How Obamacare Helps the Working Class (Not)

Josh Dent is an early victim of Obamacare. The lanky, shaven-headed machine operator likes the medical insurance plan his employer, Acorn Sign Graphics, provides him. But under the newly enacted Affordable Care Act, his insurance policy will get less affordable. A provision in the law is putting his insurance company out of business, and whatever replaces Mr. Dent’s current policy will likely be much more expensive.

The way the 29-year-old sees it, Acorn will have to cut benefits or cut pay. One way or another, he figures, the switch to a new insurer will cost him.

Steve Gillispie, Acorn’s president, is distressed by this unexpected development. A year and a half ago, he was facing premiums of $150,000 from an established insurer, up from $80,000 just three years before. Then along came Richmond, Va.-based nHealth. The start-up company, launched with the mission of making consumer-driven health care a reality, rescued him with a plan that kept premiums below $90,000 yearly. The plan insured his 35 employees against hospital expenses, created a $1,500 deductible for doctors’ fees and set up health savings accounts (HSAs) for employees to pay for what the health plan did not. “For most employees,” Mr. Gillispie says, “it netted out money in the pocket.”

Lower insurance charges helped Acorn survive the recession without laying off any of its employees or cutting their compensation. Going back hat in hand to one of the dominant insurers in town, Mr. Gillispie fears, will add tens of thousands of dollars to his cost structure. Profit margins are tight in this slow-growth economy, but he hates to pass on the higher insurance costs to his employees, many of whom are paid $14 to $16 an hour. “Most of these people are living hand to mouth as it is,” he says. He still does not know what he will do.

Such is the unintended consequence of Obamacare, which overhauled the health care industry with the goal of making medical insurance more affordable and accessible to all. The provision that is causing Acorn Signs so much heartache is the so-called 80/20 rule, which requires all insurance plans to pay out at least 80 percent of premiums in benefits. The goal behind the rule is to punish insurers that let administrative expenses get out of hand. In practice, the law punishes innovative, entrepreneurial companies like nHealth that kept premiums low. Read the rest of the column here.

(This column was originally published Friday in the Washington Times, and has been republished on the Boomergeddon blog. Illustration credit: Alexander Hunter for the Washington Times.)

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33 responses to “How Obamacare Helps the Working Class (Not)”

  1. James A. Bacon Avatar
    James A. Bacon

    I would add, by reference to Peter's recent post, that many of the companies and employees who will lose from nHealth's demise are located in Western Virginia. One of the brokers that signed up the most clients for nHealth is based in Roanoke.

  2. Larry G Avatar

    For the 'rest of the story' on NHealth:

    " Color me skeptical: An InsureBlog Investigative Report

    As an ardent opponent of ObamaCare©, I would like nothing better than to say "I told you so:"

    " Perhaps the most telling piece comes from this article in the Richmond (VA) Biz Sense:

    "[nHealth co-founder Paul] Nezi and other investors helped fund the company out of the gate with a $12 million investment."

    The article goes on the tell us that the nascent company has been unable to up that initial capitalization. The problem is that, given the existing marketplace, and the increasingly growing footprints of "the big boys," that $12 million proved woefully inadequate. Couple that with what appears to be a top-heavy administrative function (50 employees to service just 100 groups?), and you have a recipe for failure."

    moral of this story?

    Nhealth had.. let's say an odor about it in terms of viability

    and it's "tragic story" sounds like yet another "Obama should never have been elected blather from the right wing propaganda machine.

  3. Larry G Avatar

    this is rich… If Jim had found an article saying that Obamacare or Medicare had administrative costs of 20%, he'd be all over the " Govt is inherently corrupt and wasteful" rant.

    so now.. we have Jim "defending" health care insurers who have 20% administrative costs – something that usually gets the warning antenna up for many.

  4. Gooze Views Avatar
    Gooze Views

    Nice try. Conservatives have been trying to make NHealth a poster boy for Obamacare excesses.One question. How can this be if Obaacre hasn't taken effect quite yet?
    Could the answer be in NHealth's business management?
    Also, a cursory read on the Net shows that many of this firm's business problems happpened quite a while before HCR was passed. (Assuming your view is correct. Do th Moonies check your facts?)
    Your response?

    Peter Galuszka

  5. Gooze Views Avatar
    Gooze Views

    Following my last comment, I think we are having another "A-Whale" and "Jones Act" moment here.

    You need to check this piece in

    nHealth lost $10.6 million since it began operations in 2008. It lost $5.6 million in 2008 and $4 million in 2009. It's 1Q lost in 2010 was nearly $1 million.

