According to the 2010 U.S. Census Bureau there are approximately 175,000 businesses in Michigan. And this does not include the estimated 680,000 nonemployee firms. A full 3,000 of these firms have more than 500 employees, making up just 2% of the companies in Michigan but representing almost 50% of Michigan employees. These large firms play a critical role in Michigan’s economic success, employing over 1.5 million people.

By the same token, though, small businesses in Michigan play an equally important role. Over 85% of employer businesses in Michigan have 20 or fewer employees, representing roughly 20% of all employees in Michigan. Access to capital for these small businesses and new startup businesses is critical for helping these companies pursue new growth opportunities.

To understand the current business loan environment for banks and credit unions, we spoke with three Ann Arbor area experts.

Bill Broucek is Co-Founder, Chairman and CEO of Ann Arbor State Bank. Ann Arbor State Bank (“The Personal Bank”) offers a comprehensive lending program with a dedicated team of lending professionals who can work with business owners on the most basic financing to more complicated loan packages for the larger clients. Ann Arbor State Bank currently has four commercial officers, each of whom can comfortably handle loan requests from $25,000 to $5 million.

Bill McPherson is Managing Director of McPherson Commercial Capital (MCC). MCC was founded in 2002 and provides capital and funding solutions of all types, including equipment financing or leasing, working capital financing in the form of asset based loans, and client advice on real estate loans or leases and in raising equity in the form of capital, mezzanine, or subordinated debt. Bill is also on the board of the New Enterprise Forum, a nonprofit organization that links entrepreneurs with funding sources and business services.

Ken Michalak is a senior loan officer at Brighton-based Lake Trust Credit Union. Lake Trust is relatively new to the area because it recently merged Detroit Edison Credit and NuUnion Credit Union. Lake Trust goes “lake to lake” from Detroit to the west side of the state. Lake Trust is focusing on serving the Michigan market and is making loans available to small businesses with roughly 100 employees or less.

We talked to all three to get their thoughts on current loan availability and tips for small business owners.

RECENT LENDING ACTIVITY

Broucek: We have seen a pickup in small business lending. Sometime around November more loan requests began coming in on a weekly basis from small businesses. The requests we’re getting are all sizes and shapes and types.”

McPherson: “Oftentimes companies in certain fields will use grants combined with a small equity raise as a means of getting their business up to the point where they have a product that is fully developed and ready to go to market . . . Some drug companies are not throwing money into developing certain types of new drugs. What they’re doing is buying companies that have been formed to go through the initial stages of testing. Then when it looks like there’s going to be a successful drug, a big pharma company buys it.”

Michalak: “Businesses have been very conservative in paying down debt and storing up some equity, so they are healthier than they’ve been in a long time. And they’re debt averse. They don’t like debt so if they don’t need the money. Businesses are really not taking on debt like we saw ten years ago where they were very bold and aggressive.

“Recently, however, companies are starting to see some new opportunities and that’s what is getting them back looking for loans. Real estate values are low, for example, so a company can buy a new building and double its size and not increase costs. They are starting to get that appetite back again, but they are still a bit hesitant.”

LOAN AVAILABILITY FOR STARTUPS AND BUSINESSES

Broucek: “Some banks have liquidity and have the money to lend. At Ann Arbor State Bank, for example, we have 45% liquidity. Liquidity for a bank is cash and short term bonds. So 45 cents of every dollar in the bank is not in a loan. I would like to drop that number to be just 20 or 15 cents of every dollar not in a loan. So we’ve got a lot of money to lend.”

McPherson: “For startups, investors are really looking for something that is going to be ‘investable.’ In other words, the business is probably scalable and can grow relatively fast to the point where there’s going to be a prospect for an exit down the way. For example, if a business is going to generate just a couple million dollars in sales and it needs $500,000, then it’s going to just return some profits to the investors over time and is not really what one would look to as being a prospect for startup funding.

“On the other hand, a company that’s going to grow to $20 million or $30 million in sales in 5 to 7 years and throw off millions in cash flow is probably one that theoretically might be bought by a bigger company and would, therefore, create an exit for an investor. This would be an attractive startup opportunity for an early-stage investor.”

