This blog post should be read as an addendum to my previous post.

My wife and I have returned from China. It was a life-changing experience--underscored by the fact that my wife is hiring Mandarin tutors for our four children.  

Entrepreneurs worldwide should not underestimate the impact of China on the world economy and on their own business. Many if not most of the products you purchase already come from China, and China is now emerging as the world's largest consumer.

Entrepreneurs who embrace this phenomenon first will reap the greatest rewards.

During the past decade, China established itself as the world's foremost manufacturer-a significant percentage of the products you now purchase come from China. During the next decade, China will establish itself as the world's foremost consumer. As a result, leading companies will be economically forced to customize their products for the Chinese. This is because, as the Chinese consumption market matures, China will be setting the world's standards on products from automobiles to light bulbs, just as the United States set the world's standards on most consumer and industrial products since the 1950s.

China is now the 2^nd largest economy (PPP) in the world and is passing the U.S. in many areas. For example, 13 million new cars were sold in China last year while only 10 million new cars were sold in the U.S., and this disparity will further widen in 2010. Happily for the U.S., 20% of the automobiles sold in China come from U.S. manufacturers.

We have much to teach the Chinese, especially those of us who are entrepreneurs. The Chinese do not suffer from the "not invented here" syndrome that is so prevalent in the west. As they provide their citizens with everything from cars to washing machines, the Chinese prefer to learn from, and partner with, experienced providers outside China, rather than learn everything themselves from scratch.

Peking University (12/10/09)

Moreover, in the west we can learn the most about ourselves and how to improve our lives by studying this fascinating modern civilization. As I was advising the Chinese in my areas of core competency--education and healthcare--I learned much about what my own companies need to do to remain successful.

One simple example of this is the traffic signal light most of us drive under every day. In the U.S., traffic signals are red, yellow and green. In China, they are larger red and green numerical displays (no yellow) counting the number of seconds until the signal will change. There's no running to make a yellow light-you know exactly how much time you have before it changes. Like waiting for an elevator with a floor indicator, it's more relaxing to know exactly how much time you have left. Since returning from China, each time I wait at a red light I wonder if whoever purchases red/yellow/green traffic signals in my city knows how much better numerical displays would be for us.

I returned from China to watch the Senate pass their version of health care reform. As I write today, the personal staffs of Senator Harry Reid (Senate Majority Leader) and Representative Nancy Pelosi (Speaker of the House) are meeting in secrecy with White House officials to iron out the differences between the respective House and Senate bills. My views on the House version are outlined in my previous posts here and here, and I will writing more about what this means for all of as details emerge.

Since writing my last post on China, I received inquiries from readers wanting the agenda of my trip, and inquiries wanting to learn how they could bring their product of service to the Chinese market. I will answer the questions here on my agenda, and I plan on making "Developing your Business in China" a regular feature of The Entrepreneurial Challenge blog.

On December 7, my official public visit began with my speaking from the center podium in The Great Hall of the People. This magnificent building, built in 1959, is functionally equivalent to the U.S. Capitol. It sits amidst both thousand-year old historical structures and the world's most modern office buildings. My speaking topic was on the importance of wellness and why we, in the west, need a revolution from the tyranny of the food and medical industries which have caused most of the problems with our health.

On December 8, I delivered the keynote address at the Fourth Food & Nutrition Industry Forum in Beijing, opening the event. I spoke about The Wellness Revolution in the west, and the opportunities for the Chinese wellness industry inside and outside China. While China is not a significant player today outside China in wellness, China has much to contribute to the wellness industry worldwide. Chinese wellness and preventative medicine, often called Traditional Chinese Medicine or TCM, has been pervasive in China for centuries. I visited Chinese hospitals where western medicine and TCM doctors work together in the same office for the benefit of the mutual patients.

On December 10, I spoke at Peking University to 4000-students, selected (50 each) from many of China's other leading universities. My speech was on "Economic Alchemy" and my 1990 book "Unlimited Wealth."  The Chinese have embraced my economic theories about technology driving economic activity (W=PxT) more than any other nation since Japan.

