.

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Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

8 Reactions

  1. I recently wrote an article about how the health care bill affects small businesses for the Miami Herald. Here is the link: http://www.miamiherald.com/2010/04/19/1583525/small-firms-need-a-healthcare.html

    I think as firms become more educated about options and impacts, it will increase compliance and opportunities and the bill comes in to effect.

  2. I was afraid that you’d finally recognized the benefit of health care reform but your last two paragraphs saved the day. Why let facts get in your way when you can coble together some mumbo jumbo to indirectly slag HCR?

    Keep up the good work shilling for an insurance industry sucking the economic life out of the country and a health care sector structured to reward inefficiency.

  3. Bill Salter, who said I was against healthcare reform? I’m not — although I think the healthcare reform we got actually rewards that inefficient health care sector you complain about and the fact that we don’t know enough about the reform bill that was passed is flat out unacceptable. But I’ve been complaining about our broken healthcare system for years and something needed to be done.

    All I am saying here is that the majority of entrepreneurs find a way to start a business. Doesn’t mean I agree with the status quo.

    This post is really about one’s attitude toward being an entrepreneur. If you are someone who needs all the risk taken out for you, entrepreneurship is not for you.

    – Anita

  4. I’m going to disagree with you. This is America. Aren’t we the land where people dream and do big things on their own? Isn’t that our culture and what people want? Our heroes are CEOs who started their own businesses and made it big. This culture of “go out and do!” and a lower start-up rate than countries with universal healthcare does not jive.

    I think the “job lock” issue is more important than you give it credit for. Either that or America is not a nation of entrepreneurs and you’re right, nothing will help this risk-tolerant nation get more small businesses. And we are risk-tolerant. More than the average country, according to Geert Holfstede’s cultural dimensions, the standard for cultural comparisons.

    A bit of an anecdote to round it off: The main reason I have tailored all my job search and career plans to this day to be a corporate employee was… Healthcare. Do I actually want a corporate career… No. However, I need access to healthcare, and that means health insurance.

  5. Of course there are people who stay in their current jobs to maintain health care coverage. However, I don’t think that reform will impel many of them to take the entrepreneurial plunge. There are simply too many other factors going into that decision.

  6. I continue to be skeptical of all healthcare “reform.” Any reform that does not IMMEDIATELY tend to the pre-existing conditions clause, is useless. As we age, we come to the table with pre-existing conditions whether they be arthritis that need prescription medication (not covered on a new policy because of pre-existing conditions), a disease like heart disease, a previously treated issue or even bunion surgery – and if healthcare companies continue to punish us for aging, no amount of healthcare reform will be acceptable : for anyone, not just SMBs.

    I did not hesitate to start a small business nine years ago – even knowing healthcare could become an issue. It wasn’t until I moved the business from one state to another that I lost my health insurance because of the pre-existing conditions clause and now… unless I’m in an accident, I am uninsured.

    This has me a bit worried, since I am sure healthcare companies will find a way to associate ANY and ALL doctor visits with my pre-existing conditions. I am taking over the counter meds when previously I had prescription meds, I am not visiting the dr despite ‘issues’ because I know the issues are related to my condition, and I resent the fact that I paid thousands into a healthcare system that has now legally refused to cover me.

    Healthcare is a big deal – not just for families, but for individuals with pre-existing conditions. It’s unacceptable that coverage can still be denied. Oh, BTW, my one employee is covered. Truth be told – that employee hasn’t BEEN to a DR in years! Whatever pre-existing conditions the employee might have aren’t included because they are not documented!!!

  7. Just a quick comment. There is a difference between accepting economic/financial risk in opening a business, and accepting the economic/financial/health risk in starting a small business without health care. When I was laid off last year, I thought seriously about consulting, but couldn’t come up with an approach that would also cover health care costs, even with COBRA.

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