“I often hear frustration from people who say ‘Banks won’t lend me money.’ Well, that’s not really the role of a bank for a startup, although in certain cases and certain types of loans it may be appropriate for a startup business. If the business is a franchise, or if it’s somebody who is very experienced in business and has some capital they can put in, then there are SBA lenders who may be able to help with that. The critical part in all of this is that somebody somehow has to put some skin into the game – some equity.”

Michalak: “The hardest loan to approve is a startup. Startups are challenging because of the uncertainty. But we are seeing a good steady pace of them recently. The ones that tend to be more successful are the franchises.

“We have a Great Clips loan right now through the SBA that’s going to close soon. We also closed a Jimmy Johns recently. The startups that tend to have the most success in getting approved and closed for financing are the ones that tend to go as a franchise, largely because of the name recognition and pre-tested marketing strategy. You don’t have to trust the marketing strategy as an independent person coming up with an idea. You know there’s a proven track record; there’s a history involved.”

“Larger commercial banks can tend to have less appetite for some of the small business loan refinancing at this point. Many of these larger banks are cleaning up their books. They may have too much concentration in a certain industry or in certain types of loans. We’re getting a lot of opportunities for good loans as a result.

“A common situation is a change in residential home valuation for a business owner. For example, if a business owner originally purchased a home for $300,000 that is now valued at $220,000, they may have to pay the mortgage down by $50,000 in order to get the loan. That makes it a difficult proposition for the business owner. Small banks and credits unions, though, may be better able to work with these business owners.”

TIPS FOR BUSINESSES SEEKING A LOAN

Broucek: “There are a few things that are critical when applying for a loan. First, the experience that that person has in that business is important. If you want to start a restaurant and you’ve never run a restaurant, then you should first get some experience and then come back and see us. You need experience in the industry.

“Second, work ethic and determination to succeed are critical. If this can be assessed properly, it’s going to be a good loan. It is difficult to assess work ethic and determination, but if the person has experience and is dedicated and hard-working, chances are very good that his or her business will succeed and that loan will get paid.”

“If you have questions about a possible loan, just contact a financial officer and they can help you. For example, we have a sheet that we give to a proposed borrower in the commercial area. This sheet explains what we need from them. The proposed borrower can then go back, gather all the needed data, then come in so we can look things over.”

McPherson: “Your first step is to have a clear plan, because to not have a plan is basically to not have a business. You have to have an idea of how you’re going to get from point A to point B. There are a lot of good resources available to help you with this, particularly through organizations such as Ann Arbor SPARK, the Small Business Administration (SBA) or the Michigan Small Business & Technology Development Center (SBTDC). People at these organizations can help you craft and define a business plan.”

Michalak: “Make sure you first leverage your available resources before you go to a financial institution. Organizations such as small business development centers, community colleges or the Service Corps of Retired Executives (SCORE) are very helpful. SCORE will help you develop a business plan, sit down with you and even consult with you at no cost.”

“When you are ready to talk to a lender, set up an appointment with some local financial institutions to get an audience with somebody who can work with you. Typically you’ll have greater success with a community bank or a credit union because many large banks are credit scorched for the most part. More than likely you’ll be looking at a potential SBA loan. It’ll be something you have to shore up through the SBA guarantee so you want to make sure your lender is an SBA lender.”

“And be sure to be honest with your lender. If you have had credit issues, deal with that upfront. There’s nothing worse than doing a whole bunch of work only to discover a bankruptcy or credit issue. If a lender is going to help you, they have to know the whole story. If you’ve had a hiccup or blemish in your history, don’t try to hide it or shy away from it; deal with it head on and talk about how are you are fixing it. That goes a long way with working with a prospective lender.”

In sum, small business loans are available for qualified companies that need the funds. If you want to pursue potential loan, prepare a well-researched business plan and then contact a loan officer. You just don’t know what’s really possible until you do.

