Lack of health insurance a road block to new business startups?
Amy Pietsch has more than just a few ideas for starting a new business.
In fact, she has a whole file cabinet full of them. Each and every one is well researched and ready to go, she says, yet in each case the author of the business plan elected not to pursue their entrepreneurial passions. For a variety of reasons, the job they had became an impediment to launching the business they always wanted.
“I’ve literally got hundreds of them in the file cabinet of my office,” says Pietsch, director of the Venture Center at Fox Valley Technical College. “They represent innovation and jobs, but in each case, those folks just couldn’t take that final step.”
Known as job lock, it’s not necessarily a new phenomenon. It’s essentially when the benefits of an existing job – most notably health care – prevent someone from pursuing a business startup where those benefits are not available.
The concept received attention during the health care debate when several academic studies reported that entrepreneurial activity tended to increase after the age of 65, when people qualified for Medicare, and health insurance was no longer an obstacle to business startups. Some advocated that severing the tie between health insurance and employment might spur economic activity in this area.
A recent study by the University
of California-Santa Cruz suggested that about 1 percent of the labor force with employer-sponsored benefits would start a business if the health care issue were resolved. Based on current estimates from the Small Business Administration, that represents about 607,000 people launching a business.
While she is not willing to attribute the entire concept of job lock to health insurance, Pietsch has certainly seen the effects. Of the more than 1,000 people who have gone through the Venture Center’s E-Seed program, which is aimed at helping business startups launch, only about 300 have made it to the actual startup.
She sees it as risk aversion, particularly in the country’s current economic state.
“If you have a job, you tend to have golden handcuffs, where you put a value on that job that is higher than its actual worth because of the benefits,” Pietsch says. “Even if you are in a job you don’t like, you think it’s better to keep it.”
In his 12 years of helping folks launch new businesses at E-Hub (formerly Urban Hope) in Green Bay, Mark Burwell has seen the specter of job lock all too often. He sees some different causes than the academics, but clearly health insurance and other similar benefits play a role.
With the economic maelstrom of the past two years, suggesting that folks give up benefits they know they have to pursue a startup – no matter how passionate they are about the idea – is just too much for some folks.
“Right now, a lot of folks have been rocked by the Great Recession,” says Burwell, executive director of E-Hub. “They lost money in the stock market after 9/11 and the recession. They now have a 201K instead of a 401k and maybe they have not been able to get the money back in.
“A lot of them just feel they can’t afford to take the gamble,” he adds.
But there are insurance options, at least in Wisconsin. Many would-be entrepreneurs can get individual coverage that runs around $500 a month.
If an individual cannot get insurance in the private marketplace, there is still at least one option available through the state.
Created in 1979, the Health Insurance Risk Sharing Plan (HIRSP) provides coverage to those unable to find adequate health insurance coverage in the private market, either because of their medical conditions or because they have lost their employer-sponsored group health insurance.
Still, for someone with a family and a mortgage, that may not be enough to convince them to venture out on their own.
“That group in their 40s is a tough group,” Burwell says. “In a lot of ways they feel blocked – health insurance, kids, pension – and they are not willing to take the gamble.”
Wisconsin may have some opportunities to help bridge the health insurance gap, at least in Pietsch’s mind.
The Wisconsin Housing and Economic Development Agency has some dividend funds that are available, which she says could be used to create a pool to finance health care for entrepreneurs while they launch their startup.
It’s an idea that she says has been successfully utilized in Iowa. It would be a great addition to the toolbox for job creation in Wisconsin, Pietsch says.
“We figured out the angel investors, and we figured out venture capital,” she says of state economic development efforts the past several years. “Now, we need to figure this part out.”