6 ms·

Obamacare could help fuel a tech start-up boom

34 points by aaronjg 13y ago

muzz 13y ago
From a previous article in the Wall Street Journal [1]: "The Kauffman-RAND Institute for Entrepreneurship Public Policy in Santa Monica, Calif., says the law could increase the number of new U.S. businesses by as much as 33% over several years" [1] http://online.wsj.com/article/SB10001424127887324059704578471122746420826.html http://online.wsj.com/article/SB1000142412788732405970457847...
ck2 13y ago
If only it was health care cost reform instead of insurance reform. I simply do not understand how the 80% of insurance costs being spent or refunded is going to be true. If you pay $5000 a year for insurance and you go for one checkup that year - are they going to give you $4000 back? Somehow I suspect not. And I doubt it covers dental. Everyone is quick to point out you won't lose your insurance for this or that - but can't they just raise the rate to the point where you miss a payment? Last time I checked your car insurance or life insurance is quick to drop you when you miss a payment or two. And just like student loans, I suspect costs are going to rise to the point of your maximum insurance coverage.
- nyarlathotep 13y ago
  I believe the 80% figure refers to 80% of the insurance company's annual revenue, not 80% of the premiums you specifically have paid to them.
- yardie 13y ago
  No, they don't give you back $4000. They get $5000 from 1 million members and have to justify spending $4 billion. That savings gets passed back to you as a lower rate the following year. The point of 80%, I believe, is to drive the "for profits" out of the industry. With only a 20% margin, once you factor in the overhead, they are going to have to be aggressively lean. This is the end run around price controls, call it profit controls.
  - mistercow 13y ago
    I don't think that's entirely correct. In some cases at least, insurance companies do send a check for the difference. But it is applied in terms of their total revenue and spending, not what they spent on you specifically.
    - yardie 13y ago
      It's just my laymans explanation of how you won't, personally, see a benefit. I've never had a company send me a check except as a refund. Usually the reductions are rolled into the next cycle. But if they are mailing checks that is even better.
  - rdl 13y ago
    It's profit controls for insurers, not for providers, though. It doesn't particularly control delivered costs, except very indirectly (due to the lag between premiums and expenditures). If provider prices go up, insurers can raise their premiums and still stay at 80%.
    - yardie 13y ago
      They have also liberalized the insurer market, so instead of 1-3 insurers per state you can choose one from CA, NY, or TN. If you get insurance through work it is up to HR to find the best rate. If you go alone you can use the exchanges.
    - einhverfr 13y ago
      Yep, total misalignment of incentives.
  - nemesisj 13y ago
    I was with you until the "only 20% margin" bit. That's a great multiple for most industries that aren't software. On here, we all think that's horrible, but for a non-software business, that's great. I guess you could argue that health insurance should in practice be as scalable as software and is essentially a software business, but we all know it's not, at least not today.
- muzz 13y ago
  Not sure why you don't just look up the answers to your questions? For example, rebate checks have already been sent out to millions of people: http://abcnews.go.com/Politics/obamacare-health-insurance-rebates-check/story?id=19701785 http://abcnews.go.com/Politics/obamacare-health-insurance-re...
replicatorblog 13y ago
It's an interesting idea, but this post provides an interesting contrast: http://www.thedailybeast.com/articles/2013/06/05/obamacare-job-killer-or-entrepreneurial-turbocharger.html http://www.thedailybeast.com/articles/2013/06/05/obamacare-j... Basically, if insurance coverage is really creating "Job Lock" then the potential entrepreneurs will also likely be locked in by salary needs to.
- rodgerd 13y ago
  I can plan to take a planned cut in income. I can plan to rearrange my family's life to deal with a planned cut in income. I can't simply assume no-one in my family will get sick for the next 3 years.
- jsfy 13y ago
  While concerns over an interruption in salary are certainly legitimate, just uncoupling health insurance from employment will decrease the barrier to switching jobs and increase mobility. It's worth noting that the "job lock" that you're referring to is a rather recent phenomenon. Employer-sponsored health insurance was essentially an accident of WWII wage and price controls (source: http://www.nber.org/bah/2009no2/w14839.html http://www.nber.org/bah/2009no2/w14839.html). Because health benefits were exempt from WWII-era wage controls, employers used them to attract employees. Furthermore, because the employer contribution is paid in pre-tax dollars (i.e., employer-sponsored health insurance is effectively subsidized by the government), it became an attractive way to provide greater overall compensation to employees than otherwise possible. However, the issue of coupling employment to insurance was quickly apparent, which is why we have COBRA (since 1985), but even that is more of a patch than a fix. Regardless of the merits or demerits of Obamacare, uncoupling employment from insurance is (theoretically) a positive outcome for everyone, whether one is an entrepreneur or not. We're already seeing firms shift their cheapest plans to exchanges (http://online.wsj.com/article/SB10001424052702304795804579097422592424860.html http://online.wsj.com/article/SB1000142405270230479580457909...). Increasing health insurance portability should make jobs less "sticky" and result in a more efficient distribution of labor.
