Abstract
This paper evaluates whether the implementation of the 2006 Massachusetts health reform law affected the decision of taxpayers to be self-employed, using both difference-in-differences and synthetic control methods on a panel of tax returns that spans 1999–2010. Though tenuous, our results suggest that the reform led to a decline in the rate of taxpayers earning a majority of income from self-employment. In addition, it appears to have had a positive impact on earning some self-employment income among joint filers and earning the majority of income from self-employment among older taxpayers, but these were offset by negative impacts on single filers and taxpayers age 35–49.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
See Heim and Lurie (2010, 2013) on the impact of the deductibility of self-employed health insurance, and Holtz-Eakin et al. (1996), Madrian and Lefgren (1998), Wellington (2001), Gumus and Regan (2009), and Fairlie et al. (2011) on the impact of the availability of employer-sponsored health insurance on self-employment.
These changes include modified community rating and guaranteed issue regulations, subsidies for low-income taxpayers to purchase health insurance, subsidies for small firms to provide health insurance for their employees, a mandate for individuals to purchase health insurance, a mandate for firms to provide health insurance, and the option for states to merge non-group and small-group markets.
Though this mandate includes an affordability exemption.
Although tax data does not contain many of the demographic characteristics that are common in survey data, like education and perceived health status, because we are using a panel, it is possible to include fixed effects to account for these unobserved characteristics that do not change over time.
This study is also related to the larger literature that examines the impact of tax policy on self-employment and entrepreneurship. Some recent contributions in this area include Fairlie and Meyer (1999), Gentry and Hubbard (2000), Bruce (2000, 2001), Moore (2003), Heim (2010), Stenkula (2012), Ferede (2013), and Baliamoune-Lutz and Garello (2014).
Lischko and Manzolillo (2010) use America’s Health Insurance Plans data from 2004, 2006/2007, and 2009 to show that the average premiums in the Massachusetts non-group market increased between 2004 and 2006/2007, and then dropped between 2006/2007 and 2009, bringing single coverage back to 2004 levels with somewhat higher levels for families. The 2006/2007 observation is during the implementation years, which makes the use of the 2006/2007 data in a pre- and post-comparison difficult. Nonetheless, the 2004–2009 average premium changes suggest that Massachusetts experienced a decline in average premiums. Cogan et al. (2010) use data from the Medical Expenditure Panel Survey’s Insurance Component, and find that insurance premiums for firms with <50 employees in Massachusetts increased relative to other states. However, Graves and Gruber (2012) reexamine both sets of data, and argue that there was no statistically significant change in group premiums, while non-group premiums declined relative to the national average.
Formally, the absolute value of self-employment income must exceed one-half of the sum of the wages and salaries and the absolute value of self-employment income.
These states include Connecticut, Maine, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island. Recall that Vermont was excluded from our sample.
These states include Connecticut, Maine, New Hampshire, and Rhode Island.
These states include New York, New Jersey, Maine, New Hampshire, Washington, and Kentucky.
Recall that Vermont was excluded from our sample.
Omitting observations from 2006 cut the sample down to 726,235 observations. Cutting the sample further to include only New England States resulted in a sample size of 35,076.
We tried a specification in which 2007 is omitted from the sample as a transition year, and a specification in which 2006 is included as a pre-reform year. The results from these specifications are presented below.
The Massachusetts and post-reform period indicator variables are collinear with the set of state and time fixed effects, and so are omitted from the regression.
This is done because there are a large number of extreme outliers for the total income variables, and because total income may be either positive or negative. The IHS transformation takes the form \({\text{IHS}}(y) = \log (y + \sqrt {(y^{2} + 1)} )\). See Burbidge et al. (1988).
When individual fixed effects are included in specifications below, observations for which taxpayers were only observed once with a given filing status-presence of children-state of residence combination are dropped from the sample. This cut the New England States sample down to 32,592 observations.
We omit head of household taxpayers, since if their children are covered by Medicaid, they would be able to cover their entire family by purchasing an individual plan, whereas if their children are not covered by Medicaid, they would be required to purchase a family plan to cover the entire family.
For majority self-employment, the synthetic control results are mixed for joint filers and positive for single filers, which is different from the difference-in-differences results. For exclusive self-employment, a positive (though insignificant) impact was found for joint filers, which was also found in the difference-in-difference results, but the estimated impact on single filers is mixed.
References
Abadie, A., Diamond, A., & Hainmueller, J. (2010). Synthetic control methods for comparative case studies: Estimating the effect of California’s tobacco control program. Journal of the American Statistical Association, 105(490), 493–505.
Baliamoune-Lutz, M., & Garello, P. (2014). Tax structure and entrepreneurship. Small Business Economics, 42(1), 165–190.
