IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp14891.html
   My bibliography  Save this paper

The Cost of Health Insurance and Entry into Entrepreneurship

Author

Listed:
  • Fossen, Frank M.

    (University of Nevada, Reno)

  • Hossain, Mobarak

    (University of Nevada, Reno)

  • Mukhopadhyay, Sankar

    (University of Nevada, Reno)

  • Toth, Peter

    (University of Nevada, Reno)

Abstract

Unavailable or expensive health insurance may hinder the transition of individuals from paid employment to entrepreneurship. The literature argues that the guaranteed availability of health insurance introduced by the Affordable Care Act (ACA) of 2010 could reduce this barrier to entrepreneurship and thereby increase entrepreneurial activity. In this paper, we investigate how much the cost of health insurance when leaving paid employment—given availability of health insurance—matters for the decision to become an entrepreneur. We use individual-level data from the Current Population Survey (CPS-ASEC) combined with county-level panel data on health insurance costs in local Health Insurance Exchanges (HIX) introduced by the ACA to estimate county-treatment fixed-effects regressions. The results indicate that increasing the premium of the benchmark HIX plan by $100 per month decreases the annual probability of entry into self-employment by 0.25 percentage points, which corresponds to 18% of the average annual entry rate.

Suggested Citation

  • Fossen, Frank M. & Hossain, Mobarak & Mukhopadhyay, Sankar & Toth, Peter, 2021. "The Cost of Health Insurance and Entry into Entrepreneurship," IZA Discussion Papers 14891, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14891
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp14891.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Åstebro, Thomas & Tåg, Joacim, 2017. "Gross, net, and new job creation by entrepreneurs," Journal of Business Venturing Insights, Elsevier, vol. 8(C), pages 64-70.
    2. Li, Yajuan & Palma, Marco A. & Towne, Samuel, 2017. "Does Health Insurance Provision Improve Self-Employment and Entrepreneurship? Evidence from State Insurance Mandates," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258399, Agricultural and Applied Economics Association.
    3. Jun Yeong Lee & John V. Winters, 2022. "State Medicaid Expansion and the Self-Employed," Small Business Economics, Springer, vol. 59(3), pages 925-954, October.
    4. Fairlie, Robert W. & Kapur, Kanika & Gates, Susan, 2011. "Is employer-based health insurance a barrier to entrepreneurship?," Journal of Health Economics, Elsevier, vol. 30(1), pages 146-162, January.
    5. Ross Levine & Yona Rubinstein, 2017. "Smart and Illicit: Who Becomes an Entrepreneur and Do They Earn More?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 963-1018.
    6. Velamuri, Malathi, 2009. "Taxes, Health Insurance and Women's Self-Employment," MPRA Paper 50474, University Library of Munich, Germany, revised Apr 2012.
    7. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, March.
    8. Mukhopadhyay, Sankar & Wendel, Jeanne & Zou, Miaomiao, 2019. "Impacts of shifting responsibility for high-cost individuals on Health Insurance Exchange plan premiums and cost-sharing provisions," Journal of Health Economics, Elsevier, vol. 66(C), pages 180-194.
    9. Brigitte C. Madrian, 1994. "Employment-Based Health Insurance and Job Mobility: Is there Evidence of Job-Lock?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 27-54.
    10. Bradley Heim & Ithai Lurie, 2014. "Does health reform affect self-employment? Evidence from Massachusetts," Small Business Economics, Springer, vol. 43(4), pages 917-930, December.
    11. Parker,Simon C., 2018. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9781316621714, July.
    12. 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.
    13. Donna B. Gilleskie & Byron F. Lutz, 2002. "The Impact of Employer-Provided Health Insurance on Dynamic Employment Transitions," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 129-162.
    14. Yannis Georgellis & Howard Wall, 2005. "Gender differences in self-employment," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(3), pages 321-342.
    15. James Bailey & Dhaval Dave, 2019. "The Effect of the Affordable Care Act on Entrepreneurship among Older Adults," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(1), pages 141-159, January.
    16. Thomas Astebro & Holger Herz & Ramana Nanda & Roberto A. Weber, 2014. "Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 49-70, Summer.
    17. Ryan Decker & John Haltiwanger & Ron Jarmin & Javier Miranda, 2014. "The Role of Entrepreneurship in US Job Creation and Economic Dynamism," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 3-24, Summer.
    18. Bradley T. Heim & Lang Kate Yang, 2017. "The impact of the Affordable Care Act on self‐employment," Health Economics, John Wiley & Sons, Ltd., vol. 26(12), pages 256-273, December.
    19. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    20. 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.
    21. James Bailey, 2017. "Health insurance and the supply of entrepreneurs: new evidence from the affordable care act," Small Business Economics, Springer, vol. 49(3), pages 627-646, October.
    22. Mary F. Evans & Matthew C. Harris & Lawrence M. Kessler, 2022. "The Hazards of Unwinding the Prescription Opioid Epidemic: Implications for Child Maltreatment," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 192-231, November.
    23. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    24. Zissimopoulos, Julie M. & Karoly, Lynn A., 2007. "Transitions to self-employment at older ages: The role of wealth, health, health insurance and other factors," Labour Economics, Elsevier, vol. 14(2), pages 269-295, April.
    25. Alison J. Wellington, 2001. "Health Insurance Coverage And Entrepreneurship," Contemporary Economic Policy, Western Economic Association International, vol. 19(4), pages 465-478, October.
    26. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    27. André Stel & Martin Carree & Roy Thurik, 2005. "The Effect of Entrepreneurial Activity on National Economic Growth," Small Business Economics, Springer, vol. 24(3), pages 311-321, February.