  - einhverfr 13y ago
pfisch 13y ago
I was under the impression this would increase the cost of insurance for younger people in order to allow insurance to better cover older people and those with pre-existing conditions....
- MaysonL 13y ago
  It might do that, but so what? A slight increase in fixed costs, with a massive decrease in variance will decreases the risk of medical bankruptcy considerably, even for the young. You seem to be under the impression that all potential entrepreners are young, without dependents, and without pre-existing medical conditions. Not true.
  - NoPiece 13y ago
    It does help potential entrepreneurs with preexisting conditions. But it hurts potential healthy entrepreneurs whose rates have skyrocketed. So it is unclear if there is an overall net benefit, and the article doesn't provide any evidence that it would drive a tech boom.
  - ghaff 13y ago
    Note also that (as I understand it), if someone already has insurance they can maintain it through HIPAA. The main difference in that case from the new law is that they can't let their insurance lapse or there is no obligation for the insurance company to renew it.
    - dantheman 13y ago
      Lots of insurance plans people had are being cancelled since they don't provide coverage mandated by ACA.
- ianb 13y ago
  Which means older people, who have generally been much less able to participate in startups at an early stage, can now have affordable insurance as individuals. Before not only could someone older (though not necessarily very old) be burdened by a high cost of insurance, but you could never be sure that your insurance wouldn't spike to some unrealistic amount. After a certain age insurance companies have been very willing to price a person out of the individual insurance pool (and force the person to move to government or employer insurance). Also god forbid you have a kid.
collyw 13y ago
That headline reminds me of how the iPhone 5 was going to save the US economy.
smsm42 13y ago
This article seems to make a lot of jumps that I'm not sure I follow. E.g. it says "anywhere from 19% to 50% of non-elderly Americans have some type of pre-existing condition". 29% to 50% is pretty wide range, but what "some type" means? Is it a cold? Is it a case of acne? Is it cancer? Is it debilitating chronic disease costing hundreds of thousands to manage? Is it a trifle that no insurer would care about? No idea. This phrase is completely useless for me if I wanted to estimate if a lot of Americans would be denied coverage due to pre-existing condition or not. >>> The average age of people who create a tech start-up is 39, and not 20-something This may be true, but how many of these people can not afford any health insurance? I know a lot of startups created by millionaires, but also a bunch created by penniless students or completely middle-class people. In what proportion are they among startup founders? Again, if I wanted to evaluate how many startup founders benefit from ACA, I can not do it based on the article. >>> There is a big difference between mortgaging your house on something you can control, and risking going bankrupt by an illness because of something you can't control, This does not sound convincing - most startups depend on thousands of factors they can not control - from Google releasing competing product a week before their launch to sudden storm in East Asia taking out one of the vital suppliers to fashion change driving clients to or from particular product. Presenting it as if startup founders control everything besides their healthcare costs sounds very non-convincing. Unfortunately, this article makes a claim that is not properly supported by the data in it and can not be evaluated by the reader due to low relevancy of data provided.
- waps 13y ago
  I'd say the most common pre-existing condition is being a heavy (ex-)smoker.
  - smsm42 13y ago
    Being a smoker is not a disease, AFAIK. But again, HIPAA Title I as far as I know provides for uninterrupted coverage regardless of health conditions, doesn't it?
    - waps 13y ago
nugget 13y ago
