The Affordable Care Act and Small Business
Last week, I discussed the possible effects of the Affordable Care Act on the upward mobility of the younger generations. This week, I was planning to talk about the effects of the Affordable Care Act on private insurance companies until a really cute girl in the dining hall told me that she liked my Raygun brand shirt. I then remembered Mike Draper, the founder and CEO of the Raygun clothing company. Mike’s type of entrepreneurial spirit is a cornerstone of an upwardly mobile society.
Raygun’s merchandise reflects Mike’s unique brand of Midwestern humor, and range from funny postcards to shirts that say “I put the sin in Wisconsin” or “I’m in Des Moines, bitch.”
Mike “interviewed” me for Penn, and I put the word interview in quotation marks because the 90 providential minutes I spent with him on a Sunday afternoon in February amounted to more of a conversation about our current political and social climate than a line of questioning and answering. I remembered how insightful he was about the healthcare situation and how unique his perspective was as a Penn grad that started a T-shirt business from scratch. This week, I e-mailed him to talk about the Affordable Care Act and small businesses.
To give some background information: Mike started selling t-shirts in his senior year at Penn. He started small, literally selling shirts on the street on Times Square and on college campuses after graduation. He now owns a shop in downtown Des Moines and downtown Iowa City, and is planning one in Kansas City. In 2010 Mike sold the design and printing side of his company, and last year Raygun (the retail side) grossed $1.7 million in sales. Raygun employs 16 people, and the portion he sold in 2010 employed 12 (i). He fits the definition of upward mobility like a glove on the invisible hand.
I remember back in February, I asked Mike about what he saw as the ideal role of government from the perspective of a small business owner. Expecting an answer eliciting de-regulation, he instead told me that the goal of the government in that regard should be to create the most stable economic conditions possible. That would allow small business owners to know how to budget properly and would keep demand at a predictable rate for him to determine supply.
When Mike testified in front of Congress in 2009, he repeated this sentiment but in terms of health care costs. At the time of his testifying, RAYGUN was called SMASH. When Mike looked at the budgets at the end of each year, he saw that healthcare expenditures fluctuated between 8 and 22 percent of payroll. These costs for Mike come because he is matching the expenses of his employees’ private insurance plans, which vary widely due to the size of the deductible. According to Mike, it is not bigger taxes or tighter restrictions that cause small businesses to struggle or fail. It is unpredictable costs that owners cannot possible foresee when creating their budgets (ii).
This unpredictability only shows one side of the unnecessary difficulties placed on the shoulders of entrepreneurs and small business owners by our current insurance company-controlled healthcare system. Due to simply his personal health insurance adding on to his “employee matching” payments, Mike loses roughly 30% of his gross annual income to our health insurance system (i). This is not a unique example – The United States of America has both the largest per capita public AND private spending on healthcare in the world (v). Many use the argument that our massive spending leads to phenomenal medicine and that’s why Canadians often come to the United States for treatment. I would point these people to a WHO ranking of national health care systems where the United States is sitting in 38th place (iv).
But the problem is bigger than just a glaringly inefficient and wasteful system. For movers and shakers like Mike, an unnecessary loss of 30% of income means that his options for expanding RAYGUN are restricted. Mike incorporated his company and then bought all shares. This means that all financial responsibilities as far as the expansion of RAYGUN fall on him. Let me reiterate my point. Entrepreneurs are losing economic liberty not because of taxes and red tape; they are losing economic liberty because of the lack of adequate public intervention in the insurance-company-hegemony we call the United States healthcare system.
I asked Mike what he thought the ideal healthcare situation is for entrepreneurs and small business owners. Mike emailed me back saying that the solutions are either a single-payer UK type system or a true free market system (i). He also linked me to an opinion piece he wrote for the Des Moines Register that comically dismissed the notion of a free market healthcare system, or what he calls the “No Cash, No Insurance, No Live” system. He said that free market principles cannot apply to healthcare because healthcare is the only service needed to live (iii).
Unfortunately, the insurance companies know that healthcare is the only service needed to live. Because of this and the fact that money from insurance companies floods our national politics, insurance companies run our national health care system (iii). Not doctors, patients, or bureaucrats. Insurance companies with goofy commercials.
Let’s look at the UK style system. This is an example of completely socialized medicine. When the words “single payer” are used in the context of health care, this means that one entity provides care. In the UK, this is the British government. This system is funded entirely by the taxpayer. This makes healthcare extremely user friendly (vi).
We can compare the UK’s healthcare system in two ways. First we can look at the per capita expenditures on healthcare. For the last 5 years, the per capita expenditures for the U.S has been twice that of the U.K (v). Second, we can see that the UK is ranked 20 spots better than us in the WHO’s ranking of healthcare systems by country (iv).
Under our current health care system, each person is paying on average $8,000 a year for their private health insurance (v) – about twice as much as the average UK citizen. This does not include social security, Medicare, Medicaid, and other miscellaneous healthcare taxes (i). As if this doesn’t restrict economic liberty and upward mobility for entrepreneurs enough, people like Mike pay massively more than that in healthcare costs because of employee matching, not to mention that under the private system deductible payments can vary widely and ruin small businesses (i) (ii).
Healthcare is a really complicated subject. I will be the first to admit that I’m not sure of the intricacies of the UK style system. I’m also fully aware that implementing such a system would dramatically alter the compensations of some of our most important people, the doctors and heads of hospitals who’ve earned their places in society and are so crucial to our system, no matter if it’s private companies or the government who is paying. Implementing a UK style system would certainly mean a loss of thousands of jobs in the private insurance industry and could adversely affect the quality of care.
I believe that the Affordable Care Act is an important step in the right direction towards a more efficient and equitable UK style system. And most importantly, for the purposes of this article, it would allow entrepreneurs to take more risk and small business owners to succeed more often. In this regard, I believe that the Affordable Care Act is a stepping-stone to a health system that will allow much greater upward mobility than we have now.
(i)Interview with Mike Draper
Also check out Raygun: http://raygunsite.com