Will Health-Care Law Beget Entrepreneurs? Thousands of would-be entrepreneurs want to start their own businesses, but are shackled to their current employer by the need for affordable health insurance

Updated May 8, 2013, 7:59 p.m. ET

Will Health-Care Law Beget Entrepreneurs?


Thousands of would-be entrepreneurs are itching to start their own businesses, but many are shackled to their current employer by health-care benefits they don’t think they could otherwise afford. Economists call this phenomenon “job lock,” or “entrepreneurship lock.”

But the pressure some Americans feel to cling to a corporate job chiefly for the health insurance could, conceivably, ease in coming years. Under provisions of the health-care law, new-business owners will be able to get coverage through public marketplaces, or “exchanges,” beginning in October, for policies that will take effect starting in January.If the law, known as the Affordable Care Act, is implemented as intended, these exchanges could let entrepreneurs buy insurance at reasonable rates, regardless of their health histories. That’s far from a sure bet, however, given evidence that premiums for some people—particularly the young and healthy—could rise under the law.

The Obama administration has touted a boost for entrepreneurship as one of the health-care law’s key benefits. 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.

Laura Stoll is among those who dream of living the entrepreneurial life—if robust, affordable coverage becomes available. The 38-year-old Chicagoan left a corporate job with good health coverage in 2006 to start a new business. Along with her husband, Jay Sukow, a 42-year-old improv actor, she founded the Riot Act, a company that integrated sketch comedy into corporate-training programs.

Health insurers denied them coverage while they were self-employed because the couple suffered from allergies and asthma. For five years they avoided doctors and hospitals as much as possible, Ms. Stoll says.

But once Ms. Stoll was ready to start a family, in 2011, she says she decided it would be smarter to return to the corporate world to get insurance for herself, her husband and her future children. “I needed the safety and security of a corporate blanket,” she says.

So she and her husband closed their business, and Ms. Stoll accepted a position that year at Ernst & Young, where she now works as an organizational-development consultant. Earlier this year, she gave birth to her first child, a boy.

Many workers, like Ms. Stoll, believe that as independent business owners they might not be able to afford insurance that covers all their medical needs, such as maternity or mental-health care. Other workers say they are stuck in corporate jobs by pre-existing conditions that make them ineligible for insurance on their own.

To be sure, the law’s effect on entrepreneurship could be diluted if getting coverage through insurance exchanges involves big administrative headaches. It remains to be seen what types of health plans the exchanges will offer, and what the costs to entrepreneurs will be.

“To see that 33% bump” in entrepreneurship, “people would need to get a plan on the exchanges that is just as good as what they could get from employers,” says Susan Gates, director of the Kauffman-RAND Institute. “And at least in the short run, the exchanges likely won’t be as good,” she says.

Even as state and federal officials prepare to roll out the exchanges, Brian Hassan, founder of BayPoint Benefits, a San Francisco-based health-insurance consulting firm for technology startups, says he has met with budding entrepreneurs at large tech firms who put their startup plans on hold after crunching the numbers. “They kind of hold back a bit when they see the cost of benefits,” he says.

Some insurance brokers say insurance premiums for some entrepreneurs won’t be cheaper under the law. UnitedHealth Group Inc. UNH +3.32% told brokers in February that rates for some consumers buying their own plans could rise as much as 116% while small-business rates could go up 25% to 50%. And Aetna Inc. AET +0.47% told them last fall that rates on individual plans not being grandfathered under the law could go up 55%, on average, and small-business rates could rise 29%.

UnitedHealth said its figures represent a high-end scenario, not an average, and some consumers could see rate decreases.

A spokesman for Aetna said its estimates represent the average impact in a typical state.

“There are very few people that I speak to who are expecting small-group rates to come down,” says Parker Conrad, co-founder of Zenefits, a San Francisco health-insurance broker for startups and small businesses.

Of course, the world doesn’t need more bad business ideas, and leaving a secure job to start a business is like “buying a lottery ticket” says Shikhar Ghosh, a senior lecturer at Harvard Business School who studies startup failures. Current failure rates suggest 50% to 75% of entrepreneurs likely won’t succeed, and may lose their savings.

Ms. Stoll, the Ernst & Young employee, says she is taking a wait-and-see approach. She isn’t likely to jump ship immediately to restart her business, she says, in part because she worries the insurance exchanges might offer coverage that isn’t as attractive as what she gets at the accounting firm. Only when the exchanges are established, she says, can she assess the coverage offered. That process, she adds, could take years.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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