Re:NEW Michigan with Larry Eiler of Eiler Communications
1290 WLBY & Streamed at www.1290WLBY.com
 
March 5, 2013: Re:New Michigan: Michigan Economic Survey – Larry Eiler, CEO, Eiler Communications; David Baker, CEO, Baker Strategy Group – A new publication highlighting the first Michigan Economic Survey conducted by Ann Arbor-based Baker Strategy Group is now published. Learn where Michigan is headed and what it’s going to take to get there.
 
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Ann Arbor marketing and PR leader and CEO of Eiler Communications, Larry Eiler, teams up with Lucy Ann Lance for a weekly Tuesday morning radio segment focusing on Michigan’s entrepreneurs, venture capitalists, angel investors, and others who are helping to propel Michigan forward.  Re:NEW Michigan (formerly known as Tech Tuesday) airs live on Business Talk 1290 WLBY at 8:40 a.m. and repeats at 10:40 a.m.

David speaks in Marquette at the Lake Superior Community Partnership Quarterly Economic Lunch

David Baker and Don Hart of MOVE Communications (www.movecommunications.com) had the chance to visit Marquette for the Lake Superior Community Partnership (LSCP) Quarterly Economic Lunch. David presented the results of the first annual Michigan 2013 Economic Outlook Survey (www.michigan2013.com).  This well-attended event included business, nonprofit, and public leaders throughout the region, including State Senator Tom Casperson representing the 38th District in Michigan’s Upper Peninsula.

TV 6 FOX UP Reporter Kelsey Niemisto covered the lunch event and delivered this report to Fox UP News. Here’s Kelsey’s report: 2013 economic outlook for Michigan

David speaks to the Detroit Economic Club on the Michigan 2013 Economic Outlook Survey results.

On January 8, the Detroit Economic Club held the Michigan 2013 Economic Outlook lunch. The session was moderated by Tom Walsh, business columnist for the Detroit Free Press, with a 2-member panel: Dr. Charles Ballard, Professor of Economics at Michigan State University, and Michael Finney, President and CEO of the Michigan Economic Development Corporation (MEDC).

To kick off the lunch, David Baker announced the results of the first annual Michigan 2013 Economic Outlook Survey.

The slides discussed at this DEC luch are available at: www.michigan2013.com

Below is a 5-minute clip of David’s comments at the lunch.

Carol Cain talks to David Baker on Michigan Matters about the Michigan 2013 Economic Outlook Survey

I had the great opportunity to talk with CBS 62  Carol Cain on her show Michigan Matters.  Carol often has high-profile guests on her show to discuss issues related to Michigan, so I was honored to have a chance to speak about our Michigan 2013 Economic Outlook Survey.

We discussed the highly collaborative nature of the program, which involved 3,000 responses from 70 associations throughout the state of Michigan. We also talked about the surprising finding that the business, nonprofit, and public sectors are in general agreement that Michigan’s economic has room for improvement, as indicated by the average score of 62 out of 100 for satisfaction with Michigan as a place to grow a business.

Watch the 5-minute clip of the interview:

David will present Michigan 2013 Economic Outlook Survey results in Marquette, Michigan

David will be speaking on Friday, February 8th at the Quarterly Luncheon Series at the Holiday Inn in Marquette, Michigan.

This luncheon series is sponsored by the Lake Superior Community Partnership, an economic development organization that played a leading role in the Michigan 2013 Economic Outlook Survey.

Article written for Ann Arbor Area Business Monthly

2012 was a volatile year. Nationally, we experienced a Supreme Court ruling on Obamacare, held a Presidential election, elected a new slate of new Senators and Representatives, and averted a Fiscal Cliff. We even escaped the oft-mentioned “Mayan prophecy” predicting the end of the world at the winter solstice.

As we enter 2013, Michigan faces a whole new set of challenges and opportunities. Michigan is now a Right-to-Work state, the impact of Obamacare is still evolving, and the economy is predicted to grow at a mild but relatively even pace. The business, nonprofit, and public sectors in Michigan will need to work closely together to face these challenges.

