At a recent event at 1776 reviewing the Seven facts Every Startup Should know About ObamaCare we had a interesting conversation about how the new law that changes the way healthcare is purchased will impact startups. Here is what we came up with:
1) ObamaCare will make it easier for startups to “Poach” senior talent - Historically, the most compelling reason to provide small group health insurance was the fact that it offered guaranteed issuance -meaning that all your employees, regardless of health history, would be approved for coverage.
Group health insurance soon became a tool to attract talent. In the past, if a startup wanted to recruit a grey-haired CFO to please investors, it had better offer group health insurance. Let’s face it, older people are more likely to have pre-existing conditions. So unless you have Facebook-like valuations, that CFO is not about to leave her cushy current situation with benefits to risk being turned down for health coverage in the open market.
With the new ObamaCare plans, however, one can no longer be turned down for coverage because of a pre-existing condition. Now a small start-up can offer a compelling compensation package without health benefits and the CFO can sign up for a fairly generous guaranteed-approved Platinum ObamaCare plan and pay for it out of pocket.
2) Companies with less than 50 employees will stop offering group health insurance…and that’s not a bad thing - Since providing guaranteed issuance health insurance doesn’t offer the competitive advantage as it once did, it doesn’t make a lot of sense for small companies to offer health insurance. Sure the ACA offers tax breaks for company with under 25 employees who offer health insurance, but that’s for only for the first two years.
My opinion is, instead of offering a healthcare package as a benefit, pay employees a fair wage for their job. Make sure that fair amount is enough for your team to also purchase their own ObamaCare plan. Since no one can be turned down for coverage in the individual market, you are not going to be screwing your employees with pre-existing conditions. Now you can get back to focusing on your company and stop worrying about benefits.
3) Entrepreneurship will increase in the next 3 months - Dreamers who previously had to stay with their company because of the health benefits, now can finally take the entrepreneur’s plunge and quit their day job. The ACA law is opening the doors to many who have always wanted to start their own business but couldn’t due to their preexisting condition.
4) New founders can avoid making a very bad decision - Starting a company with no personal health insurance is the worst business decision you can make. Period. High medical bills are the #1 cause of bankruptcy in America. With ObamaCare’s premium subsidies, start-ups who are “ramen profitable” no longer have to make the trade-off between having cash flow to build their company or health insurance.
In the new order under ObamaCare subsidies, if you make less, you pay less for health insurance. So health care will be pretty cheap for many in startup mode. When you start making more, then you pay more. And we are all going to make more…right?
Much of ObamaCare is overly complex and poorly thought out. Implementation of law is a mess and will be so for a while. Additionally we have yet to see good information on the networks of doctors participating in the program and we have no idea about prices in the long term. But when it comes to the start-up environment, because of the reasons stated above, I think it will be a net plus. And that’s a good thing because after all…they keep telling us that small businesses are engine of the economy.
Chris Mihm cofounded www.medicoverage.com in 2003 to help young people, families and companies research and purchase health coverage. He joined 1776 to return to his entrepreneur roots and launch www.senior65.com, a new site that helps seniors make sense of Medicare.