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Why Obamacare willl ignite your start-up life

By on January 9, 2013 in Entrepreneurship

Obamacare is going to set you free to pursue your start-up dreams.  Why? Because finally you won’t be chained to a big company for your health insurance. If you want affordable, reliable health insurance in America, you have had to be over 65 so you can get Medicare, work for the government or work for a big company. That’s because big companies, government and medicare have enough people in their plans to improve the insurance company odds of making money. Small companies and solopreneurs don’t, so their rates are high or they can’t get coverage at all. As a result, business owners often don’t have health insurance. Only 19% of business owners get insurance through their own companies. And, 25% of small business owners don’t even have health insurance according to the Kaiser Family Foundation. The stakes of not having health insurance are catastrophic. You may not be able to get health care if you get sick or are in an accident – that means you or your loved one could die or suffer. If you do get care, the bills may drive you into bankruptcy – half of all personal bankruptcies result from huge medical bills. We’re not talking people who live above their means – we’re talking people who went to the doctor to stay alive until they cry uncle. So, leaving your big employer to start your own business can be a life or death decision; if you have a spouse or kids, the decision could be downright stupid. So, you stay with your big company, you follow their rules and hope for good fortune from the layoff gods. It’s a terrible, ugly, stupid, myopic system and it deserves to die an unpaid for death.

Obamacare is coming. Imperfect, complicated, rough on midsize companies, sure. But the grace of God for your start-up hopes. Because for the first time in American history, your health insurance is going to get unhitched from your oversized, shuffling, bureaucratic employer. You’re going to be able to visit a virtual supermarket of health insurance plans and pick the plan you want, which probably won’t cover less than 60% of your health costs. That supermarket of health insurance is going to pool you with thousands of others to improve the odds that the insurer will make money.    If you have a company of 25 or less, and you pay half of the premiums for your employees, you can deduct 35-50% of the premiums. If you make less than $92,000ish for a family of four, you could get government help to buy your health insurance at the supermarket. Freeloaders on the healthcare system have to pay up, liberating the rest of us from paying for their emergencies and lowering costs (if you’re one of those freeloaders, you have it coming). You never have to go back to work for someone just to get insurance.

Obamacare will be the difference that creates entrepreneurs out of thousands of people like you. Scholars have known for years that the lack of affordable, reliable or even available health insurance keeps people chained to their employers. In fact, when individual states create avenues for people to get affordable health insurance, the number of entrepreneurs increases. When New Jersey reformed its health insurance laws to create markets for individual insurance and guaranteed policy renewals and limited exclusions for preexisting conditions, entrepreneurial activity soared. And so it will in the rest of the country. Because the United States is – by history and by nature – a land of shop keepers, not shop workers. We dream, innovate, strike out, fail, try again and prosper. The health insurance market has incentivized people to live at the mercy of someone else’s vision. Obamacare is going to tilt the market back to center.

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Death of a Successful Startup: Why Laura Quit

By on June 10, 2011 in Made in America

This is a continuing series called Apple Pie Economics about the deliberate forces and unhappy accidents that are getting in the way of us living up to our entrepreneurial potential. Right now, we’re talking about the problems. Later, we’ll talk about solutions. Part 1 is Intro to Apple Pie Econ. Part 2 is 7 Reasons We Don’t Have More Entrepreneurs (and jobs).

We started Apple Pie Economics with the story of Laura, a successful entrepreneur who folded up her successful business and got a job.

From the beginning, her company was a smash. After only six months, Laura had booked jobs across the country. Using her husband’s theater networks, she was able to produce meetings in different cities, using hometown actors, providing local flavor to her productions and jobs for communities of actors in and outside Chicago. After a mild dip in 2009, her business started to make real money and she felt creatively and intellectually fulfilled. But, then, after a few years, Laura took a new job with a big accounting firm. She is an employee again, and her employees are looking for jobs.

Why did she quit when things were just getting really good? Because she needed health insurance.

