Is Employer-Based Health Insurance a Barrier to Entrepreneurship?
Robert W. Fairlie
University of California, Santa Cruz - Department of Economics
University College Dublin (UCD) - Department of Economics
Susan M. Gates
November 21, 2008
RAND Working Paper Series No. WR-637-EMKF
The focus on employer-provided health insurance in the United States may restrict business creation. The authors address the limited research on the topic of entrepreneurship lock by using recent panel data from matched Current Population Surveys. They use difference-indifference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. They 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. They 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, they 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. They find that business ownership rates increase from just under age 65 to just over age 65, whereas they find no change in business ownership rates from just before to just after for other ages 55-75. Their 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.
Number of Pages in PDF File: 62
Date posted: November 24, 2008