    So when did Federal Health Care reform pass? A bit later than that. So who's to blame? Obama? Or nHealth's managers? As richmondbiz states the company claimed that it must shut down and that "the story has found its way into the wildworld of political blogs, vene going as far as Politico and Fox News."

    Too bad no one bothered to check out nHealth. Too bad you didn't bother to either, but relied instead on the right wing propaganda machine.

    It appears that Larry Gross is correct.

    Peter Galuszka

  6. James A. Bacon Avatar
    James A. Bacon

    Larry, I was well aware of the Richmond BizSense articles about nHealth when I wrote the column — indeed, those articles are what engendered my interest in the topic.

    You said, "nHealth had an odor about it in terms of viability." By that logic, any venture-financed business has an "odor" about it during the start-up phase when it loses money. nHealth was backed by venture capital. Its business plan did not contemplate reaching break-even for several years. What you may or may not appreciate is that venture capitalists do not hand over the full sum of money needed to reach break even at the very beginning. They hand over the money in stages so they can keep management on a short leash. My understanding is that nHealth was largely meeting expectations when it came time for another round of financing, but the passage of Obamacare changed all the rules. I have not seen any evidence that disputes that. Indeed, nHealth had signed up 128 customers and was actively negotiating with several more at the time that Obamacare was passed.

    Peter, You're a business writer! You of all people should understand how venture capital works!! Of course, nHealth lost money before reaching break even — that was the business plan, like it is in the business plan of virtually every venture-funded start up. You're trying to make up something out of nothing.

    Then you throw in this gratuitous insult: "Too bad no one bothered to check out nHealth. Too bad you didn't bother to either, but relied instead on the right wing propaganda machine."

    I didn't get any of my information from "the right wing propaganda machine" — unless you include in that machine the sources I interviewed for the story, including Steve Gillispie, owner of Acorn Signs, and Alan Slabaugh, the broker who sold the insurance policy, as well as (not quoted) Paul Kitchen, the CEO of nHealth.

    Gee, maybe they're all part of the right-wing propaganda machine, too. Gosh, maybe *anyone* who comes up with any inconvenient facts are part of the right-wing propaganda machine.

    I'd turn the charge around. Rather than concede that maybe, just maybe, Obamacare is less than perfect, you launch into total denial mode, throwing up whatever dust into the eyes of the reader you can find. I'd say you two are part of the Left Wing Apologist Machine.

  7. Gooze Views Avatar
    Gooze Views

    I am well aware of how VC funding works.
    But to say that the failure of one firm is because of a not-yet enacted health care bill is questionable, if not ludicrous.
    If you interviewed the owner of the business, you should have quoted him. He might have explained to us WHY he could not alter his money-losing business plan to deal with the new legislative reality as upteem hundreds of other insurance carriers are doing.
    You! Of all people! A journalist!

    Peter Galuszka

  8. James A. Bacon Avatar
    James A. Bacon

    Why couldn't the CEO nHealth "alter his money-losing business plan"? Because the 80/20 rule attacked the heart of the nHealth business model. Could nHealth have reinvented the entire business model on the fly? Perhaps. Unfortunately, the Obama administration has not fully defined the 80/20 rule yet. Because there still are major uncertainties, nHealth executives don't have the information they need to make those changes.

    And where did you get the idea that Obamacare has not been enacted? It is law. Not every provision has gone into effect yet, but eventually they all will. The private businesses effected would be insanely negligent not to take the new laws and regulations into account in their business decisions.

    In a July 2 article, The Wall Street Journal said this: "The new rules could be a game changer, especially for smaller insurers with higher overhead. … [The rule] could force companies to quit markets where their medical-loss ratios are below the new requirements."

    The rule has widespread ramifications, and we're only beginning to see the fallout. One sure result, there will be fewer players left in the marketplace and less competition. At that point, we can then count on you and Larry to blame the decreasing competition on the "failure of the marketplace."

  9. Gooze Views Avatar
    Gooze Views

    HCR is very sweeping — some of the most long-overdue medical insurance changes in decades.
    It will require a basic upheaval in how medical insurance firms operate.
    You are buying into nHealth's excuse for their business failure that they were somehow struggling along with venture capital, losing money and wham, Obamacare comes along with 80-20.
    Gee, ain't life tough. But how many OTHER isurance firms (and start-ups) did NOT go out of business because of HCR?
    My problem Jim is that you are not making your argument, namely linking the demise of nHealth with HCR changes.
    This is becoming a trend for you, just like A-Whale (which did not work once it got to the spill site.) It was NOT a representation of Obama's incompetence. AT the end of the day, he did not go hog wild over an oil spill solution that did not work for technical reasons.
    I strongly sugges that before you write you check out your facts.