A recent statewide survey underscores these challenges and opportunities. The Michigan 2013 Economic Outlook Survey (www.michigan2013.com) involves 3,000 people through 70 associations and is being delivered by five Ann Arbor-based companies: Baker Strategy Group, CFI Group, Apogee Insights Group, Eiler Communications, and MOVE Communications.

The complete results and analysis of this study will be released officially January 8 at a Detroit Economic Club meeting, but the preliminary results indicate that the business, nonprofit, and public sectors have many points of agreement. All three sectors generally agree that we have a good quality of life here in Michigan and aspects of our local communities, such as places of worship, are excellent. However, the three sectors note that Michigan is not yet a great place to grow a business, and the near-term economic outlook is not as rosy as we would hope.

George A. Fulton is the Director of the Research Seminar in Quantitative Economics, an economic modeling and forecasting unit in the Department of Economics at the University of Michigan. Fulton forecasts that Michigan’s job growth will slowly but steadily increase, adding around 50,000 jobs in 2013 and just over 60,000 jobs in 2014. However, personal income growth will decelerate to 2.6 percent in 2013 then rebound to 4.5 percent in 2014. A summary of Fulton’s forecast for Michigan appears in this paper.

To look beyond the forecasting numbers and find out more about what we can expect in 2013 for Michigan and the Ann Arbor area, we turned to Robert Dye, economist for Comerica Bank. Dye provides regular economic forecasts for our region. We had the chance to speak with Dr. Dye to get his thoughts on the economy in 2013.

Q: First of all, where exactly does the Ann Arbor area fit in the Michigan economy?

A: Ann Arbor is a bit unusual, as it doesn’t necessarily fit cleanly into a geographic area from an economic standpoint. We look at southern Michigan as a region with three key areas: the Detroit metro area, Ann Arbor, and the aggregate of Kalamazoo, Grand Rapids, and Lansing. Currently, we include Ann Arbor with Lansing, Kalamazoo and Grand Rapids as an aggregated group called Central West Michigan.

Q: What do you see for Michigan in 2013?

A: For Michigan, and every other state in the union right now, a lot depends on the Fiscal Cliff [which was still unresolved as of this article]. It is such a big lever on the economy with a significant potential upside and downside. It clearly represents a threat to defense contractors in Michigan, so it’s something we have to watch. The general consensus, though, is that Congress and the President will reach an agreement. A resolution to the Fiscal Cliff will allow the Michigan economy to continue to expand.

Q: What key industries should we be watching?

A: U.S. auto sales continue to improve at a moderate pace. I think we’ve gotten most of the bounce off the bottom in auto sales from the 9 million in annualized units in September of 2009 up to the mid-14 million annualized units for most months of 2012. We had a good bump in November to 15.5 million annualized units due to some replacement purchases from Hurricane Sandy. Levels will likely settle down and auto sales will continue to improve at a moderate pace, which certainly helps solidify the gains in Michigan from a rejuvenated auto industry.

Q: What about other key industries?

A: Office construction has been a lagging part of the economy, especially in this current cycle, but there are some positive signs. One bellwether I see is the Hudson Yards project (www.hydc.org), a huge project that is just getting underway on the upper west side of Manhattan in New York. This project is the biggest commercial construction project started since the Great Recession. The project doesn’t affect Michigan directly but it may indicate a turning point for commercial construction nationwide. I expect that we’ll start to see more commercial construction projects, which will increase demand for office furniture and related products coming out of the Grand Rapids area.

Q: What do you see for the housing market?

A: We’re seeing housing markets firming up. Prices are coming back, which is good news. Half of the increase in house prices that we’ve seen over the last year is due to fewer foreclosed or distressed homes coming on the market, which is good news. However, having fewer of these homes on the market also artificially lifts the overall level of prices, since foreclosed homes typically carry a 25 – 30% discount. I think we can say, though, that house prices are firming up even after factoring in the change in foreclosures and distressed homes.

This increase in housing prices has a double positive on the economy. First, it brings buyers back into the market and gets home construction going again. Second, it brings a positive wealth effect for the homeowners who are now building equity in their homes again after losing so much equity in the last few years. Homeowners feel a little wealthier and spend a little more money.

