Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

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.

The Impact of Health Insurance on Stockholding: A Regression Discontinuity Approach

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“…In this section, we take a step back and re-estimate the same hazard rate model, but exclude the HICD and directly include factors that determine the HICD amount instead. This approach is comparable to the extant literature for the USA, which does not calculate a HICD (Holtz-Eakin et al, 1996;Wellington, 2001;Zissimopoulos and Karoly, 2007;Fairlie et al, 2011). Table 5 shows the probit coefficients for the full sample and separately for men and women; average marginal effects of the most interesting variables appear in the rightmost three columns of Table A 3 in Appendix A.…”

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“…Some research has suggested broader insurance coverage increases worker mobility and facilitates appropriate risktaking in the labor market (for example, Farooq and Kugler 2016). Providing better coverage options outside the workplace may also facilitate entrepreneurship (Fairlie, Kapur, and Gates 2011;DeCicca 2010); enable workers to invest in additional years of education (Dillender 2014); or give workers additional flexibility in structuring their work lives, such as by retiring when it makes sense for them or reducing their work hours in order to have more time to care for a family member (for example, Heim and Lin 2016).…”