Public Health Insurance and Entry into Self-Employment

Freie Universität Berlin, School of Business & Economics Discussion Paper No. 2015/4

49 Pages Posted: 29 Jan 2015

See all articles by Frank M. Fossen

Frank M. Fossen

University of Nevada, Reno; IZA Institute of Labor Economics

Johannes König

Free University of Berlin (FUB) - Department of Business and Economics

Multiple version iconThere are 3 versions of this paper

Date Written: January 27, 2015

Abstract

We estimate the impact of a differential treatment of paid employees versus self-employed workers in a public health insurance system on the entry rate into entrepreneurship. In Germany, the public health insurance system is mandatory for most paid employees, but not for the self-employed, who usually buy private health insurance. Private health insurance contributions are relatively low for the young and healthy, and until 2013 also for males, but less attractive at the other ends of these dimensions and if membership in the public health insurance allows other family members to be covered by contribution-free family insurance. Therefore, the health insurance system can create incentives or disincentives to starting up a business depending on the family’s situation and health. We estimate a discrete time hazard rate model of entrepreneurial entry based on representative household panel data for Germany, which include personal health information, and we account for non-random sample selection. We estimate that an increase in the health insurance cost differential between self-employed workers and paid employees by 100 euro per month decreases the annual probability of entry into self-employment by 0.38 percentage points, i.e. about a third of the average annual entry rate. The results show that the phenomenon of entrepreneurship lock, which an emerging literature describes for the system of employer provided health insurance in the USA, can also occur in a public health insurance system. Therefore, entrepreneurial activity should be taken into account when discussing potential health care reforms, not only in the USA and in Germany.

Keywords: Health insurance, entrepreneurship lock, self-employment

JEL Classification: L26, I13, J2

Suggested Citation

Fossen, Frank M. and König, Johannes, Public Health Insurance and Entry into Self-Employment (January 27, 2015). Freie Universität Berlin, School of Business & Economics Discussion Paper No. 2015/4, Available at SSRN: https://ssrn.com/abstract=2556762 or http://dx.doi.org/10.2139/ssrn.2556762

Frank M. Fossen (Contact Author)

University of Nevada, Reno ( email )

1664 N. Virginia Street
Reno, NV 89557-0030
United States

HOME PAGE: http://business.unr.edu/faculty/ffossen/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.iza.org/en/webcontent/personnel/photos/index_html?key=2906

Johannes König

Free University of Berlin (FUB) - Department of Business and Economics ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany

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