Q: Will homeowners also be more willing to sell their homes?

A: Yes, this increase in home equity will free up some of the potential home sellers who were underwater to get back above water and put their houses on the market.

These added homes to the market can have a downside for Michigan, however. A longer term issue that I am concerned about is net migration out of the state. We’ve just gone through a very difficult recession. Many thousands of auto workers have been laid off and many jobs have been cut. Some portion of these people may have wanted to migrate out of the state but have not been able to make the move. As housing markets loosen up, some of those people who have wanted to migrate out of the state will now be able to do so. We might see a little more migration from the state from these displaced workers who have not been reabsorbed back into the work force. That’s a longer term issue but it’s a dynamic that I think is worth watching.

Q: Can we expect to see a continued net migration out of Michigan to other states?

A: According to recent population estimates, more people are leaving the state than coming back into the state. I think that dynamic has to be watched very carefully for states like Michigan. This is also true for Ohio and Illinois. Most of the Great Lakes states have this net migration dynamic. The census data was collected in 2010 when the housing market was flat on its back. As the housing market improves, we may see more net migration eight years from now in the 2020 census.

Q: How has the recession impacted Michigan?

A: Well, a recession represents a period of what economists call “creative destruction.” Economists put these two terms together to indicate the interplay that happens in an economy as businesses fail and new businesses are born.

A recession represents a period of heightened creative destruction. I think this is particularly true for Michigan with big restructuring in the auto industry. Lots of jobs were lost, but now we’re seeing that the state is becoming attractive for younger entrepreneurs who are seeking low-cost areas coming back into Detroit. We don’t know how these dynamics are going to work their way out, and it’s going to take years to fully understand the changes. There’s a lot of churn going on in the Michigan economy that is still resolving.

Q: Are there other key indicators we should be watching?

A: The energy industry can also be an indicator for Michigan. Energy markets, and natural gas markets in particular, are undergoing an almost unseen revolution from the consumer point of view. This revolution has the potential to profoundly impact Michigan’s manufacturing base by bringing energy-intensive manufacturing back into our areas. With the natural gas supply in Michigan, I think the state should be a part of this revolution.

GVSU is able to work together with businesses and organizations to reach their goals. They recently collaborated with Cornerstone Schools and Detroit Medical Center to open The Cornerstone Charter Health High School.

GVSU represents a much larger force of school funding initiatives. Other universities such as Central Michigan and Eastern Michigan, and like-minded individuals including Robert Thompson, who provides scholarships for charter school graduates, contribute in the pursuit of better education.

These efforts between schools, organizations, and businesses demonstrate the kind of teamwork Michigan needs to build a better economy.

Read Article

What can we do in 2013 to build a better Michigan economy? That is a question on everyone’s mind as we begin a new year. Michigan faces both clear opportunities and significant challenges and public, private, and nonprofit leaders will need to be unified in the pursuit of our state’s economic development. Join our distinguished panelists as they discuss Michigan’s economic outlook.

The results of the first annual Michigan Economic Outlook Survey will be released and discussed at this meeting. This highly-collaborative effort involves input from over 3,000 people and 70 associations statewide.

SPEAKERS

Charles Ballard Ph.D
Professor of Economics
Michigan State University

Michael Finney
President & CEO
Michigan Economic Development Corporation

MEETING DATE

Tuesday, January 8, 2013

AGENDA

11:30 a.m. Network Café
11:30 a.m. Speaker’s Reception – Open to Board, Life and Gold Members only.
12:00 p.m. Luncheon
12:30 p.m. Program
1:30 p.m. Adjourn

 LOCATION

MotorCity Casino Hotel

TICKETS

$45 – DEC Members
$55 – Guests of DEC Members
$75 – Non-members

REGISTER NOW

On March 9, 2010, just prior to the bills being passed in Congress, Nancy Pelosi uttered in her now famous line during a speech to the National Association of Counties: “But we have to pass the bill so that you can find out what is in it.” And today, almost three years later, everyone is still trying to figure out exactly what the law will mean for our economy.