The Great Hall of the People (12/7/09)

Between these major speeches, my wife and I met with Chinese federal officials, provincial governors, and business leaders at every meal. As an American, for the first time in my life, I found myself jealous of another nation. The Chinese federal officials we met had an enormous common interest for the greater good of all China. In the U.S., we are mostly a collection of special interests-each person or organization looks out for themselves and we expect this collective self-interest to efficiently support the common interest. The current state of U.S. healthcare reform, where our Congress has sold out to the special interests, illustrates that our self-interest model is flawed.

In China I met a new class of young billionaire entrepreneur-people like Xie Hong ("Sam") who founded a wellness baby formula manufacturer in 1992 called Beingmate, Sam's sales in 2009 exceeded $8 billion (US). Sam is one of hundreds of new billionaire entrepreneurs in China whose work is distinguished by the fact that they produce or distribute things that benefit all of China-unlike many of the billionaires in the west who mainly move around the balance sheets of other people's products or services.

At Peking University I was struck by how many of the students wanted to be social entrepreneurs--doing well by doing good-rather that work in areas like finance, which, in China, has a negative connotation.  I pointed out to them that back in 1976, when I worked in finance at Citibank under Jim Tozer, we thought of ourselves as social entrepreneurs--delivering to young people just beginning their lives the ability to purchase a new car or a new home. While defending the U.S. financial service industry in China I (sadly) realized how far the U.S. financial services industry had drifted from the common interest.

Click here for more information on my visit to China

Entrepreneurs must be on the "cutting edge" (black ink) versus the "bleeding edge" (red ink) of new products, ideas, and trends.

In October 1985 I was introduced in the United States Congress by then-Vice President George H. Bush. I testified about the coming S&L Crisis, saying that if the scandal was left unchecked it would cost the U.S. taxpayers billions of dollars and cause millions of U.S. citizens to lose their life savings.  My written prepared remarks were titled: "Taking Uncle Sam for a $200 Billion Ride." I was ridiculed for using such a enormous figure, $200 billion, to describe the magnitude of the situation--no government scandal prior to then had cost more than a few billion dollars.

The same week in 1985 I met with an editor at Simon & Schuster (S&S) about writing a book, called Other People's Money,  to expose the scandal.  S&S stalled me for three years (1986-1988) while I kept writing articles and op-ed pieces about the S&L Crisis. I became a media darling on the subject on CNN, NPR and national news and talk shows.

In December 1988, when the S&L Crisis was already a household word, I appeared on The Larry King Live! Television Show. The next morning I got a call from the same editor at S&S saying they wanted to publish Other People's Money right away. I was furious!  I exclaimed to the editor: "You could have published this book three years ago when it was new information, now everyone knows all about it."

The editor calmed me down and explained. "Paul," he said, "three years ago when you came to me with this story I presented it to my colleagues and they thought you were a nut. If we had published your book back then, it would have sat on the shelf. Now that we have five different book proposals from prominent people on this same subject, we can see that this story is finally ready for a popular book. We are a business, not a charity. We want to hear about new things when they are on the bleeding edge (red ink), but we don't want to publish a major book on new things until they are on the cutting edge (black ink), and the public is ready for the information."

The editor added that if I would stop screaming at him he would outline the business terms of their offer to publish my book. S&S published Other People's Money in 1989 and it was an instant success--being featured on the cover of The New York Times Book Review and paving the way for my future life as an author.

P.S. Readers following the current U.S. Banking Crisis should note that the main cause—100% insurance of consumer bank deposits—has never been fixed. As first pointed out by FDR in 1932, and highlighted in Other People’s Money, only a system that puts the depositor at some manageable level of risk (say 10% of their money) can keep risk-taking financial institutions from having unlimited access to capital before it’s too late.  For more info see the New York Times Book Review.

"While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness. I feel today like an arms manufacturer on December 7, 1941."
                                                                                         Paul Zane Pilzer, March 23, 2010

Note: Zane Benefits has posted a technical article summarizing the impact of health care reform on insurance agents, employers, and employees, including which changes take place in 2010, 2011, and 2014.

On March 23, 2010 President Obama signed into law H.R. 3590 - the Patient Protection and Affordable Care Act (the "Senate Bill") which mandates sweeping changes in U.S. health care and health insurance. The U.S. Senate is currently debating the Health Care and Education Reconciliation Act H.R. 4872 (the "Reconciliation Bill") which makes modifications to the Senate Bill as described herein.

