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Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

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Author Info

  • Fairlie, Robert W.

    ()
    (University of California, Santa Cruz)

  • Kapur, Kanika

    ()
    (University College Dublin)

  • Gates, Susan

    ()
    (RAND)

Abstract

The focus on employer-provided health insurance in the United States may restrict business creation. We address the limited research on the topic of "entrepreneurship lock" by using recent panel data from matched Current Population Surveys. We use difference-indifference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. We find evidence of a larger negative effect of health insurance demand on business creation for those without spousal coverage than for those with spousal coverage. We also take a new approach in the literature to examine the question of whether employer-based health insurance discourages business creation by exploiting the discontinuity created at age 65 through the qualification for Medicare. Using a novel procedure of identifying age in months from matched monthly CPS data, we compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55-75. We also do not find evidence from the previous literature and additional estimates that other confounding factors such as retirement, partial retirement, social security and pension eligibility are responsible for the increase in business ownership in the month individuals turn 65. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient level of business creation.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5203.

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Length: 56 pages
Date of creation: Sep 2010
Date of revision:
Publication status: published in: Journal of Health Economics, 2011, 30 (1), 146-162
Handle: RePEc:iza:izadps:dp5203

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Keywords: medicare; health insurance; entrepreneurship; job lock;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Employer-based health insurance and growth
    by Economic Logician in Economic Logic on 2010-11-02 15:54:00
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Cited by:
  1. Thomas Astebro & Peter Thompson, 2007. "Entrepreneurs: Jacks of all Trades or Hobos?," Working Papers, Florida International University, Department of Economics 0705, Florida International University, Department of Economics.
  2. Velamuri, Malathi, 2009. "Taxes, Health Insurance and Women's Self-Employment," MPRA Paper 50474, University Library of Munich, Germany, revised Apr 2012.
  3. Dague, Laura & DeLeire, Thomas C. & Leininger, Lindsey, 2014. "The Effect of Public Insurance Coverage for Childless Adults on Labor Supply," IZA Discussion Papers 8187, Institute for the Study of Labor (IZA).
  4. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," AMSE Working Papers 1357, Aix-Marseille School of Economics, Marseille, France, revised 21 Nov 2013.
  5. Laura Dague & Thomas DeLeire & Lindsey Leininger, 2014. "This study provides plausibly causal estimates of the effect of public insurance coverage on the employment of nonelderly, nondisabled adults without dependent children (“childless adults”). We us," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 14-213, W.E. Upjohn Institute for Employment Research.
  6. Chu-Shiu Li & Chwen-Chi Liu & Yu-Chen Kuo & Chen-Sheng Yang, 2013. "Health insurance provision and labor contracts for small firms," Small Business Economics, Springer, Springer, vol. 40(2), pages 325-334, February.
  7. Fairlie, Robert, 2014. "Job Lock: Evidence from a Regression Discontinuity Design," Santa Cruz Department of Economics, Working Paper Series qt4947535x, Department of Economics, UC Santa Cruz.
  8. C. J. Krizan & Adela Luque & Alice Zawacki, 2014. "The Effect Of Employer Health Insurance Offering On The Growth And Survival Of Small Business Prior To The Affordable Care Act," Working Papers, Center for Economic Studies, U.S. Census Bureau 14-22, Center for Economic Studies, U.S. Census Bureau.
  9. Heim, Bradley T. & Lurie, Ithai Z., 2010. "The effect of self-employed health insurance subsidies on self-employment," Journal of Public Economics, Elsevier, Elsevier, vol. 94(11-12), pages 995-1007, December.
  10. John Schmitt & Nathan Lane, 2009. "An International Comparison of Small Business Employment," CEPR Reports and Issue Briefs, Center for Economic and Policy Research (CEPR) 2009-27, Center for Economic and Policy Research (CEPR).
  11. Nicholas Lawson, 2013. "Fiscal Externalities and Optimal Unemployment Insurance," Working Papers, HAL halshs-00907807, HAL.
  12. Gumus, Gulcin & Regan, Tracy L., 2009. "Self-Employment and the Role of Health Insurance," IZA Discussion Papers 3952, Institute for the Study of Labor (IZA).
  13. Silvia H. Barcellos & Mireille Jacobson, 2014. "The Effects of Medicare on Medical Expenditure Risk and Financial Strain," NBER Working Papers 19954, National Bureau of Economic Research, Inc.

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