One thing seems certain: Obamacare is here to stay. With hopes of repeal dissipating after the Presidential election, Michigan businesses must now learn to understand the law, its consequences related to health insurance costs and availability, and the implications it will have on business strategy.

Many have argued that there are at least some positive aspects to Obamacare going into 2013. According to Obamacare proponents, the country is forced to grapple with fixing a broken health system, the plan organizes all Americans into the system so we can fix it holistically, and a mix of careful regulation mixed with controlled exchanges will provide affordable options for families and businesses.

For businesses, however, the benefits seem elusive while the costs continue to inch upward. Papa John’s International CEO John Schnatter, for example, made headlines when he voiced concerns over the costs of healthcare. Schnatter estimated that 10-14 cents of each pizza sold went to cover healthcare costs.

2013 – Costs Increases

These rising costs of healthcare is a major challenge for Michigan businesses. And in 2013, costs are going to get higher due to Obamacare. While there are numerous regulations that kick in in 2013, there seem to be five key cost increases.

1. Medical Device Tax – ($20 billion over 10 years)
This tax has received a good deal of attention recently. Starting on January 1, 2013, there will be a 2.3% tax on medical device manufacturers. This tax will raise the price of a variety of devices, such as operating tables, stents, prosthetics, pacemakers, etc. This is not a tax on profits; rather, it is on gross sales of medical device equipment. A $10,000 device, for example, will cost an additional $230.

2. High Medical Bills Tax Increase – ($15 billion over 10 years)
Current tax laws allow you to deduct medical expenses if these costs exceed 7.5% of your adjusted gross income. Obamacare raises this threshold from 7.5% to 10%.

3. Medicare Payroll Tax Increase – ($86 billion over 10 years)
Medicare payroll tax is currently 2.9% on all wages and self-employment profits. Under Obamacare in 2013, this tax will grow from 2.9% to 3.8% for wages and profits exceeding $200,000 ($250,000 for married couples).

4. Flexible Spending Account Cap – ($13 billion over 10 years)
Obamacare will impose a $2,500 annual cap pre-tax Flexible Spending Accounts (FSAs) for roughly 25 million Americans. Some are calling this the “Special Needs Kids Tax” because many families with special-needs children use FSAs for related expenses and will be affected.

5. Investment Income Surtax – ($123 billion over 10 years)
This new tax is a 3.8% surtax on investment income for household making $250,000+ ($200,000+ for singles). The President and Congress will likely come to an agreement on taxes for 2013. Assuming the current law, however, the capital gains tax rate will go from 15% to 20%, and the top dividend rate will increase from 15% to 39.6%. Under ObamaCare, the 3.8% surtax will be added on top of these taxes, taking the top capital gains rate to 23.8% and the top dividend rate to 43.4%.

2014 – A Mandate and Exchanges

Once businesses adjust to these new tax schedules and cost increases, companies must quickly prepare for Open Enrollment in October 2013. With the mandate and exchanges coming in 2014, businesses will need to determine a plan by mid-2013.

As of January 1, 2014, employers with 50 or more full-time employees will be required to provide some form of subsidized health insurance to employees or families. The penalty for failing to comply will be $2,000 per employee per year (after the first 30 employees).

This mandated cost increase is forcing companies to consider their options. Some companies are providing or will provide the insurance. Some companies will halt hiring or adjust workforce levels to stay at or drop below the 50-employee mark. And some firms will drop insurance all together and simply pay the fines, calculating that it is a simpler and less costly approach. In such cases, many employees will look to the health insurance exchanges for insurance.

Applebee’s restaurant franchisee Zane Tankel, for example, recently said that he would stop hiring and possibly even shave employee hours due to compliance costs. Darden Restaurants (Olive Garden, Red Lobster, and other chains) noted in October that more employees would be moved to part-time to reduce healthcare-related costs.

