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Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

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Author Info

  • Robert W. Fairlie

    (Department of Economics, University of California, Santa Cruz and RAND)

  • Kanika Kapur

    (School of Economics and Geary Institute, University College Dublin and RAND)

  • Susan Gates

    (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-in-difference 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 the entrepreneurship probability 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 entrepreneurship 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. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient allocation of which or when workers start businesses.

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File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200939.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 200939.

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Length: 50 pages
Date of creation: 17 Nov 2009
Date of revision:
Handle: RePEc:ucd:wpaper:200939

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Keywords: Self-employment; entrepreneurship; health insurance;

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References

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  1. Tracy L. Regan & Gulcin Gumus, 2006. "Tax Incentives as a Solution to the Uninsured: Evidence from the Self-Employed," Working Papers 0709, University of Miami, Department of Economics, revised Oct 2007.
  2. Brigitte Madrian, . "The Effect of Health Insurance on Transitions to Self Employment," University of Chicago - Population Research Center 98-5, Chicago - Population Research Center.
  3. Holtz-Eakin, Douglas & Penrod, John R. & Rosen, Harvey S., 1996. "Health insurance and the supply of entrepreneurs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 209-235, October.
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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. Robert W Fairlie & Kanika Kapur & Susan Gates, 2012. "Job Lock: Evidence from a Regression Discontinuity Design," Working Papers 201215, School Of Economics, University College Dublin.
  2. Åstebro, Thomas & Thompson, Peter, 2011. "Entrepreneurs, Jacks of all trades or Hobos?," Research Policy, Elsevier, vol. 40(5), pages 637-649, June.
  3. Heim, Bradley T. & Lurie, Ithai Z., 2010. "The effect of self-employed health insurance subsidies on self-employment," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 995-1007, December.
  4. 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).

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  1. Economic Logic blog

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