Obamacare could help fuel a tech start-up boom

http://www.computerworld.com/s/article/9242833/Obamacare_could_help_fuel_a_tech_start_up_boom

by aaronjg • 13 years ago

34 66 13 years ago

muzz2• 13 years 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/SB1000142412788732405970457847...

ck22• 13 years 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.

nyarlathotep2• 13 years 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.

yardie4• 13 years 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• 13 years 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.

rdl• 13 years 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%.

nemesisj• 13 years 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.

jordanthoms• 13 years ago

And an awesome example of unintended consequences. Now the only way to increase your profit as a insurance company is to spend more - so there is no incentive for them to bring the costs they pay down.

Writing laws that mess with markets without just making everything worse is _hard_.

muzz2• 13 years 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-re...

replicatorblog• 13 years ago

It's an interesting idea, but this post provides an interesting contrast: 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• 13 years 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• 13 years 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). 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/SB1000142405270230479580457909...). Increasing health insurance portability should make jobs less "sticky" and result in a more efficient distribution of labor.

einhverfr2• 13 years ago

Indeed. BTW, I think Obamacare has largely been an exercise for how to take a broken system and "fix it" if by "fix it" one means stack everything against the individual and for big pharma/medical device manufacturers.

The problem is we have used health insurance to chain people to jobs for a long time now, and the result is that it is very hard to be self-employed in the US (much harder than in any other country in the world). This needs to be decoupled whether it is "buy your own insurance," or whether it is something like Canada's province-by-province single payer approach.

_delirium3• 13 years ago

A particularly annoying aspect of employer-tied health insurance is that it's a hassle even when you do have continuous coverage. If you start your next job literally the day after leaving the previous one, you may (unless you get lucky with the providers aligning) no longer be able to go to the doctor you've been going to for years. You'll have to choose a new doctor, in a new location, get records transferred (itself often an adventure), re-fill dozens of pieces of paperwork, re-start prescriptions, etc. It's a huge pile of bureaucracy, and that's among the best cases, where you actually do have continuous coverage.

If you were actually in the middle of ongoing treatment at the time of the job change, it's a particularly big hassle to get everything handed off properly.

pfisch2• 13 years 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• 13 years 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• 13 years 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• 13 years 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.

ianb• 13 years 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.

ctl• 13 years ago

Right now people avoid self-employment because if they get seriously sick it will bankrupt them. Under the new law it won't.

That's the argument. The premiums you pay when you're healthy are beside the point.

smsm428• 13 years ago

I though medical insurance is available to self-employed. Is it not the case?

I've also heard many self-employed people now face a significant increase in their healthcare costs due to the fact that many high-deductible catastrophic insurance plans are illegal under ACA and plans that cover everything from contraceptives to mental health problems cost a lot more. At least I've seen many reports from self-employed people that they got notes from their insurance companies that their plan is cancelled under ACA and is no longer available.

pfisch2• 13 years ago

I don't understand. I am self-employed and I have insurance....I just go buy it online.

collyw• 13 years ago

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

smsm428• 13 years 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.

waps3• 13 years ago

I'd say the most common pre-existing condition is being a heavy (ex-)smoker.

smsm428• 13 years 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?

nugget• 13 years 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.

lsc• 13 years 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.

_delirium3• 13 years ago

There are more entrepreneurs and potential entrepreneurs that fall into the pre-existing condition bucket than you might think. It's not only people with serious chronic illnesses that would make them unlikely to start a company anyway, but anyone who has an elevated risk due to a major past health event, even someone who hasn't had an issue in 20 years and is perfectly capable of and willing to do a startup. Those people are currently chained to a BigCorp due to the need for group-plan health coverage, and are hopeful that PPACA will change that.

Even among the relatively few people I know interested in doing startups (probably 5?), one is in that category: an early-30s software engineer with a congenital heart defect. He had surgery in his early teens for it, and has not had a major issue since then. It doesn't interfere with his daily life, but obviously there is added monitoring and a significantly elevated risk of future complications, which disqualifies him from non-BigCorp health coverage.

smsm428• 13 years ago

>> Those people are currently chained to a BigCorp due to the need for group-plan health coverage, and are hopeful that PPACA will change that.

Didn't HIPAA Title I already change that?

http://www.dmhc.ca.gov/dmhc_consumer/hp/hp_hipaacp.aspx If you qualify for a conversion plan, you cannot be denied insurance because of your medical history

https://en.wikipedia.org/wiki/Health_Insurance_Portability_a...

Is there some issue with this I am missing?

thatcherclay• 13 years 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).

quesera2• 13 years 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.

pzxc• 13 years ago

I wish it was about catastrophic injury insurance. I'm a single, healthy 33-year-old guy with no kids, so it'd be perfect for me. My annual healthcare expenditures are virtually zero, year after year, right now. Coverage in case of a heart attack or cancer would be awesome, because I can't afford a $100,000+ hospital bill, but otherwise I rarely even have a cold or the flu.

I live in California which, as the first state to comply with ACA, has numbers available for me up at coveredca.com.

