The Affordable Care Act: Improving Incentives for Entrepreneurship and Self-Employment

Abstract

Increased access to adequate, affordable health insurance under the Affordable Care Act (ACA) means that entrepre-neurship no longer carries the elevated risk of uninsurance or underinsurance that it used to. In most states prior to 2014, leaving a job meant leaving the guarantee of subsi-dized health insurance coverage sponsored by an employer for the uncertainty of the nongroup health insurance mar-ket. This often made launching a business more difficult than the acceptance of the financial risks inherent in a new venture and had potential insurance ramifications for fam-ily members as well. There is considerable empirical evidence that the histori-cal tie of health insurance coverage to job status resulted in people staying in jobs that they might otherwise have left, a phenomenon known as " job lock " (Gruber & Madrian, 2002). Afraid that they would have been denied health insur-ance coverage because of pre-existing conditions, unable to afford the premiums, or lose access to a trusted provider, many workers decided to stay in their jobs, even if their skills and talents were not optimally deployed. However, under the ACA, access to high-quality, subsidized health insurance coverage is no longer exclusively tied to employment. In this analysis, we estimate the state-by-state effect of full ACA implementation on self-employment, relying upon the most recent economic literature on the implications of health care reforms for the rate of self-employment and on information about pre-ACA insurance market rules. • Findings in the empirical economics literature clearly indicate that reforms which guarantee issue cover-age and those which provide financial support to pur-chasers outside of employment significantly increase self-employment. • As a result of the ACA, including guaranteed issue of nongroup coverage and the financial assistance avail-able for its purchase, we estimate that, by 2016, the number of self-employed people in the United States will be 1.5 million higher than it would otherwise have been. Relative increases in self-employment will vary across states because some had already put reforms in place prior to implementation of the ACA. We estimate a range from an increase of 250,000 in California to no measurable change in Massachusetts, where extensive health care reforms were enacted in 2006.