    Peter Galuszka

  10. Larry G Avatar

    ha ha ha… this is truly rich.

    defending a business model with a 20% overhead.

    geeze even the Insure Blog guy found that a little suspicious and when he looked further found one employee for each two groups.

    Imagine Medicare operating this way.

    I'd like to ask exactly how Obama_care will force this company out of business.

    How would this happen?

    How would Obamacare put him out of business?

  11. James A. Bacon Avatar
    James A. Bacon

    Larry, you are missing a critical point. In terms of absolute dollars per covered employee, nHealth's administrative costs are no higher than that of, say, Anthem. The reason nHealth's administrative cost *ratio* is high is that the company managed to keep its premiums so low. The 80/20 rule is an arbitrary standard. Capiche?

  12. Larry G Avatar

    I see your point Jim but there are lots of the niche insurance companies that have high deductibles and cap the catastrophic.

    Are they all similarly effected?

    do all of them also have high administrative costs?

    but my actual question is – exactly how will Obama care force them out of business?

    what is the mechanism?

  13. Anonymous Avatar

    If the insurance costs were doubling every three years then John Dent's employees at Acorn Signs were destined to lose their coverage anyway.

    The effects of Obamacare on that situation are yet to be seen, but absent Obamacare then what the alternative result would have been is pretty obvious.

    They would have lost their health insurance coverage and had nothing.


  14. Anonymous Avatar

    I understand how HCR, as passed, extends coverage. But how does it help control costs? Doesn't giving something to the federal government to manage tend to work in the opposite direction? Look at other entitlement programs. Look at the Pentagon.

    Unless we plan to print money or tax ourselves into total economic stagnation, HCR is likely to run into the very same financial problems for which people criticize the current system of insurance. Costs are likely to escalate, which could well require arbitrary cut-backs in care. Look at what the U.K. is announcing.

    From what I've read, one of our biggest problems — no one feels a personal need to make hard choices about health care (generic drugs, etc.) because someone else pays for many of the costs. I also thought that high deductible policies and health care savings accounts were supposed to help turn this disconnection around. But HCR seems to go in the opposite direction.

    HCR will likely go down in history as this century's version of Prohibition.


  15. Larry G Avatar

    I think all the countries that offer universal and all the countries that offer private insurance all have problems trying to keep the costs down.

    The primary difference is that the private companies try to control their costs by jettisoning those who are costing them too much money or appear to a person that will cost them too much money so they get rid of them.

    The governments, on the other hand, cannot do that so they lack one of the more powerful ways to control costs.

    There are more and more therapies available that vastly improve quality of life (like hip implants) but – at a cost.

    That cost for most of us if we had to pay for it out of our own pocket would likely put it out of reach of all but the most well off.

    Medicare is not free as Deena reminded us.

    It pays about 80%.

    The solution to Medicare – I believe could be as simple – as paying 75% or 70% for everyone or means testing the co-pay.

    This is what is so perplexing about the Republicans who used to be very dependable for stepping up to the plate when hard choices were needed – and put something fiscally conservative on the table.

    But they've gone sadly astray morphing into a rhetorical jihad – all talk – no walk on these issues.

    Who is going to tell the American people that the retirement age for SS has to be pushed to 70 and the Medicare reimbursement rate has to go to 70%?

    What Republican is going to ask CBO to run the numbers for something like what is above?

    isn't that the way to start us towards what needs to be done?

    If Obama is quite the socialist, then where are the true fiscal conservatives to tell us how to get the entitlements under control?

    There was a time – when this country was a leader on issues like this.

    NOw.. all we can do is bit_h and complain… and find others to blame.

  16. Where are the true fiscal conservatives to tell us how to get the entitlements under control?

    They are busy arguing against HCR on the basis that it will mean rationing.


  17. Extending coverage.

    This reminds me of a sailboat trip through the Eastern Virginia Intracoastal waterway – probably the last sailboatt ever to make the trip, because the waterway was not dredged or maintained.

    After spending one entire day kedging the boat over the mud flats with anchors and winches I eventually found enough water to float the boat and made my way into Wachapreage.

    There was an old gentleman sitting on the pier who had probably lughed his butt off at my various antics on the mud flats.

    Well, I said as I tied up, not much water around here.

    "Nope", he said, "there plenty of water, hit's just spread out sorta thin."

    More coverage, just not very deep.


  18. James A. Bacon Avatar
    James A. Bacon

    This just in from an article posted on

    The federal Patient Protection and Affordable Care Act (PPCA) could hurt small U.S. health insurers, causing many to withdraw from the market, be acquired by larger insurers, or even fail completely, according to a recent study by Weiss ratings.

