Sept. 9 (Bloomberg) -- Maksim Tsvetovat and Tatyana Kanzaveli say they doubt they could have started their data-collection company, Open Cancer Network, without Obamacare.
Tsvetovat, 37 and the father of a four-year-old boy, said he was hesitant to quit his job as chief technology officer at a consulting firm and lose his health coverage. Even more crucially, Kanzaveli, 50, was diagnosed with colon cancer in January, less than two months after her contract job with an investment company ended. Her condition left her unable to purchase new medical insurance.
“It’s a scary thing when I have to think, can I afford to do things that will keep me alive?” said Kanzaveli, who underwent a $160,000 surgery and now has regular screenings. “We have high expectations for Obamacare.”
The partners’ experience highlights a risk entrepreneurs have long faced: if they quit a job to start a business, they lose employer-provided health coverage. That could mean paying more for an individual policy or being denied insurance because of a pre-existing condition. The Affordable Care Act, popularly called Obamacare, seeks to change that by offering subsidies to purchase insurance on exchanges and banning discrimination based on medical history.
“The big point with entrepreneurs is that now you can leave your job without worrying what your health insurance is going to be, because you have an option and you know you can enroll,” said Christine Eibner, an economist whose focuses include health and insurance at Santa Monica, California-based nonprofit research group RAND Corp. “You did not have that before the Affordable Care Act.”
Kanzaveli, of Los Altos, California, said after her diagnosis, she considered returning to corporate work solely to obtain health insurance. Instead, she was able to get an 18-month extension of her previous employer’s coverage, costing $1,200 a month, as she waits for Obamacare exchanges to open. In February, she and Tsvetovat, of Tysons Corner, Virginia, started building their company, which will connect cancer patients via social media and collect data on their lifestyles and environmental exposures to aid research.
As of Oct. 1, the pair will be able to shop on ACA exchanges for private insurance policies that meet federal and state standards. When the policies take effect Jan. 1, insurers won’t be able to reject Kanzaveli or charge her more based on her pre-existing condition. For Tsvetovat, who said his son has needed hospital treatment for everything from coffee burns to a gash requiring stitches, the exchanges could offer better coverage.
Subsidies to help purchase coverage on the exchanges will be available to most people who earn less than four times the federal poverty level, don’t qualify for Medicaid or Medicare and lack employer-sponsored insurance that the government deems adequate. That means families of four making less than about $94,000 could qualify.
If Obamacare meets its goals, “people will have options in terms of striking out on their own and creating new ventures, instead of being caught in a Catch-22” of pouring money into a start-up and simultaneously losing health coverage, said Ted Zoller, who directs the University of North Carolina at Chapel Hill’s entrepreneurial studies center.
Without the new law, “I would definitely not have quit my job quite so quickly,” Tsvetovat said.
As many as 940,000 Americans may leave their employers after Obamacare policies take effect, according to a July study by Craig Garthwaite at Evanston, Illinois-based Northwestern University’s Kellogg School of Management and two co-authors. That number is an estimate of how many adults without children are working because of what the researchers call “employment lock” -- holding a job primarily to obtain health insurance.
They arrived at the figure by looking at what happened after the state of Tennessee ended a public health insurance expansion program known as Tenncare in 2005. After 170,000 adults lost Tenncare coverage, there was a “large and immediate” increase in employment in the state, which the researchers estimated at 6 percent over two years, according to the study.
That suggests the Affordable Care Act may create the inverse situation: encouraging some people now bound by “employment lock” to strike out on their own, Garthwaite said.
“That speaks to what we might see in January,” he said. “One of the risks to starting a business is that it’s really hard to get benefits when you’re just a one- or two-person firm, and Obamacare is going to change that.”
Businesses may also form more quickly, Zoller said, because entrepreneurs who would otherwise have hung onto jobs to keep health coverage while setting up their companies might quit to devote their full attention to their start-up.
“It’s less of a split commitment,” he said.
A study published today in the journal Health Affairs suggested that labor markets may become more efficient if more workers seek health coverage though the exchanges.
“A better-functioning individual health insurance market has the potential to improve labor-market efficiency by reducing job lock, and thus eliminating a barrier to entrepreneurship,” researchers from the University of Michigan in Ann Arbor wrote. “If the shift from employer-sponsored insurance to individual coverage is greater than projected, these labor-market gains may be substantial.”
Confusion remains over how Obamacare will operate and how much plans will cost. Fewer than half the states have released detailed estimates on what plans will charge, and even those are subject to change depending on who enrolls.
“The real proof in the pudding will be whether the ACA does widen the pool of options available and whether those options are affordable,” Zoller said.
Making cost comparisons between Obamacare offerings and current plans is tough: exchange plans may cover currently-excluded services or have differing deductibles, so they may not be apples-to-apples with current coverage.
An August RAND study prepared for the U.S. Department of Health and Human Services examined 10 states and found that, holding tobacco use, age and benefits constant, the law would cause no change for individual premiums in five states and premium increases of up to 43 percent in three, while premiums could decline in two states. Taking tax credits into account, costs to individuals would be unchanged or lower in all 10 states and nationwide, the study found.
Considering just exchange premiums in the largest cities in 17 states and D.C. that released premium pricing details, a report by Kaiser Family Foundation found that a 40-year-old with an annual income of about $29,000 would pay about 8 percent of his or her income, about $193 per month, for the second-lowest-cost coverage, dubbed the silver plan, regardless of residence, after incorporating subsidies.
“While premiums will vary significantly across the country, they are generally lower than expected,” researchers for the Menlo Park, California-based foundation wrote in their analysis, released last week. They said 15 of 18 cities had lower costs for 40-year-olds on the silver plan than Congressional Budget Office suggested.
“We don’t necessarily know how it’s going to play out,” said Eibner at RAND. “There’s a lot of uncertainty in terms of how individuals will behave, how state decisions will play into it, how widely promoted are exchanges.”
Meanwhile, privately-run insurance options are springing up, some with similarities to the exchanges created under the Affordable Care Act.
The Young Entrepreneur Council, an organization open to business founders under the age of 40 on an invitation basis, is introducing for-profit StartupInsurance.com, where entrepreneurs can find individual or small-business policies, which they then can purchase through the provider. Scott Gerber, founder of the New York-based organization, said the website debuts today.
“We are business owners, and we understand what business owners care about,” Gerber said.
Tsvetovat, who is paying $250 each month for his short-term, high-deductible insurance policy, and Kanzaveli are waiting to see what Obamacare policies look like before they decide whether to buy one or use the private market.
“It’s ridiculous what I’m paying, but I don’t have any choice,” Kanzaveli said. “Right now we don’t have very many options, so we’re just waiting for October,”
Regardless, Tsvetovat said, Open Cancer wouldn’t be the same company if Obamacare rules hadn’t made Kanzaveli insurable.
“She is an essential part of the company,” he said.
To contact the reporter on this story: Jeanna Smialek in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Chris Wellisz at email@example.com