Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

62 Pages Posted: 24 Nov 2008  

Robert W. Fairlie

University of California, Santa Cruz - Department of Economics

Kanika Kapur

University College Dublin (UCD) - Department of Economics

Susan M. Gates

RAND Corporation

Multiple version iconThere are 3 versions of this paper

Date Written: November 21, 2008

Abstract

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.

Suggested Citation

Fairlie, Robert W. and Kapur, Kanika and Gates, Susan M., Is Employer-Based Health Insurance a Barrier to Entrepreneurship? (November 21, 2008). RAND Working Paper Series No. WR-637-EMKF. Available at SSRN: https://ssrn.com/abstract=1305280 or http://dx.doi.org/10.2139/ssrn.1305280

Robert W. Fairlie (Contact Author)

University of California, Santa Cruz - Department of Economics ( email )

Department of Economics
Engineering 2 Bldg.
Santa Cruz, CA 95064
United States
831-459-3332 (Phone)

HOME PAGE: http://econ.ucsc.edu/~fairlie/

Kanika Kapur

University College Dublin (UCD) - Department of Economics ( email )

Newman Building (Room G215)
Belfield, Dublin 4
Ireland

Susan M. Gates

RAND Corporation ( email )

1776 Main Street
P.O. Box 2138
Santa Monica, CA 90407-2138
United States

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