As a new small business, Laura had to go out into the market and buy a policy just for her company’s full time employees, which included her and her husband and actors who worked for her full time.  Though young and healthy, her husband has asthma, which either disqualified them from some policies or raised the rates through the roof for others. So, they bought catastrophic insurance and funded health care costs out of pocket. Paying costs for treatment from medical specialists, plus yearly exams, medication, dental and vision was usually unaffordable and always stressful.  After a few years of this, she got health care juggling fatigue. Laura’s experience is not surprising; the only surprising thing is that she jumped to start her own business in the first place, in spite of her lack of health insurance options.

The problem is not just the health insurance industry’s practice of denying coverage to people who may really need it – it is the lack of competitive alternatives that is so deadly to entrepreneurship. Scholars have known for years that the lack of affordable, reliable or even available health insurance keeps people chained to their employers. [i] Those shackles, called “job lock,” keep roughly 607,000 people from launching a business.[ii]

In fact, when individual states create avenues for people to get affordable health insurance, the number of entrepreneurs increases. When New Jersey reformed its health insurance laws to create markets for individual insurance and guaranteed policy renewals and limited exclusions for preexisting conditions, entrepreneurial activity soared. [iii]

American entrepreneurs ought to have to do battle with market demand, logistics and competition, but not with America itself. The health insurance marketplace that disqualifies entrepreneurs makes starting a business a life or death decision and that is too much for most people to bear. Hopefully, the health insurance reform will take care of this and it won’t get repealed, only improved.

In the next post, we’ll talk about the suffocating pressures Laura experienced trying to figure out the law.

[i] Buchmueller, T. C., and R. G. Valletta. 1996. “The Effects of Employer-Provided Health Insurance on Worker Mobility.” Industrial and Labor Relations Review 49(3): 439–455.; Cooper, P. F., and A. C. Monheit. 1993. “Does Employment-Related Health Insurance Inhibit Job Mobility?” Inquiry 30(4): 400–416

[ii] Fairlie, Robert W., Department of Economics University of California, Santa Cruz and RAND; Kapur, Kanika School of Economics and Geary Institute University College Dublin and RAND; Gates, Susan, RAND“Is Employer-Based Health Insurance a Barrier to Entrepreneurship?” UCD GEARY INSTITUTE, DISCUSSION PAPER SERIES, June 2009.

[iii] DeCicca, Philip, 2010, “Health Insurance Availability and Entrepreneurship.” W.E. Upjohn Institute for Employment Research, April 2010, 10-67.

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Introducing Apple Pie Economics

By on May 25, 2011 in Made in America


I am launching a series of articles called Apple Pie Economics to identify the obstacles that get in the way of the American entrepreneur. Apple Pie Economics was inspired by the stories I hear frequently about the games of high stakes Frogger that business starters have to play with the American economic system. Just to give you a flavor, I’d like to tell you about Laura.

I met Laura on New Year’s Day at a party. Laura told me she was glad to meet a business lawyer because she had some questions. I was deeply inspired by her story – here it is:

Five years before, Laura was a consultant at a big accounting firm married to an actor. Laura and her husband had two big professional problems: he couldn’t find steady, paid acting work; she, stuck in endless corporate meetings, was bored. Together, Laura and her husband decided to launch a business in Chicago to produce corporate meetings using actors as the facilitators. Although she was entering a crowded field, they planned to compete on quality and originality.

First, Laura created an environment of respect for the actors by treating them well and paying them better. Second, Laura hired an expert in industrial communications to contribute strategies and insights based on academic research into communications and learning patterns. Then, Laura applied her experiences in the corporate world to create novel, engaging programs. By honoring both the actors and the corporations who hired them, she coaxed better performances out of her actors and deeper participation from the corporate employees who attended the sessions.

From the beginning, her company was a smash. Her first client was a Fortune 50 company located in New York, who loved the work; good word of mouth brought more jobs.

“I expected my little business to go slowly and to take years to build, but it took off from the very beginning. I was overwhelmed, but I handled it and kept thinking ‘what a great problem to have’.”