    After studying nearly 600 U.S. health insurers, Weiss gave 95 a rating of "weak" or lower, meaning they could be vulnerable to future financial trouble due to higher medical costs, a weak economy, or other factors.

    According to Martin D. Weiss, president of Weiss Ratings, certain provisions included in the PPACA, such as the removal of certain reimbursement limits and mandated coverage for pre-existing conditions, will force health insurers to spend more on medical care.

    "Most large health insurers will be able to handle it. But we are concerned that weaker, less profitable insurers will be forced out of the market, reducing competition and ultimately leading to fewer choices and higher premiums for consumers," Weiss said.

    In addition, the rating agency gave 186 insurers a rating of "fair," saying these companies would struggle to absorb additional costs stemming from PPACA.

    Finally, Weiss said that large insurers with abundant capital and solid profits are expected to absorb increase expenses from PPACA and could potentially expand their market share through the acquisition of struggling companies.

    When are you guys just going to admit that Obamacare is anti-competitive and, instead of trashing nHealth, change your line of argumentation?

  19. Larry G Avatar

    " removal of certain reimbursement limits and mandated coverage for pre-existing conditions, will force health insurers to spend more on medical care."

    isn't this exactly what some Republicans promised with their non-Obama alternate?

    to not allow companies to reject pre-existing conditions?

    This is perhaps the major num of the problem with health care in the U.S.

    The private companies reduce their costs by dumping those with pre-existing conditions…

    and Jim.. those folks then go to the ERs – which we pay for through cost shifting.

    and because we use ERs to treat these folks rather than GPs, we pay twice as much per person for health care in this country.

    What ObamaCare tries to do is to have a system where everyone can get treated at the GP level instead of at the ER level.

    Your idea of allowing smaller companies to reject those with pre-existing companies means more uninsured.. more ER use and higher costs even for those with insurance who will pay the cost shifting.

    so what is your solution to the denial of health care to some people as a way for small companies to sell health insurance?

    Would you allow it?

    Obviously you would so you really don't have a solution just forget the folks who cannot get insurance, right?

    By your reasoning, anything that govt does that results in adverse impacts to small business is automatically a bad thing.

    Do you think that the govt setting standards for auto insurance "hurts" small auto insurance companies?

    How about payday lending?

    alcohol sales?

    come on Jim.. you are grasping for straws here.

  20. Gooze Views Avatar
    Gooze Views

    Larry Gross raises key points. Are we supposed to penalize people with pre-existing conditions just so we don't muss up the business models of some small inaurance carriers?

    The propblem with Jim Bacon is that he sees things backwards — in his view laws should protect business and to hell with the patient.
    This is why one of the richest countries in the world has the screwyist system of health care which basically says for-profit companies can squeeze premiums out of the health and deny payments to sick people who need it.
    The issue is treating the sick: not boosting private insurance companies.
    Maybe Mr. Bacon should visit a hospital sometime. He might learn that the bsuiness of treating the sick and dealing with the dying is not the same as setting up some open system software support company, a la 1998 before the bust.

    Peter Galuszka

  21. Larry G Avatar

    If you allow smaller companies to reject pre-existing conditions and not the larger-companies then what will happen?

    Everyone will buy from the smaller-companies that can and those with pre-existing will flood to the larger companies.

    if your fundamental premise is to have a system that can cover everyone regardless of their pre-existing condition – what is your solution if not Obama_Care?

    As soon as you say that no one with a pre-existing condition can be denied coverage – it automatically penalizes the smaller companies because of the adverse affect that "too many" on a smaller plan can have.

    I know of small businesses right now who are given two premium rates. One that includes the one employee who is expensive and a second, much lower rate for the employee who is expensive.

    And they leave it up to the small business to decide who gets covered – i.e. who gets fired.

    Is this the kind of system that you want?

    The solution for small businesses under ObamaCare is to offer them affordable insurance for ALL of their employees using the same cost-effective approach that is possible with much larger pools of insured.

    Again.. what is your answer to those who have pre-existing conditions?

    be honest.

    If your solution is "too bad", the don't get coverage – then fine.. at least you stick to your self-avowed principles.

    but don't fence-sit.

    Every take the "no coverage" path – are suggest a way to get them covered.

    this is the basic Republican problem.

    they won't choose and they won't fess up.

  22. James A. Bacon Avatar
    James A. Bacon

    When you lose an argument, change the subject.

