Note: This is the first in a series of posts about policy changes that make starting a business easier
It was the winter of 2005, and I was sophomore at the University of Wisconsin. My business, ExchangeHut, was humming along smoothly and I decided that I wanted to focus on building ExchangeHut sites at additional college campuses. I figured the best way to do it was to drop some of my classes and become a part time student. I had it all worked out, until it was time to tell my parents. Since ExchangeHut was going well, they did not have a problem with me taking fewer classes, but they were very worried about my health insurance.
Most students are covered under their parents’ health plans, as long as they are classified as full time students. Since I was going to take fewer than the magic 12 credits that spring semester, I was going to be dropped from coverage. My parents’ biggest objection to me taking fewer classes to work on the business was that I would not have health insurance. They were worried that something might happen to me and I would be saddled with a huge debt from having to pay medical bills.
I did some research and found out that I since I was a student, I could use University Health services for most of my routine care. I still needed some form of insurance to protect me in case I got hit by a car, got cancer or fell of my bike. After a few weeks, I settled on a plan with a $5,000 deductible from WPS. Since I am young, healthy and willing to have a high deductible, my plan only cost about $40 per month. Most other student founders of startups that I talked to either went without insurance or paid much higher rates for more comprehensive plans. Luckily, I did not get sick and have never had to file a claim, but if something were to have happened, it may have crippled my ability to continue to run ExchangeHut effectively.
Health insurance is always a high priority when I talk with other young founders of startups. Many students that I talked to were reluctant to go below 12 credits because they would lose their health insurance. Some were not willing to try to start a company because they knew that they needed to maintain full course loads and that they would not have time to be both a student and a business owner. Other recent grads took jobs rather than start a business partly because of health care worries. Easier, more affordable access to decent health care would make it easier for people (not just students) to make the jump to starting their own companies. More startups lead to more successful companies, more jobs and more tax revenue.
So, how do we fix this problem? There are many solutions, ranging from lifting the full time student requirement to national health care.
- National Health care – If we had national health care, we would not have to worry about health insurance, but might have to worry about quality of care and other issues.
- “Small Business” or “Entrepreneur” Insurance Pools – Allow entrepreneurs to buy into pools that act as buyers, similar to large corporations.
- State government funded “Entrepreneur” policies – State governments could allow entrepreneurs to buy state health care policies.
- Allow young entrepreneurs to stay on parents health care longer – Allow insurance companies to either allow young people to stay on longer for free, or give young people (and their parents) to charge more.
I personally think that options 2 and 3 are the most promising. I would think that insurance companies would want young startup owners as customers, as they are less likely to get sick than older people. I think that insurance companies that offered an “Entrepreneur Plan” would not only make money, but they would also be able to tout their support of business and entrepreneurship. I think it would be a good way to get customers, too. They could even sell the introductory policy as a loss leader to get potentially successful people into the company early. Then, when businesses succeed, entrepreneurs might continue to use the insurance company for their growing insurance needs. I am working with a few business owners in Madison to try to organize a form of this, but it has been harder than I expected.
I think states would also be wise to create entrepreneur policies as incentives for startups to move to or stay in states. Wisconsin, along with many other states, have already created incentives for startups and investing, but as far as I know, no state has done anything like this with health care. Since many startups, especially tech startups, are mobile and can be run from anywhere, incentives like affordable health care would be effective ways to attract and keep startups. I would also like to see policies like these opened up to young people who are working in non-profits.
These changes would help people who are thinking of starting businesses, but are scared off by health care expenses. They would also help entrepreneurs who do not have health insurance, are paying for inadequate coverage or paying too much for good coverage. Health care is only a small part of the solution, but it is an important one. Do you agree that health care is a problem? What solutions would you propose?