In response to the government shutdown that began last Tuesday, October 1st, Platform Houston hosted an urgent round-table discussion on Wednesday about the impact of the Affordable Care Act (ACA) on startups in regards to their funding, health insurance for bootstrapped projects, and sharing of resources.
The meeting at Platform initiated an ongoing discussion about the ACA within the Houston startup community. Below, I’ve summarized the key points of the discussion, beginning with a brief overview of the U.S. government shutdown and how it ties into the importance of understanding the ACA.
What caused the government shutdown? On September 30th, the U.S. Congress could not agree on a spending budget for 2014 by midnight, resulting in the shutdown. The reason for the disagreement stems from the debate about whether or not the budget should providing funding to implement the ACA.
What is the impact of the shutdown in the U.S.? The shutdown has severely impacted the majority of government agencies including over 800,000 federal employees, NIH- and NSF-funded scientific research, and especially our local NASA employees in Houston as NASA is the most affected agency by the shutdown. Health and Life science companies are also experiencing significant interruptions due to the shutdown. What’s more, the U.S. is estimated to reach its $16.7 trillion debt ceiling on October 17th. If that date is passed without an agreement to raise the debt ceiling in order to pay the nation’s bills, it will mark the first time in history that the U.S. would have defaulted on its loans. The resulting debt crisis would have even more severe implications on federal spending and the U.S. economy in general.
What is the Affordable Care Act (ACA)? The Affordable Care Act (ACA), also known as ObamaCare, passed into law on March 23, 2010. The goal of the ACA is (1) to decrease healthcare expenses to both individuals and the government, (2) to decrease the uninsured rate, and (3) to increase the quality and affordability of health insurance. On October 1st, the Health Insurance Marketplace opened officially as a place for U.S. consumers to shop for and purchase health insurance plans. Within days of it’s opening, over 8.1 million consumers visited the site (or 2.5% of the U.S. population) to shop for health insurance.
Why should healthcare go through the employer? Why not buy it directly from the source, just as we do for car insurance? Purchasing insurance directly may increase personal accountability for individual health, and introduces the potential for a lower premium by decreasing one’s health risks. Currently 54% of self-employed individuals do not carry health insurance. By 2016, under the Affordable Care Act (ACA), individuals without health insurance will be charged a penalty of $695/adult and $347/child, and $2,085 or 2.5% of household income.
What do startups need to do? If you have 50 employees, do you need to pay their healthcare? Companies with fewer than 50 employees have the option to use the Small Business Health Options Program (SHOP), which offers special tax credits to small businesses. Businesses with 50 or more full-time employees will need to cover the insurance premiums for their employees, or else pay a shared responsibility fee.
How does the ACA affect bigger companies? Part-time employees, or those who work under 30 hours per week, experienced the first effects of ObamaCare. In 2012, Walmart eliminated health coverage for its part time employees, minimizing their corporate responsibilities to pay for healthcare. Many other companies also have strategies for avoiding or decreasing the amount they pay for employees’ healthcare as well. For example, see announcements from Trader Joe’s, Home Depot and Forever 21, and several others that have eliminated health coverage for part-time employees due to changes in the law. Expanding these measures by limiting the number of full time employees in order to avoid healthcare costs, however, would not be a recipe for a healthy company culture and business success, so Walmart has begun adding more full-time positions.
Similarly, for startups, the problem with limiting employees to part time or not providing health coverage at all is that startups need to attract talent. Thus, before the ACA, startups had to compete with large companies that offer prospective employees full health plans. ObamaCare will make obsolete the need for talented would-be entrepreneurs to take a job at a large company because of the healthcare benefits.
What opportunities does the ACA create for startups? Guaranteed healthcare coverage may encourage new entrepreneurs to launch businesses and to become self-employed, fueling a technology startup boom. Already, many new companies have emerged based on opportunities uncovered by ObamaCare (see Table 1). Further, for companies of all sizes, the ACA is an opportunity to rally troops to get involved in their own health. Company cultures may incorporate more activities to encourage healthy lifestyles.
Will the ACA affect quality of healthcare? Many variables surround this issue and only time can tell the actual result. While the cost of a medical education remains exceptionally high, leaving physicians with an average debt of $250,000 after medical school, doctors will still feel pressure to repay loans and tend towards more lucrative specialties or healthcare systems. Other healthcare professionals, including nurses and physician assistants, may also experience pay cuts. At the same time, standards of care may become more regulated, as quality and price are more transparent and comparable.
What do people think about the ACA? Different groups of people have dramatically varying perspectives. Some love it; some tear it apart. See Table 2 for some general examples.
The Bottom Line for Startups: With any big change comes great opportunity for businesses. As the new system shifts into place, challenges may arise that reveal new spaces for startups to fill. Additionally, by placing healthcare coverage directly into the hands of the individual rather than through the employer, ObamaCare offers more flexibility for entrepreneurship and self-employment. So entrepreneurs, be on the lookout for new opportunities for (1) venture ideas, and (2) business operations.