No, this post is not about digital health care. The “e” in “eBamacare” stands for entrepreneurship. Here’s why? Since it’s passage, Congressional opponents of the Patient Protection and Affordable Care Act (ACA) have argued the legislation has been a job killer. Let’s look at the facts (what a concept).
According to a 2015 report published by the Ewing Marion Kauffman Foundation (EMKF) titled, “The Importance of Young Firms for Economic Growth,” the age of a firm matters more than size in terms of its ability to generate new employment. The report found:
- New businesses account for nearly all net new job creation and almost 20 percent of gross job creation, whereas small businesses do not have a significant impact on job growth when age is accounted for.
- Companies less than one year old have created an average of 1.5 million jobs per year over the past three decades.
- Many young firms exhibit an “up or out” dynamic, in which innovative and successful firms grow rapidly and become a wellspring of job and economic growth, or quickly fail and exit the market, allowing capital to be put to more productive uses.
- Young firms were hit hard during the Great Recession. Even still, from 2006 to 2009, young and small firms (fewer than five years old and twenty employees) remained a positive source of net employment growth (8.6 percent), whereas older and larger firms shed more jobs than they created.
For those unfamiliar with EMKF, the foundation is the largest funder of entrepreneurship research and education in the world. I was fortunate to be an associate there from 1997 to 2003. During those years, we conducted a series of research projects to better understand the life cycle of new business formation from an individual’s desire to be his/her own boss to disposition of successful firms. Two findings from those efforts are extremely relevant to this discussion.
First, EMKF-funded surveys conducted by the Gallup organization consistently found seven out of ten Americans expressed interest in, one day, starting their own venture. But as individuals progressed from this general aspiration to development of a specific concept, the percentage declined. The next phase of the start-up life cycle, concept to some discreet action, resulted in an even greater fall-off of entrepreneurial participation. Which led to the question, “Why would Americans not pursue their own aspirations?”
Next, to answer this question, EMKF funded research to better understand what was keeping more Americans from “taking the entrepreneurial leap.” In many cases, the respondents faced the choice of leaving a salaried job for the riskier, though potentially more rewarding, outcome associated with business ownership. Yet, loss of a regular paycheck was not, for most respondents, the major concern. They were more apprehensive about losing their employer provided health coverage. The typical response went something like this.
We can handle the day to day expenses until the company becomes profitable. What we cannot handle is a catastrophic illness or major accident. All I can afford is major medical insurance but deductibles are high and coverage is limited.
Some respondents mentioned pre-existing conditions. Or fear they would be dropped if they actually used their coverage. In 2002, the foundation suggested universal health care could become a major catalyst for new business formation and should be pursued as national policy.
In summary, the Affordable Care Act may be the single largest and most effective public incentive for creating new businesses, the economic force responsible for creating all of the net new jobs in America since the 2008-09 recession. So, instead of tax breaks to major corporations which are only now starting to contribute their fair share of job creation to the recovery, it’s time Congress put its (our?) money where it can actually make a difference. New ventures have been carrying the ball for eight years. Yes, ACA is not perfect and needs tweaking. However, repealing ACA is punishing, not rewarding, those who have contributed most to the nation’s prosperity since the financial meltdown in 2008. Congress should think twice before taking action.
For what it’s worth.
Dr. ESP