Health insurance exchanges are a key element of Obamacare. According to the U.S. Department of Health & Human Services, “Affordable Insurance Exchanges are designed to make buying health coverage easier and more affordable.” Beginning in 2014, these federal exchanges will be designed to allow individuals and small businesses to compare health plans, get answers to questions, and enroll in a health plan that meets their needs.

Beginning in 2014, the not-a-tax/is-a-tax Obamacare mandate will require virtually all Americans to obtain some form of health insurance. The CBO estimates that roughly 25 million Americans will receive this coverage through these exchanges by 2016, so the exchanges are expected to play a significant role.

States will have the option of choosing to use the federal exchange or to set up a state exchange. However, states have until December 14 to make a decision. Fifteen states (mostly “blue” states) along with Washington D.C. have moved ahead and have established a state exchange. Fourteen other states (predominantly “red” states) have chosen not to set up an exchange. Until recently, Michigan was among thirteen other states that are still considering the choices. The slow decision is due to the fact that the benefits and risks of the decision are extremely unclear.

Nina Owcharenko is a Senior Policy Analyst for health care at The Heritage Foundation’s Center for Health Policy Studies. Owcharenko researches and writes on a variety of health-care policy issues, including the uninsured, Medicaid, and prescription drugs.

Owcharenko argues that although setting up a state exchange may sound appealing, there are sound reasons for rejecting a state exchange. “The promises of no cost, more control, and helping those without health insurance fall flat,” says Owcharenko. “The Medicaid expansion will bring long-term costs to the states, offer no new flexibility to the existing Medicaid program, and create greater dependence on government-run health care rather than less . . . Health care reform is important, but recognizing a failing solution is even more important.”

According to Owcharenko, there is no compelling reason to setup the state exchange. There is no relative advantage that Michigan would gain by operating a state exchange in place of a federal exchange; states that set up an exchange “would simply be acting as vendors to HHS.” In addition, setting up an exchange would obligate Michigan to secure the necessary funding and to take responsibility for the results. If a federal exchange is setup in Michigan, Michigan would still retain the right to regulate operations of the exchange. And if we end up frustrated with the federal exchange, Michigan can setup a state exchange to replace the federal exchange.

In short, says Owcharenko, “There is no rush to commit . . . Rejecting the health insurance exchanges, and equally as important, the Medicaid expansion, are two opportunities states have to push back on this law.”

Nevertheless, Michigan seems headed for a state exchange. The Michigan Senate has supported the state option for some time, and the Michigan House came around to agree with the state option just last month. Governor Snyder has preferred a state-federal partnership option almost from the beginning. Snyder believes “a Michigan-run MI Health Marketplace” would advance his priority of “ensuring that Michigan residents have the best available quality health care.”

“At this point,” said Snyder, “we’re moving toward a state partnership exchange. However, we will continue to work with our legislative partners and seek more details and clarity from the federal government to make a final determination on Michigan’s path forward – whether that’s a state partnership exchange or state-based exchange.”

A Future of Uncertainty

Looking at 2014 and beyond, businesses, insurers, and, ultimately, families, have a great deal of uncertainty about the shape and affordability of health insurance. Broad regulatory changes lead by HHS will continue to shift options and expectations.

Just last month HHS released new rules for Obamacare. These rules, largely taking place in 2014, involve a mix of tightening and loosing of the rules in Obamacare.

Karen Ignagni is President and CEO of America’s Health Insurance Plans (AHIP). AHIP is the national trade association representing the health insurance industry and advocates for public policies that expand access to affordable health care coverage to all Americans through a competitive marketplace that fosters choice, quality and innovation.

According to Ignagni, “While additional flexibility on essential health benefits (EHB) is a positive step, we remain concerned that many families and small businesses will be required to purchase coverage that is more costly than they have today.” Ignagni goes on to express concern that the new rules may unintentionally “incentivize young, healthy people to wait to purchase insurance until they are sick or injured, driving up costs for everyone with insurance.”

It is precisely these policy changes, higher costs, greater uncertainties, and unintended consequences, not to mention the related political posturing and wrangling, that make Obamacare so problematic. Michigan will significant challenges in 2013, with a healthcare law that will continue to have an impact on our businesses and our economy.