The US needs more entrepreneurs like Laura to create jobs and create wealth. Most net new jobs get created by new ventures – so says the Kauffman Foundation, which looked at 40 years of census data to count the jobs created in America. (If you are interested, you can also take a look at the US Census Bureau’s analysis here, here and here. I plan to talk more about these numbers and what they mean in a later post.) Even though older companies create more jobs, they also cancel more jobs, which means that the new jobs created by startups are where we actually make employment gains. For instance, from 2007 to 2009, startups created 8,206,452 jobs. Existing companies did create 26,125,966 jobs during those three years, but they also canceled 35,347,539 existing jobs. That means that existing businesses terminated 9,221,573 more jobs than they made. But, startups almost made up for that deficit – almost. Here is a chart demonstrating the jobs created and jobs taken away.

In spite of the importance of startups to American employment, not only are there still doubters (e.g. this nuance-free, misleading post), our current commercial systems seem almost booby trapped to stop entrepreneurs in their tracks. Laura’s story highlights some of the mines.

After only six months, Laura had booked jobs across the country. Using her husband’s theater networks, she was able to produce meetings in different cities, using hometown actors, providing local flavor to her productions and jobs for communities of actors in and outside Chicago. After a mild dip in 2009, her business started to make real money and she felt creatively and intellectually fulfilled.

I expected Laura to ask me the standard business law questions about commercial insurance or negotiating. I didn’t expect her to ask me,

“What do I need to do to shut my company down?”

Laura had taken a new job with a big accounting firm; her first day was Monday. She is an employee again, and her employees are looking for jobs.

Apple Pie Economics will look at the obstacles in the path of the American entrepreneur. Some of those obstacles include:

  1. Health insurance
  2. Life without a net
  3. A game “rigged for big”
  4. Scarce funding
  5. Hidden laws and regulations
  6. Overpriced lawyers
  7. Can’t do attitude

Our American core is entrepreneurial but our American economy is rigged against entrepreneurs. I believe this because I’ve spent over a decade working with entrepreneurs and I’ve seen the struggles they have endured or lost trying to make their dream go. Businesses must adapt or die; but, there are forces and accidents that are getting in the way of us living up to our entrepreneurial potential. I want to examine this, to gather the tools and advantages in the American entrepreneurial arsenal. And, I want to expose and propose fixes for the obstacles.

Over the next few months, I’m going to write about real challenges faced by entrepreneurs, how government can propel startup activity (and how they fail trying) and how you and I can do our part to help entrepreneurs start businesses and create jobs. And, we’ll also get back to Laura and the forces that ultimately propelled a successful, creative entrepreneur back to regular employment.



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10 Outrages Fixed by Health Care Reform – Part 5

By on April 25, 2011 in Archive, Health Care, Made in America

Outrage #1: Apple Pie Economics Rewards Cheap Employers

Companies can beat their competitors by charging less – if they let the government pick up the tab for employee health insurance. 

Solution: Big Companies have to provide health insurance (a/k/a “Pay or Play”): Beginning in 2014, companies with 50 full time employees must either (1) provide “eligible” employees with “minimum essential” health plan coverage or (2) pay a penalty if an eligible employee gets insurance through a state exchange and qualifies for government subsidized benefits. The penalty is $2,000 per year, for each employee after the first 30.

Solution: The insurance provided can’t be crap. Employers also have to offer plans for which they pay 60% or more of the cost and that is not unaffordable or (2) pay a penalty if an eligible employee gets insurance through a state exchange and qualifies for government subsidized benefits “Unaffordable” will be a sliding scale based on the employee’s income and the percentage of costs covered by the employer. This penalty is $3,000 per year for every employee who gets government subsidized coverage up to the penalty amount the employer would pay if it offered no coverage at all.

Solution: And they have to provide vouchers in case the insurance isn’t that great. Every employer of every size who provides health coverage must provide vouchers to employees who qualify for government subsidized health coverage. The vouchers can be used to pay costs of coverage under an exchange plan. The voucher will probably offset penalties for inadequate coverage.

♣ Rules that apply only to new plans. Some mandates only apply to plans that are not grandfathered in, because it was in effect, and unchanged, since March 23, 2010. This symbol indicates a rule that does not apply to grandfathered plans.