Here's how this already-passed legislation will impact small (2-50), medium (51-200), and large (>200) size employers and their employees.

Changes in the Individual / Family ("Personal") Health Insurance Market
First and foremost, new insurance regulations prevent health insurers from denying coverage to individuals or charging more based on their health status or gender. These regulations also mandate that health plans provide a very generous list of services (i.e. a federal government formulary), cap annual out-of-pocket spending for participants, impose no annual or lifetime limits on coverage, and, beginning September 23, 2010, offer preventive (wellness) services with no copays or deductibles.

These new mandates, while laudable in their intent for consumers, will significantly increase the cost of health insurance (before federal subsidies) for the majority of U.S. taxpayers. If you are among the 25% of U.S. households earning more than $88,250 a year, your current cost for health care will potentially double. Below $88,250 a year in income, the new legislation caps your health care cost at 2% - 9.5% of your income for premiums and $0 - $5,950/person/year for out-of-pocket expenses.

The net effect of these federal subsidies for employers is that when you switch from group to personal policies the federal government is insuring that each of your employees can afford health insurance at widely varying cost based on their income.

Small Employers (2-50 employees)
Small employers in the U.S. employ more than 50% of American workers and are responsible for the overwhelming majority of new jobs. More than 55% of small employers today do not offer health insurance-because of cost. Both the Senate Bill and the Reconciliation Bill impose no penalties or mandates on small employers to offer health insurance. Congress seemed to recognize that any increase in employer mandates would cause small employers to hire less workers and/or substitute more technology for labor in the workplace.

Most importantly for this sector, health care reform is dramatically accelerating the switch of small employers from group to personal (individual or family) health insurance. While personal health insurance has grown from covering 12 million people in 2002 to 35 million people in 2009, the reason 45% of small employers still offer group plans is because, in 45 states, employees with pre-existing medical conditions were unable to obtain personal insurance.

This is no longer the case. Beginning 2014, insurance carriers must accept all applicants at the same price regardless of health status, and beginning 2010, there is a new federal "risk pool" to guarantee coverage to people who do not have health insurance and cannot medically qualify or are charged more for traditional medically-underwritten personal policies.

Moreover, recent federal legislation allows employers to pay for personal policies with pre-tax dollars, and new Treasury regulations allow employees to use pre-tax salary to reimburse themselves tax-free for personal policy premiums. These two changes have the practical effect of reducing by 20%-50% the after-tax cost of personal policies for employees and employers.

Thanks to health care reform, small employers with group plans in all states can now cancel their group plans and switch to giving each employee a pre-tax allowance to purchase their own personal policy-while being assured that all their employees can get and afford personal health insurance.

A company I founded, Zane Benefits, is the leading supplier of software administration platforms that allow employees to pay for their own personal health insurance with pre-tax employer and/or payroll-deducted funds. Thanks to health care reform, we have experienced a significant increase in business from employers (and their agents) seeking to switch employees from their group plan to personal policies, or at least offer employees the opportunity to save 20%-40% on health insurance by paying for their personal policies through pre-tax salary reductions.

Medium Employers (51-200 employees)
Medium-size employers were not as lucky as small employers when it comes to health care reform. For employers with 51-200 employees, the health care reform bill signed into law on March 23, 2010 mandates a $750 per employee annual penalty for employers that do not offer (and substantially pay for) health insurance. The Reconciliation Bill would raise this $750 per employee penalty to $2,000 per employee (less an exemption for the first 30 employees).

Most medium-size employers who currently do not offer health insurance will simply pay this penalty rather than increase their operating costs by approximately $10,000 per employee for health insurance. Medium-size employers who do currently offer health insurance face an expected doubling of their health insurance costs, from $5,000 to $10,000 per person per year, due to the new federal mandates on coverage.

This creates a choice for all medium-size employers of either paying the penalty or paying a much greater cost for health insurance. The penalty along with new health insurance mandates could have a devastating effect on new U.S. job creation and employment at a time our economy can least afford it. A $750-$2,000 per employee penalty, and/or a doubling of employer health insurance costs, will force many medium-size employers to move jobs overseas, create less new U.S. jobs, and/or substitute more technology for labor in the workplace.