Blue Cross and Blue Shield Association. (2007). State legislative health care and insurance issues, 2007 survey of plans.
Bruce, D. (2000). Effects of the U. S. tax system on transitions into self-employment. Labour Economics, 7, 547–575.
Bruce, D. (2001). Taxes and entrepreneurial endurance: Evidence from the self-employed. National Tax Journal, 55, 5–24.
Burbidge, J. B., Magee, L., & Robb, A. L. (1988). Alternative transformations to handle extreme values of the dependent variable. Journal of the American Statistical Association, 83, 123–127.
Cogan, J. F., Hubbard, R. G., & Kessler, D. (2010). The effect of Massachusetts’ health reform on employer-sponsored insurance premiums. Forum for Health Economic and Policy. 13(2):Article 5. http://www.bepress.com/fhep/13/2/5.
DeCicca, P. (2010). Health insurance availability and entrepreneurship. Working paper.
Fairlie, R., & Meyer, B. D. (1999). Trends in self-employment among white and black men: 1910–1990. NBER working paper 7182.
Fairlie, R. W., Kapur, K., & Gates, S. (2011). Is employer-based health insurance a barrier to entrepreneurship? Journal of Health Economics, 30(1), 146–162.
Ferede, E. (2013). Tax progressivity and self-employment: Evidence from Canadian Provinces. Small Business Economics, 40(1), 141–153.
General Accountability Office. (1996). Private Health Insurance, Millions relaying on individual market face cost and coverage trade-offs. GAO/HEHS-97-8.
Gentry, W., & Hubbard, R. G. (2000). Tax policy and entrepreneurial entry. American Economic Review, 90(2), 283–287.
Graves, J. A., & Gruber, J. (2012). How did health care reform in Massachusetts impact insurance premiums? American Economic Review: Papers and Proceedings, 102(2):508–513.
Gumus, G., & Regan, T. L. (2009). Self-employment and the role of health insurance. Working paper.
Heim, B. T. (2010). The responsiveness of self-employment income to tax rate changes. Labour Economics, 17(6), 940–950.
Heim, B. T., & Lurie, I. Z. (2010). The effect of health insurance subsidies on self-employment. Journal of Public Economics, 94, 995–1007.
Heim, B. T., & Lurie, I. Z. (2013). The impact of insurance subsidies on self-employment: Do state non-group health insurance regulations matter? Contemporary Economic Policy, 31(1), 94–109.
Heim, B. T., & Lurie, I. Z. (forthcoming). Did reform of the non-group health insurance market affect the decision to be self-employed? Evidence from state reforms in the 1990’s. Health Economics.
Holtz-Eakin, D., Penrod, J. R., & Rosen, H. S. (1996). Health insurance and the supply of entrepreneurs. Journal of Public Economics, 62(1–2), 209–235.
Lischko, A. M., & Manzolillo, K. (2010). An interim report card on Massachusetts health care reform, part 2: Equitable and sustainable financing. A pioneer institute white paper.
Lo Sasso, A. T., & Lurie, I. Z. (2009). Community rating and the market for private non-group health insurance. Journal of Public Economics, 93(1–2), 264–279.
Madrian, B. C., & Lefgren, L. J. (1998). The effect of health insurance on transitions to self-employment. Unpublished mimeo. University of Chicago Population Research Center.
Moore, K. (2003). The effects of the 1986 and 1993 tax reforms on self-employment. Federal reserve working paper.
Niu, X. (2011). Health insurance and self-employment: Evidence from Massachusetts. Working paper.
Stenkula, M. (2012). Taxation and entrepreneurship in a welfare state. Small Business Economics, 39(1), 77–97.
Wellington, A. J. (2001). Health insurance coverage and entrepreneurship. Contemporary Economic Policy, 19(4), 465–478.
Author information
Authors and Affiliations
Corresponding author
Additional information
The authors wish to thank Tracy Regan, Jesse Edgerton, attendees at the 2010 NTA, 2011 APPAM and 2012 ASSA Conferences, and seminar attendees at IUPUI and the UIC Seminar on Health Economics and Health Policy for helpful comments. The views expressed are those of the authors and are not necessarily those of the U.S. Department of the Treasury. A previous version of this paper circulated under the title “Did State Level Reform of the Non-Group Health Insurance Market Affect the Decision to be Self-Employed?”
Rights and permissions
About this article
Cite this article
Heim, B.T., Lurie, I.Z. Does health reform affect self-employment? Evidence from Massachusetts. Small Bus Econ 43, 917–930 (2014). https://doi.org/10.1007/s11187-014-9572-6
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11187-014-9572-6