Want to Create More Startups? Do More to Corral Health Insurance Costs
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very creative ways entrepreneurs have addressed this issue.
For married or partnered entrepreneurs, having their significant other help in the business is a traditional way of keeping costs down. Traditionally, that meant the entrepreneur and his/her spouse both joined the business as low-cost laborers to keep costs down. Increasingly, it means the spouse maneuvers him/herself into a job with health benefits that can cover the family. I’ve seen spouses make health insurance for their family a negotiating point at salary negotiation time in order to help get their partner’s business off the ground.
One largely unintended benefit of new federal healthcare rules is it helps young entrepreneurs under 26. Under the law, insurers are required to cover “kids” living at home under age 26 on their parents’ plans. For younger entrepreneurs, this allows access to health insurance for little to no additional cost to the business.
For everyone else, the economic reality of insurance costs means a much longer startup and ramping phase. The entrepreneur works on the business part time and on weekends, keeping his/her existing job at a big, steady company primarily for its health benefits. This is the most common way of addressing the issue I observed over the last few years of our UW Bothell program. While being an entrepreneur is all about taking calculated risks, many entrepreneurs— especially those with families—were not going to risk losing affordable health insurance. They often chose to keep the full-time job with benefits, even if they knew that meant it would slow down their startup’s growth curve.
There are many barriers to becoming an entrepreneur. There are even more barriers between a business launch and a successful business. I find it distressing the high cost of healthcare is increasingly a major component of both barriers.
The last 20 years of economic activity have proven to me beyond a shadow of a doubt that America works best the more startups we have. The 1990′s experiences with a startup economy brought us full employment and budget surpluses. The 2000′s focus on large businesses brought us to the brink of a second Great Depression and huge budget deficits. I’m not sure two decades could be any more instructive as to the importance of small businesses to America.
We have to figure out a way to make it easier for entrepreneurs. Smart states will create very large risk pools and “encourage” everyone to make use of them since larger risk pools can mean lower insurance costs. States with compatible tax structures can offer insurance deduction help for startups or small businesses along the lines of those in the new federal healthcare law. We need to extend the precious few concepts that made it into the federal law that help bend the cost curve, some of which can be done on the state level.
It doesn’t need to be a government-based solution. Trade groups often offer insurance plans, though my personal experience with them is they tend to be more expensive than individual plans through Regence. What might be more useful from trade groups is a much broader variety of plans combined with financial and tax advice so smaller businesses and particularly startups can lessen their healthcare cost burden.
Maybe the most potent solution comes from the natural willingness of entrepreneurs to share their good ideas with other entrepreneurs. If you’ve found a clever way of reducing healthcare costs for your business/startup, consider sharing it in the comment section. With the collective wisdom of Xconomy readers, we might be able to save each other a fair bit of cash.
We’ve got to do something or healthcare costs will make the entrepreneur who jumps with both feet into a new startup an endangered species.