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Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

  • Robert W Fairlie

    (University of California)

  • Kanika Kapur

    (University College Dublin)

  • Susan Gates

    (RAND)

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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Paper provided by School of Economics, University College Dublin in its series Working Papers with number 200903.

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Length: 56 pages
Date of creation: 17 Sep 2010
Date of revision:
Handle: RePEc:ucn:wpaper:200903
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  1. David Card & Carlos Dobkin & Nicole Maestas, 2009. "Does Medicare Save Lives?," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 597-636, May.
  2. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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  4. James M. Poterba & Steven F. Venti, 2004. "The Transition to Personal Accounts and Increasing Retirement Wealth: Macro- and Microevidence," NBER Chapters, in: Perspectives on the Economics of Aging, pages 17-80 National Bureau of Economic Research, Inc.
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  8. 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.
  9. Chernew, Michael & Cutler, David & Keenan, Patricia S., 2005. "Increasing Health Insurance Costs and the Decline in Health Insurance Coverage," Scholarly Articles 2660660, Harvard University Department of Economics.
  10. Brigitte C. Madrian, 1993. "Employment-Based Health Insurance and Job Mobility: Is There Evidence ofJob-Lock?," NBER Working Papers 4476, National Bureau of Economic Research, Inc.
  11. Brigitte Madrian, . "The Effect of Health Insurance on Transitions to Self Employment," University of Chicago - Population Research Center 98-5, Chicago - Population Research Center.
  12. Cathy J. Bradley & David Neumark & Zhehui Luo & Heather L. Bednarek, 2005. "Employment-Contingent Health Insurance, Illness, and Labor Supply of Women: Evidence from Married Women with Breast Cancer," NBER Working Papers 11304, National Bureau of Economic Research, Inc.
  13. 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.
  14. Helen McEwen & Pia Orrenius & Mark Wynne, 2005. "Opting out of work: what's behind the decline in labor force participation?," Southwest Economy, Federal Reserve Bank of Dallas, issue Nov, pages 1-8.
  15. repec:cup:cbooks:9780521728355 is not listed on IDEAS
  16. Alicia H. Munnell & Steven A. Sass, 2007. "The Labor Supply of Older Americans," Working Papers, Center for Retirement Research at Boston College wp2007-12, Center for Retirement Research, revised Jun 2007.
  17. Velamuri, Malathi, 2009. "Taxes, Health Insurance and Women's Self-Employment," MPRA Paper 50474, University Library of Munich, Germany, revised Apr 2012.
  18. David Card & Carlos Dobkin & Nicole Maestas, 2005. "The Impact of Health Insurance Status on Treatment Intensity and Health Outcomes," Working Papers 505, RAND Corporation Publications Department.
  19. Kanika Kapur, 1998. "The Impact of health on job mobility: A measure of job lock," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(2), pages 282-298, January.
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  23. repec:cup:cbooks:9780521899604 is not listed on IDEAS
  24. Royalty, Anne Beeson & Abraham, Jean M., 2006. "Health insurance and labor market outcomes: Joint decision-making within households," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1561-1577, September.
  25. John Schmitt & Nathan Lane, 2009. "An International Comparison of Small Business Employment," CEPR Reports and Issue Briefs 2009-27, Center for Economic and Policy Research (CEPR).
  26. Philip DeCicca, 2010. "Health Insurance Availability and Entrepreneurship," Upjohn Working Papers and Journal Articles 10-167, W.E. Upjohn Institute for Employment Research.
  27. Robert W. Fairlie & Alicia M. Robb, 2008. "Race and Entrepreneurial Success: Black-, Asian-, and White-Owned Businesses in the United States," MIT Press Books, The MIT Press, edition 1, volume 1, number 026206281x, June.
  28. Baumol William J. & Litan Robert E & Schramm Carl J, 2007. "Sustaining Entrepreneurial Capitalism," Capitalism and Society, De Gruyter, vol. 2(2), pages 1-38, November.
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