    It is impossible to dispute that Obamacare is going to squeeze a lot of small insurers out of the marketplace, thus reducing competition. Without acknowledging this reality, Larry and Peter switch the subject to the issue of pre-existing conditions — which is only one of *multiple* changes that are putting the small insurers out of business.

    If you can concede the original point of my post — that Obamacare is putting small insurers out of business — then I'll be happy to address the issue of pre-existing conditions

  23. Larry G Avatar

    Jim – the insurance regulations for Auto Insurance has the same effect as do many other regulations.

    Are you holding Obama_care to a different standard than other regulations that also can affect businesses?

    Do you think it's okay for govt regulations to affect big business but not small businesses?

    haven't you, yet again, chosen to cherry pick something to hold to a different standard?

    If we passed a law that said that no regulation could be passed that affected small business would that "work"?

    would you be in favor of it as a law.

    Obama_care will not squeeze small businesses out of business if Obama_care offers them insurance for all of their employees including those with pre-existing conditions.

    Are you fairly representing what will actually happen?

    looks like to me that Obama_Care will actually encourage MORE small businesses because they will be able to offer competitive health insurance and better compete against he bigger companies who can afford to offer better plans.

    I'd say Obama_Care would SPUR more small-business growth.

    but when someone is furiously looking for the down side of something.. they often completely miss the up-sides, you know?

  24. Larry G Avatar

    I small businesses can offer equivalent health care to bigger businesses – which is what they do in Europe and Japan

    then small businesses will pop up all over the place.

    And employees will have portable insurance so they can change jobs whenever they wish – which gives them equal footing for pay for their skills instead of being trapped in a job where they cannot afford to change for fear of loss of insurance.

    So I actually disagree 100% with Jim and believe that after we add up the pluses and minuses (and there are some).. that the pluses will far outnumber the minuses.

    But the bigger picture here is that we really don't have enough info to make an….



    but that doesn't stop the folks who are using every waking moment to find things to condemn ObamaCare over.

    I see this as the continuing drum beat of anti_Obama chatter.

    We don't even really know the ultimate good or bad – but we are more than willing to assume a "the sky is falling" attitude.

    geeze… Jim

  25. James A. Bacon Avatar
    James A. Bacon

    Larry, I guess we'll just have to see what happens. Only time will tell if there is more or less competition in the health care insurance field after a few years of Obamacare. Only time will tell if more small businesses wind up providing health care insurance benefits to their workers. Only time will tell if access to the health care system improves, and if escalating costs are reined in.

  26. Larry G Avatar



    how do I know?

    well.. because someone pretending to be him uttered this:

    " I guess we'll just have to see what happens. Only time will tell if there is more or less competition in the health care insurance field after a few years of Obamacare."

    Now I gotta go clean up coffee….

  27. Gooze Views Avatar
    Gooze Views

    I think we should lay off Bacon for a while. The little tyke is clearly tuckered out!


  28. Gooze Views Avatar
    Gooze Views

    Is it merely a coincidence?

    Yesterday afternoon as I was driving, I listened to Rush Limbaugh and heard his whine about how Obamacare was squashing small health insurance firms.

    I thought of this post and wondered about the timing and the coincidence.

    Should I be concerned?

    Peter Galuszka

  29. Larry G Avatar

    it's very similar to viral videos.

    It hits the blogs …goes viral… people like Limbaugh and FAUX news pick it up and it goes viral….

    and the scary thing is that people repeat what they hear without taking the time to look further into it…

    it just goes from the keyboard into the ether… and round and round.

    The Sherrod affair pretty much was a tour-de-force example.

  30. Gooze Views Avatar
    Gooze Views

    FAUX news? You mean Fox Liberty Ultra!


  31. Larry G Avatar

    or sound bites for the mile-wide, inch-deep who prefer prejudices to facts and truth.

    Our country has degenerated into one gigantic viral sound bite

    We prefer building humvees and MRAPs to providing medical care to a kid with a "pre-existing" condition.

    and this is …ta da…. the "greatest nation the world has ever known."

    it's "wealth redistribution" to keep a kid healthy but not wealth redistribution to educate him even if he's sick and going to die.


    It's hard to conceive of anything more inconsistent than this….

    but this is the way we are, apparently.

  32. " fewer choices and higher premiums "

    Of course we will have higher premiums, but then, we might have some actual coverage instead of th elies and deceit that characterized the previous forms of "coverage".

  33. James A. Bacon Avatar
    James A. Bacon

    Peter, Most of Rush's commentary consists of riffs off news clips. Maybe he reads the Washington Times. It would be nice if he'd put in a plug for the author. I'll take publicity from whatever source I can get it.

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