NCPA - National Center for Policy Analysis

Does Employer-Based Health Insurance Discourage Entrepreneurship?

April 14, 2011

Nearly three-quarters of all full-time workers in the United States get health insurance from their employers.  Concerns have long been voiced that workers with employer-based insurance may be reluctant to leave their jobs to start new businesses because of the high cost of premiums or the possibility of disrupting or losing insurance coverage -- a phenomenon referred to as "entrepreneurship lock," says the Kauffman-RAND Institute for Entrepreneurship Public Policy.

So does the U.S. health insurance system impede business creation?  A Kauffman-RAND study considered whether people with employer-based health insurance are more likely to become self-employed (1) if they have an alternate source of health insurance through a spouse or (2) if they have reached the age of 65 and become eligible for Medicare.  Findings include:

  • Individuals with access to a spouse's health insurance plan are much more likely to become self-employed.
  • Self-employment rates rise when Medicare becomes available; there was a large and statistically significant increase in business ownership rates during the month when a worker turns 65 and qualifies for Medicare.

The analysis provides some evidence that entrepreneurship lock exists, which raises concerns that the bundling of health insurance and employment may discourage business creation.  The implication of this research is that the availability of affordable health insurance for the self-employed has an important impact on whether individuals are likely to become entrepreneurs.

Source: "Does Employer-Based Health Insurance Discourage Entrepreneurship and New Business Creation?" Kauffman-RAND Institute for Entrepreneurship Public Policy, April 7, 2011.

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