Obamacare is NOT about health insurance. It's about catastrophic injury insurance, which you are very, very unlikely to ever need. In the past, in the event of catastrophic injury, you declared bankruptcy and the hospital ate the bill. Now, in theory, some insurance plan will be on the hook for those costs. Because of the way co-pays and deductibles work, you have to be in the top 10% or maybe 15% of health care spenders before you even break even with what you've paid in on a Bronze plan (by far the most popular self-purchased plan). Catastrophic injury type health insurance has been available for awhile, at reasonable rates, unless you had a serious pre-existing condition. So there's not much new here except for improved access for the chronically ill (or their breadwinners), who seem unlikely to be prime candidates for entrepreneurship. It's incredible how much disinformation there is around ACA fueled by political agendas on both sides, and how little most consumers understand of the law's actual impact on the health care and employment markets.
- thatcherclay 13y ago
  The value prop of catastrophic health insurance never fully made sense to me - if I need it, then I am in bad shape, and whether I would have to go bankrupt to pay for it or pay through some insurance is not super important. Seems likely that if all I have is catastrophic coverage, I am going to go bankrupt after the fact anyway because of the long term effects of whatever landed me in that place (those plans do not cover much).
  - quesera 13y ago
    In practice, "catastrophic" here refers to cost, not medical severity. That's a symptom of another problem, but it's true. A broken knee in a car accident can cost $100k or more, which could be financially devastating for far longer than it takes for a full medical recovery.
- lsc 13y ago
  >Because of the way co-pays and deductibles work, you have to be in the top 10% or maybe 15% of health care spenders before you even break even with what you've paid in on a Bronze plan (by far the most popular self-purchased plan). The nature of catastrophic events are that they are rare... and catastrophic. If buying insurance protects me from an event that would have otherwise pushed me into bankruptcy 10 or 15% of the time, that sounds like a pretty okay deal, I mean, depending on how much that insurance costs. But if an event that could bankrupt me did have something like a 1 in 10 chance of happening, and I could insure against it? Yeah, I think I'd look into that. (Add to this the perception that you get different treatment when you show up to the hospital without insurance.) Now, I don't know that's how the numbers work out... it sounds like you pulled 10-15% out of total healthcare costs, and I didn't see any reference for that number. just saying, the point of catastrophic injury insurance isn't to 'break even' - the point of that insurance is to not be bankrupt when that catastrophic event happens. Further, we're talking about entrepreneurs here; a special case of folks who often don't have insurance even when they have income that would normally come with insurance, so the fact that most people are going to go for the super high deductible plan isn't all that relevant to the discussion. My understanding is that the affordable care act would enable me to purchase a full freight health plan, assuming I could pay, without worrying about pre-existing conditions (which have prevented me from doing that in the past.) I mean, I think contractors, really, more than Entreprenuers are the big winners here. At this point, I've got employees and a group plan, so I'm in okay shape. But, this would have saved me from spending as much time in W2 jobs as I did when I was contracting; Generally, I'd go a year or two as a contractor, then spend a year or so as a W2 to top up my cobra.
gavanwoolery 13y ago
I am almost 32 years old and pay $120/month for insurance with Kaiser (I have been very happy with them, and even had surgery done under Kaiser). I don't think this is necessarily a huge expense in the startup world, where people often spend this much on cable tv, cell phone plans, etc. I would guess a fair amount of people interested in entering the startup space are younger and healthier than I am. I am a little bit dubious that such a health care system would cause a startup boom - in fact, if you look at other countries with similar health care policies, they have far fewer startups per capita. This is not to say its a bad idea (you be the judge of that) - just that I don't think it will instill dramatic change in the startup scene.
AnilaRashid 13y ago
Teh only boom is in Internet Solutions rest all is costly.
gpjt 13y ago
Hmm. If this is true, then why do there seem to be more (and more successful) tech start-ups in the US under the pre-Obamacare system than there are in, say, the UK, where almost all healthcare is covered by taxes and is free or nearly free at the point of use? I guess it's not implausible that there's a separate factor that makes the US a better place to do a startup, and the current healthcare situation counts against that factor. But still.
- dragonwriter 13y ago
  > If this is true, then why do there seem to be more (and more successful) tech start-ups in the US under the pre-Obamacare system than there are in, say, the UK There's pretty much more of everything in the US (except maybe castles and titled nobility) than there is in the UK. ~40 times the land area and ~5 times the population has that effect.

