Is Employer-Based Health Insurance a Barrier to Entrepreneurship?

56 Pages Posted: 4 Oct 2010

See all articles by Robert W. Fairlie

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

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.

Keywords: entrepreneurship, health insurance, medicare, job lock

JEL Classification: L26, I1

Suggested Citation

Fairlie, Robert W. and Kapur, Kanika and Gates, Susan M., Is Employer-Based Health Insurance a Barrier to Entrepreneurship?. IZA Discussion Paper No. 5203, Available at SSRN: https://ssrn.com/abstract=1686494

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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