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10 Outrages Fixed by Health Care Reform – Part 4

By on April 20, 2011 in Archive, Made in America

Outrage #4: ESP Required

Your insurance only covers the emergency room visits …(wait for it)… that you got approved in advance.

Solution: No Advanced Knowledge of Emergency Required. Plans that cover emergency room cannot require pre-authorization or in-network hospitals for emergency room visits.

Outrage #3: No One Reads It or Understands It

Your insurance policy is a riddle wrapped in an enigma that you unravel only when you are sick and scared and you need it.

Solution: Summary of Benefits: Starting in March, 2012, insurers and sponsors must give customers a summary of benefits in a format prescribed by regulation.

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10 Outrages Fixed by Health Care Reform – Part 3

By on April 6, 2011 in Archive, Made in America

Outrage #6: Pre-existing Condition – Denied

If you ever saw a Dr. for something minor, you may have a hard time getting new insurance. If you ever saw a Dr. for something MAJOR…

Solution: No Rejecting for Pre-existing Conditions. Starting 2014, insurance plans cannot reject applicants for pre-existing condition, regardless of age. An applicant’s prior coverage will be irrelevant.

Outrage #5: Sickness is Good for Business

Our medical system pays for keeping someone sick, not well.

Solution: No Copay for Prevention. Group plans must offer prevention services without copay or deductibles including immunizations and screenings for minors and breast cancer exams and mammograms for women.♣

Solution: Wellness Incentives: There are limits on the discount that can be offered for wellness incentives, like quitting smoking or being a nonsmoker. Those limits are getting raised to 30% of the premium and could increase to 50% at some point. (That means that smokers will probably pay more for insurance. But I still miss smoking.)

♣ Rules that apply only to new plans. Some mandates only apply to plans that are not grandfathered in, because it was in effect, and unchanged, since March 23, 2010. This symbol indicates a rule that does not apply to grandfathered plans.
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10 Outrages Fixed by Health Care Reform – Part 2

By on April 5, 2011 in Archive, Made in America

Outrage #8: Women Denied

Women have to fight to get to a gynecologist.

Solution: OB/GYN Covered! Plans cannot require pre authorization to see a gynecologist in the provider pool. Women get to pick a gynecologist as their primary care doctor. Ï

Outrage #7: Preexisting Condition – Dropped

If you get sick, your insurance company may drop you and say your illness was a “preexisting condition.”

Solution: Can’t Drop for Preexisting Condition. A group health plan cannot drop an existing customer unless it provides 30 days’ notice and the reason is fraud, intentional misrepresentation of a material fact, non-payment of premiums or plan termination.

♣ Rules that apply only to new plans. Some mandates only apply to plans that are not grandfathered in, because it was in effect, and unchanged, since March 23, 2010. This symbol indicates a rule that does not apply to grandfathered plans.
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10 Outrages Fixed by Health Care Reform – Part 1

By on April 5, 2011 in Archive, Made in America

Today, I’m rolling out a series called “10 Health Care Outrages Fixed by Health Care Reform. I wrote this because I didn’t know what was in the big bill the President signed last March – and this was a good way to find out. Having read the contents, I’m actually proud of our government.

Outrage #10: Routine Claim Rejections

Insurance companies keep reimbursements down by rejecting fair claims and then making it difficult for you to fight the rejection.

Solution: Impartial Appeals Process. Health plans have to create impartial initial review and appeals procedures that let you fight coverage rejections. ♣

Outrage #9: Dollar Limits in Care

If you get too sick, you may run out of insurance because of limits on how much health coverage you get over your lifetime.

Solution: No Life Limit. Group plans will not be able to limit lifetime or annual dollar limits on “essential health benefits.” But, this gets phased in, starting at an annual limit of $750,000 to $2 million in 2013.

♣ Rules that apply only to new plans. Some mandates only apply to plans that are not grandfathered in, because it was in effect, and unchanged, since March 23, 2010. This symbol indicates a rule that does not apply to grandfathered plans.
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