34 points by aaronjg 13y ago

muzz 13y ago

From a previous article in the Wall Street Journal [1]: "The Kauffman-RAND Institute for Entrepreneurship Public Policy in Santa Monica, Calif., says the law could increase the number of new U.S. businesses by as much as 33% over several years" [1] http://online.wsj.com/article/SB10001424127887324059704578471122746420826.html http://online.wsj.com/article/SB1000142412788732405970457847...

ck2 13y ago

If only it was health care cost reform instead of insurance reform. I simply do not understand how the 80% of insurance costs being spent or refunded is going to be true. If you pay $5000 a year for insurance and you go for one checkup that year - are they going to give you $4000 back? Somehow I suspect not. And I doubt it covers dental. Everyone is quick to point out you won't lose your insurance for this or that - but can't they just raise the rate to the point where you miss a payment? Last time I checked your car insurance or life insurance is quick to drop you when you miss a payment or two. And just like student loans, I suspect costs are going to rise to the point of your maximum insurance coverage.

nyarlathotep 13y ago
I believe the 80% figure refers to 80% of the insurance company's annual revenue, not 80% of the premiums you specifically have paid to them.
yardie 13y ago
No, they don't give you back $4000. They get $5000 from 1 million members and have to justify spending $4 billion. That savings gets passed back to you as a lower rate the following year. The point of 80%, I believe, is to drive the "for profits" out of the industry. With only a 20% margin, once you factor in the overhead, they are going to have to be aggressively lean. This is the end run around price controls, call it profit controls.
- mistercow 13y ago
  I don't think that's entirely correct. In some cases at least, insurance companies do send a check for the difference. But it is applied in terms of their total revenue and spending, not what they spent on you specifically.
  - yardie 13y ago
    It's just my laymans explanation of how you won't, personally, see a benefit. I've never had a company send me a check except as a refund. Usually the reductions are rolled into the next cycle. But if they are mailing checks that is even better.
- rdl 13y ago
  It's profit controls for insurers, not for providers, though. It doesn't particularly control delivered costs, except very indirectly (due to the lag between premiums and expenditures). If provider prices go up, insurers can raise their premiums and still stay at 80%.
  - yardie 13y ago
    They have also liberalized the insurer market, so instead of 1-3 insurers per state you can choose one from CA, NY, or TN. If you get insurance through work it is up to HR to find the best rate. If you go alone you can use the exchanges.
  - einhverfr 13y ago
    Yep, total misalignment of incentives.
- nemesisj 13y ago
  I was with you until the "only 20% margin" bit. That's a great multiple for most industries that aren't software. On here, we all think that's horrible, but for a non-software business, that's great. I guess you could argue that health insurance should in practice be as scalable as software and is essentially a software business, but we all know it's not, at least not today.
muzz 13y ago
Not sure why you don't just look up the answers to your questions? For example, rebate checks have already been sent out to millions of people: http://abcnews.go.com/Politics/obamacare-health-insurance-rebates-check/story?id=19701785 http://abcnews.go.com/Politics/obamacare-health-insurance-re...

replicatorblog 13y ago

It's an interesting idea, but this post provides an interesting contrast: http://www.thedailybeast.com/articles/2013/06/05/obamacare-job-killer-or-entrepreneurial-turbocharger.html http://www.thedailybeast.com/articles/2013/06/05/obamacare-j... Basically, if insurance coverage is really creating "Job Lock" then the potential entrepreneurs will also likely be locked in by salary needs to.