Additionally, think about employers with 49-50 employees seeking to expand. The addition of a single employee could cause their company to incur a penalty of up to $100,000.

Large Employers (>200 employees)
Large employers fared the worst in health care reform. Those large employers who cannot  afford to offer health insurance face the same ($750-$2,000) per employee penalty as medium size employers. And those large employers who currently offer health insurance will face an expected doubling of their health care costs due to the new federal mandates on what must be covered and no lifetime limits on coverage.

Moreover, large employers are required to automatically enroll employees in their lowest cost health plan if the employee does not choose coverage or does not specifically opt out of coverage. For each employee who chooses to opt out of employer coverage, employers are charged a $3,000 annual fee up to a maximum penalty of $750 ($2,000 with the Reconciliation Bill) times their total number of employees.

Among the new federal mandates for coverage, I am troubled by the potential cost of the mandate requiring no lifetime limit on coverage. Prior to health care reform, most states already mandated a per-person minimum lifetime maximum on health insurance benefits ranging from $3 million in Texas to $6 million in California. States typically required insurers operating in their state to re-insure their catastrophic risks, and Wall Street practically required large employers to purchase re-insurance on their catastrophic risks. Re-insurers, such as Lloyds of London, were only able to re-insure carriers and large employers because there was a defined maximum amount of lifetime benefits. 

From a practical standpoint, very few people could ever come close today to utilizing $3 or $6 million of medical costs. The new federal mandate for no lifetime limit may cost Americans hundreds of billions for very little benefit, and may even be unobtainable in the re-insurance marketplace. The federal government should move now to either change lifetime maximum benefits to a practical $3-$6 million amount, or offer carriers and large employers the re-insurance they need to comply from the U.S. Treasury at minimal cost.

Summary
Health insurance reform is here to stay. I do not expect this legislation to be repealed, or successfully challenged in the courts.

Like most government programs of the past, health care reform will create enormous opportunities for entrepreneurs. I plan on exploring these opportunities in future articles and perhaps an entire book. As always with change, those entrepreneurs who get there first will reap the greatest rewards.

While I personally did not support President Obama on U.S. Health Care Reform, such reform is already proving very good for my business (Zane Benefits) and for many entrepreneurs in health care and wellness.

As a businessperson, I feel today like an arms manufacturer on December 7, 1941. Only time will tell us as a nation whether health care reform was worth the financial cost. To quote Tiny Tim (Charles Dickens), "God bless us, every one!" 

Future articles will continue to examine the opportunity for entrepreneurs, and explain what employers and employees should do now. Visit me on Facebook

On Thursday, March 25, the U.S. House of Representatives passed the H.R. 4872 (the "Reconciliation Bill"). This bill modified the Health Care Reform bill signed by President Obama on March 23 as noted in my previous blog posts. Regardless of my or your political opinion on Health Care Reform, it is now the law of the land.

The U.S. federal government effectively now:

 (1) Mandates that everyone get health insurance; and

 (2) Defines what is health insurance--what specific procedures, drugs, and treatments must be included in every health insurance policy.

If you are a medical provider today, or are considering becoming a medical or wellness provider, this could be the greatest entrepreneurial opportunity of your lifetime.  

Here's just one example. Beginning September 23, 2010, health insurance policies must cover with No Deductibles and No Copays (i.e. 100% free to the patient) preventative and wellness care. Just think what this one provision could mean to a manufacturer of breast cancer screening devices, or to a chain of medically-supervised weight loss clinics. You now have 300 million potential customers, at hundreds or thousands of dollars each, and each customer has 100% of their services paid for by their private or federal health insurance carrier.

The final details of what is, and is not, included in the list of mandatory free preventative services will be issued by the U.S. Department of Health and Human Services (HHS). But, just to whet your appetite, here is a list of thousands of preventative treatments ranging from obesity screening to smoking cessation programs that HHS could include on what must be covered.

I'll be writing more on this in the coming weeks. My next blog posting on Health Care Reform will be what employers and employees should do now regarding employer-sponsored health benefits.