The bronze plan requires me to pay a 30% deductible for the category of "High cost and infrequent care". So if I get cancer, my $200k bill (just to start, cancer treatment can go on and on) is still a $60k bill. I'm still bankrupt.

The Silver 87 plan also has a percentage-based deductible. Have to go up to the normal Silver plan to have a flat rate. For my age it'll cost over $200 a month if I make $30k/yr or more.

Also, all the plans, whether bronze silver platinum or anything else, include MANY MANY things other than "catastrophic injury coverage". Everything from prescription medication to preventative care visits.

I really really want a "catastrophic injury only coverage" option but I don't have it. That's what insurance SHOULD be, to cover you in case of significant financial loss. Imagine how expensive car insurance would be if it covered oil changes, or homeowner's insurance would be if it covered minor repairs?

For someone that's lamenting the "disinformation around ACA", I really don't think you've checked the actual costs/plans involved. Well, I have, and let's not pretend that Obamacare offers plain and simple catastrophic coverage because it doesn't. Look at the website and see for yourself. That's California only of course but I doubt the other states will be able to do much better.

vidarh2• 13 years ago

Also, all the plans, whether bronze silver platinum or anything else, include MANY MANY things other than "catastrophic injury coverage". Everything from prescription medication to preventative care visits.

Consider that if a plan is to include many high cost "catastrophic" treatments, excluding prescription medication and preventative visits could easily make no financial sense for the insurers as it opens the door for numerous types of situations where insurance payouts rise drastically because the people insured can't or won't spend the money on drugs or preventative treatments.

It is in other words not at all a given that an insure limited only to catastrophic events would actually turn out to be cheaper to you.

Imagine how expensive car insurance would be if it covered oil changes, or homeowner's insurance would be if it covered minor repairs?

It would be more expensive, yes, but there is no reason it would increase your total costs unless you were irresponsible in how you treated your car yet lucky enough to escape the consequences.

_delirium3• 13 years ago

So if I get cancer, my $200k bill (just to start, cancer treatment can go on and on) is still a $60k bill. I'm still bankrupt.

The plans all have maximum annual out-of-pocket expense caps, above which you get 100% coverage, so it wouldn't be nearly as high as $60k. Checking the website, the out-of-pocket expense for the California Bronze plan is limited to $6,350/yr for an individual, or $12,700/yr for a family. This is precisely so that you can have a finite exposure that can be self-insured by keeping savings in an account.

So in your example, if you were on a family plan and hospitalized, you'd pay the first $5,000 entirely out of pocket (the Bronze-plan deductible). Then you'd pay 30% of the next ~$25,650 in expenses (~$7700), which would bring your out-of-pocket expenses for the year up to $12,700. At that point you've hit your out-of-pocket cap, so if there are still bills past $30,650, the plan would cover the entirety of the remainder.

The Bronze plan is essentially a high-deductible plan, but with the partial-coverage in between zone: you pay everything below $5,000, and nothing above $6,350/$12,700. The minor exception is that you get one deductible-free preventative-care visit per year.

vidarh2• 13 years ago

The chances that my house will burn down is very very small. In the 8 years I've lived in it, only one house on my street of 660 houses have had a fire, and it did not totally ruin it.

But the small amount I pay in insurance is well worth it to avoid bankruptcy in the event it burns down and I'm on the hook for my mortgage plus rebuild costs.

The chances that I'll die before my son is old enough to make his own living is likewise miniscule. Yet the life insurance payments are small compared to the peace of mind they give knowing he'll at least not want for money.

The point of catastrophic insurances is not to break even - on the contrary: You should hope it's a loss, because if it's not it means something really bad has happened to you. Maybe the threshold for what constitutes a "really bad" financial blow is high for you, but for most people it is quite low.

You may consider it ok to run the risk of going bankrupt over relatively minor medical issues. I don't.

And your bankruptcy example demonstrates the point of making this mandatory: Otherwise everyone ends up paying, without any ability to steer how the payment burden is distributed. This is likely to further disadvantage those who are least able to pay for their treatments in the first place.

I suspect that despite the shortcomings of ACA it's going to turn out politically much like the UK NHS: When it was introduced, in 1948, the Conservatives fought it tooth and nail, and vowed to repeal it - one might have been forgiven for thinking it would be the End of Britain if one were to have listened to them. A year or two after it was introduced, the NHS had become so popular that they dropped their opposition to it with the realisation that they'd never form a government again if they kept up their opposition.

Chances are good that unless the ACA implementation is botched beyond belief that Republicans will find themselves in a similar situation in a few years, which might just explain why they are so rabid now.

true_religion2• 13 years ago

I think its easier to justify insuring objects because in the case of a total loss the objects value can be replaced in full with money.

However when it comes to your health, even billions of dollars will not be able to give you a new live arm if you lost it, or save your life if you have terminal cancer.

So health insurance will always be bounded to a point where you can get injured, and simply just die regardless of insurance.

Life insurance is less tricky, since you're not really insuring your 'life' but rather the income that your family would lose due to your being accidentally dead.

gavanwoolery• 13 years 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.

gpjt• 13 years 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.

dragonwriter4• 13 years 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.

Obamacare could help fuel a tech start-up boom

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