rodgerd 13y ago
I can plan to take a planned cut in income. I can plan to rearrange my family's life to deal with a planned cut in income. I can't simply assume no-one in my family will get sick for the next 3 years.
jsfy 13y ago
While concerns over an interruption in salary are certainly legitimate, just uncoupling health insurance from employment will decrease the barrier to switching jobs and increase mobility. It's worth noting that the "job lock" that you're referring to is a rather recent phenomenon. Employer-sponsored health insurance was essentially an accident of WWII wage and price controls (source: http://www.nber.org/bah/2009no2/w14839.html http://www.nber.org/bah/2009no2/w14839.html). Because health benefits were exempt from WWII-era wage controls, employers used them to attract employees. Furthermore, because the employer contribution is paid in pre-tax dollars (i.e., employer-sponsored health insurance is effectively subsidized by the government), it became an attractive way to provide greater overall compensation to employees than otherwise possible. However, the issue of coupling employment to insurance was quickly apparent, which is why we have COBRA (since 1985), but even that is more of a patch than a fix. Regardless of the merits or demerits of Obamacare, uncoupling employment from insurance is (theoretically) a positive outcome for everyone, whether one is an entrepreneur or not. We're already seeing firms shift their cheapest plans to exchanges (http://online.wsj.com/article/SB10001424052702304795804579097422592424860.html http://online.wsj.com/article/SB1000142405270230479580457909...). Increasing health insurance portability should make jobs less "sticky" and result in a more efficient distribution of labor.
- einhverfr 13y ago

pfisch 13y ago

I was under the impression this would increase the cost of insurance for younger people in order to allow insurance to better cover older people and those with pre-existing conditions....

MaysonL 13y ago
It might do that, but so what? A slight increase in fixed costs, with a massive decrease in variance will decreases the risk of medical bankruptcy considerably, even for the young. You seem to be under the impression that all potential entrepreners are young, without dependents, and without pre-existing medical conditions. Not true.
- NoPiece 13y ago
  It does help potential entrepreneurs with preexisting conditions. But it hurts potential healthy entrepreneurs whose rates have skyrocketed. So it is unclear if there is an overall net benefit, and the article doesn't provide any evidence that it would drive a tech boom.
- ghaff 13y ago
  Note also that (as I understand it), if someone already has insurance they can maintain it through HIPAA. The main difference in that case from the new law is that they can't let their insurance lapse or there is no obligation for the insurance company to renew it.
  - dantheman 13y ago
    Lots of insurance plans people had are being cancelled since they don't provide coverage mandated by ACA.
ianb 13y ago
Which means older people, who have generally been much less able to participate in startups at an early stage, can now have affordable insurance as individuals. Before not only could someone older (though not necessarily very old) be burdened by a high cost of insurance, but you could never be sure that your insurance wouldn't spike to some unrealistic amount. After a certain age insurance companies have been very willing to price a person out of the individual insurance pool (and force the person to move to government or employer insurance). Also god forbid you have a kid.

collyw 13y ago

That headline reminds me of how the iPhone 5 was going to save the US economy.

smsm42 13y ago

This article seems to make a lot of jumps that I'm not sure I follow. E.g. it says "anywhere from 19% to 50% of non-elderly Americans have some type of pre-existing condition". 29% to 50% is pretty wide range, but what "some type" means? Is it a cold? Is it a case of acne? Is it cancer? Is it debilitating chronic disease costing hundreds of thousands to manage? Is it a trifle that no insurer would care about? No idea. This phrase is completely useless for me if I wanted to estimate if a lot of Americans would be denied coverage due to pre-existing condition or not. >>> The average age of people who create a tech start-up is 39, and not 20-something This may be true, but how many of these people can not afford any health insurance? I know a lot of startups created by millionaires, but also a bunch created by penniless students or completely middle-class people. In what proportion are they among startup founders? Again, if I wanted to evaluate how many startup founders benefit from ACA, I can not do it based on the article. >>> There is a big difference between mortgaging your house on something you can control, and risking going bankrupt by an illness because of something you can't control, This does not sound convincing - most startups depend on thousands of factors they can not control - from Google releasing competing product a week before their launch to sudden storm in East Asia taking out one of the vital suppliers to fashion change driving clients to or from particular product. Presenting it as if startup founders control everything besides their healthcare costs sounds very non-convincing. Unfortunately, this article makes a claim that is not properly supported by the data in it and can not be evaluated by the reader due to low relevancy of data provided.

