The Affordable Care Act and Entrepreneurship

By Sean Miskell

This week, numerous media outlets reported that Senator Ted Cruz may sign up for health coverage through the insurance marketplaces established by the Affordable Care Act (ACA). While the Washington Post calls this development the “irony of all ironies” given Cruz’s seemingly unrelenting opposition to the ACA, this is exactly the kind of outcome that lawmakers hoped the ACA would produce.

Prior to the ACA, concern over losing health coverage was a major barrier that kept people from starting a new business. Economists called this phenomenon “job lock,” in which individuals feared leaving a job with health benefits because they were concerned that they might be denied the opportunity to purchase coverage on their own because they might be denied to preexisting conditions or would be unable to afford premiums without assistance from their employer. But under the ACA, subsidized health coverage is no longer solely associated with employment.

To be sure, employer-sponsored insurance remains an integral source of coverage for many Americans. But because of the new insurance landscape fostered by the ACA, people have other options as well. Because the ACA prohibits insurance companies from denying coverage to anyone because of a pre-exiting condition, consumers need not worry that they will be denied coverage. Further, the federal and state insurance exchanges created by the ACA allow those seeking coverage to shop for plans and qualify for subsidies that help make this coverage affordable for individuals without assistance from an employer.

This helps people who might not have coverage through their employer, as well as those that might want to take a risk and start a new venture. For many of us, this might mean starting a new business. For example, researchers at Georgetown Center on Health Insurance Reforms and the Urban Institute estimated that because of the ACA, there would be 1.5 million more people that are self-employed. For Senator Cruz, the ability to obtain coverage outside of one’s job enabled him to take the risk of running for president while maintaining insurance coverage. While the Senator had been covered through his wife’s employer, she plans to take a leave of absence while he campaigns for the presidency. Regardless of the Senator’s stance on the ACA in general, his ability to take a risk on future employment without fear that he will be unable to obtain health coverage is a potent example of the more stable health insurance landscape that the ACA has fostered. In addition to expanding coverage to those without it, health reform has also helped those that already have insurance because they are freer to pursue other opportunities without running the risk of losing coverage.

Additional research indicates similar dynamics for public sources of coverage. For example, research by Gareth Olds of the Harvard Business School finds that parents whose children are covered by the Children’s Health Insurance Program (CHIP) are more likely to own their own businesses. CHIP recipients were 23 percent more likely to be self-employed and 31 percent more likely to own an incorporated business. The reason for this, Olds argues, is that CHIP coverage reduces the risk of ‘consumption shocks,’ or the possibility of facing high costs for a child’s unexpected health problems. On the other end of the age spectrum, research from the Journal of Health Economics has also found self-employment increases after age 65, when people become eligible for public coverage under Medicare.

These diverse examples demonstrate the importance laws like the ACA and programs such as CHIP have as stable sources of coverage. The ACA’s insurance market reforms and public programs such as CHIP and Medicaid work together to create a landscape of coverage that extends coverage to those that previously did not have it and provides options to those that want to leave the security of employer-sponsored coverage to pursue other interests.