    28. Johan Hombert & Antoinette Schoar & David Sraer & David Thesmar, 2020. "Can Unemployment Insurance Spur Entrepreneurial Activity? Evidence from France," Journal of Finance, American Finance Association, vol. 75(3), pages 1247-1285, June.
    29. Frank M. Fossen & Johannes König, 2017. "Public health insurance, individual health, and entry into self-employment," Small Business Economics, Springer, vol. 49(3), pages 647-669, October.
    30. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    31. Acs,Zoltan J. & Armington,Catherine, 2011. "Entrepreneurship, Geography, and American Economic Growth," Cambridge Books, Cambridge University Press, number 9781107402539, July.
    32. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    33. Lombard, Karen V, 2001. "Female Self-Employment and Demand for Flexible, Nonstandard Work Schedules," Economic Inquiry, Western Economic Association International, vol. 39(2), pages 214-237, April.
    34. Daniel W. Sacks & Khoa Vu & Tsan‐Yao Huang & Pinar Karaca‐Mandic, 2021. "How do insurance firms respond to financial risk sharing regulations? Evidence from the Affordable Care Act," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1443-1460, June.
    35. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2013. "Who Creates Jobs? Small versus Large versus Young," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 347-361, May.
    36. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
    37. Gumus, Gulcin & Regan, Tracy L., 2015. "Self-employment and the role of health insurance in the U.S," Journal of Business Venturing, Elsevier, vol. 30(3), pages 357-374.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Slavtchev, Viktor & Wyrwich, Michael, 2023. "The effects of TV content on entrepreneurship: Evidence from German unification," Journal of Comparative Economics, Elsevier, vol. 51(2), pages 696-721.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frank M. Fossen & Johannes König, 2017. "Public health insurance, individual health, and entry into self-employment," Small Business Economics, Springer, vol. 49(3), pages 647-669, October.
    2. Jun Yeong Lee & John V. Winters, 2022. "State Medicaid Expansion and the Self-Employed," Small Business Economics, Springer, vol. 59(3), pages 925-954, October.
    3. Fossen, Frank M. & König, Johannes, 2015. "Public health insurance and entry into self-employment," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112934, Verein für Socialpolitik / German Economic Association.
    4. Hossain, Md. Mobarak, 2021. "Relationship Between Health Insurance and Self-employment: A Systematic Review," MPRA Paper 105634, University Library of Munich, Germany.
    5. Margaret E. Blume-Kohout, 2024. "Entrepreneurship Lock and the Demand for Health Insurance: Evidence from the US Affordable Care Act," ILR Review, Cornell University, ILR School, vol. 77(2), pages 199-226, March.
    6. Gumus, Gulcin & Regan, Tracy L., 2015. "Self-employment and the role of health insurance in the U.S," Journal of Business Venturing, Elsevier, vol. 30(3), pages 357-374.
    7. Le, Nga & Groot, Wim & Tomini, Sonila M. & Tomini, Florian, 2019. "Health insurance and self-employment transitions in Vietnam," MERIT Working Papers 2019-008, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Le, Nga & Groot, Wim & Tomini, Sonila & Tomini, Florian, 2018. "Health insurance and self-employment transitions in Vietnam: A multinomial analysis," MERIT Working Papers 2018-039, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Bradley Heim, 2015. "Understanding the decline in self-employment among individuals nearing retirement," Small Business Economics, Springer, vol. 45(3), pages 561-580, October.
    10. Kwapisz, Agnieszka, 2020. "Health insurance coverage and sources of advice in entrepreneurship: Gender differences," Journal of Business Venturing Insights, Elsevier, vol. 14(C).
    11. Ghimire Keshar M., 2021. "Supply of immigrant entrepreneurs and native entrepreneurship," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 12(1), pages 1-42, January.
    12. Gulcin Gumus & Tracy Regan, 2007. "Self-Employment and the Role of Health Insurance," Working Papers 0910, University of Miami, Department of Economics.
    13. Wang, Zhenggang & Wu, Zenan & Yuan, Ye, 2024. "We’ve got you covered! The effect of public health insurance on rural entrepreneurship in China," Journal of Public Economics, Elsevier, vol. 235(C).
    14. James Bailey, 2017. "Health insurance and the supply of entrepreneurs: new evidence from the affordable care act," Small Business Economics, Springer, vol. 49(3), pages 627-646, October.
    15. Li, Yajuan & Palma, Marco A. & Towne, Samuel, 2017. "Does Health Insurance Provision Improve Self-Employment and Entrepreneurship? Evidence from State Insurance Mandates," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258399, Agricultural and Applied Economics Association.
    16. Yu-Chen Kuo & Jia-Huey Lin, 2020. "Picking the lock: how universal healthcare programs influence entrepreneurial activities," Small Business Economics, Springer, vol. 54(1), pages 3-24, January.
    17. Marco Caliendo & Frank M Fossen & Alexander S Kritikos, 2022. "Personality characteristics and the decision to hire [Do the unemployed become successful entrepreneurs?]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 31(3), pages 736-761.
    18. Fairlie, Robert W. & Kapur, Kanika & Gates, Susan, 2011. "Is employer-based health insurance a barrier to entrepreneurship?," Journal of Health Economics, Elsevier, vol. 30(1), pages 146-162, January.
    19. Jacqueline Chattopadhyay, 2018. "State Health Insurance Regulation and Self-Employment Rates After the Great Recession: The Role of Guaranteed Issue Mandates," Economic Development Quarterly, , vol. 32(1), pages 78-92, February.
    20. James Bailey & Dhaval Dave, 2019. "The Effect of the Affordable Care Act on Entrepreneurship among Older Adults," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(1), pages 141-159, January.

    More about this item

    Keywords

    entrepreneurship; health insurance; premium; deductible; MOOP;
    All these keywords.

    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp14891. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.