waps 13y ago
I'd say the most common pre-existing condition is being a heavy (ex-)smoker.
- smsm42 13y ago
  Being a smoker is not a disease, AFAIK. But again, HIPAA Title I as far as I know provides for uninterrupted coverage regardless of health conditions, doesn't it?
  - waps 13y ago

nugget 13y ago

Obamacare is NOT about health insurance. It's about catastrophic injury insurance, which you are very, very unlikely to ever need. In the past, in the event of catastrophic injury, you declared bankruptcy and the hospital ate the bill. Now, in theory, some insurance plan will be on the hook for those costs. Because of the way co-pays and deductibles work, you have to be in the top 10% or maybe 15% of health care spenders before you even break even with what you've paid in on a Bronze plan (by far the most popular self-purchased plan). Catastrophic injury type health insurance has been available for awhile, at reasonable rates, unless you had a serious pre-existing condition. So there's not much new here except for improved access for the chronically ill (or their breadwinners), who seem unlikely to be prime candidates for entrepreneurship. It's incredible how much disinformation there is around ACA fueled by political agendas on both sides, and how little most consumers understand of the law's actual impact on the health care and employment markets.

thatcherclay 13y ago
The value prop of catastrophic health insurance never fully made sense to me - if I need it, then I am in bad shape, and whether I would have to go bankrupt to pay for it or pay through some insurance is not super important. Seems likely that if all I have is catastrophic coverage, I am going to go bankrupt after the fact anyway because of the long term effects of whatever landed me in that place (those plans do not cover much).
- quesera 13y ago
  In practice, "catastrophic" here refers to cost, not medical severity. That's a symptom of another problem, but it's true. A broken knee in a car accident can cost $100k or more, which could be financially devastating for far longer than it takes for a full medical recovery.
lsc 13y ago
>Because of the way co-pays and deductibles work, you have to be in the top 10% or maybe 15% of health care spenders before you even break even with what you've paid in on a Bronze plan (by far the most popular self-purchased plan). The nature of catastrophic events are that they are rare... and catastrophic. If buying insurance protects me from an event that would have otherwise pushed me into bankruptcy 10 or 15% of the time, that sounds like a pretty okay deal, I mean, depending on how much that insurance costs. But if an event that could bankrupt me did have something like a 1 in 10 chance of happening, and I could insure against it? Yeah, I think I'd look into that. (Add to this the perception that you get different treatment when you show up to the hospital without insurance.) Now, I don't know that's how the numbers work out... it sounds like you pulled 10-15% out of total healthcare costs, and I didn't see any reference for that number. just saying, the point of catastrophic injury insurance isn't to 'break even' - the point of that insurance is to not be bankrupt when that catastrophic event happens. Further, we're talking about entrepreneurs here; a special case of folks who often don't have insurance even when they have income that would normally come with insurance, so the fact that most people are going to go for the super high deductible plan isn't all that relevant to the discussion. My understanding is that the affordable care act would enable me to purchase a full freight health plan, assuming I could pay, without worrying about pre-existing conditions (which have prevented me from doing that in the past.) I mean, I think contractors, really, more than Entreprenuers are the big winners here. At this point, I've got employees and a group plan, so I'm in okay shape. But, this would have saved me from spending as much time in W2 jobs as I did when I was contracting; Generally, I'd go a year or two as a contractor, then spend a year or so as a W2 to top up my cobra.

gavanwoolery 13y ago

I am almost 32 years old and pay $120/month for insurance with Kaiser (I have been very happy with them, and even had surgery done under Kaiser). I don't think this is necessarily a huge expense in the startup world, where people often spend this much on cable tv, cell phone plans, etc. I would guess a fair amount of people interested in entering the startup space are younger and healthier than I am. I am a little bit dubious that such a health care system would cause a startup boom - in fact, if you look at other countries with similar health care policies, they have far fewer startups per capita. This is not to say its a bad idea (you be the judge of that) - just that I don't think it will instill dramatic change in the startup scene.

AnilaRashid 13y ago

Teh only boom is in Internet Solutions rest all is costly.

gpjt 13y ago

Hmm. If this is true, then why do there seem to be more (and more successful) tech start-ups in the US under the pre-Obamacare system than there are in, say, the UK, where almost all healthcare is covered by taxes and is free or nearly free at the point of use? I guess it's not implausible that there's a separate factor that makes the US a better place to do a startup, and the current healthcare situation counts against that factor. But still.

dragonwriter 13y ago
> If this is true, then why do there seem to be more (and more successful) tech start-ups in the US under the pre-Obamacare system than there are in, say, the UK There's pretty much more of everything in the US (except maybe castles and titled nobility) than there is in the UK. ~40 times the land area and ~5 times the population has that effect.