Small Business Economics

, Volume 49, Issue 3, pp 627–646 | Cite as

Health insurance and the supply of entrepreneurs: new evidence from the affordable care act

  • James BaileyEmail author


Is the difficulty of purchasing health insurance as an individual or small business a major barrier to entrepreneurship in the USA? I answer this question by taking advantage of the natural experiment provided by the Affordable Care Act’s dependent coverage mandate, which allowed many 19–25 year olds to acquire health insurance independently of their employment. Using a difference-in-difference strategy, I find that the dependent coverage mandate did not increase self-employment among young adults overall, but increased self-employment among disabled young adults by 19–23%.


Health insurance Self-employment Entrepreneurship lock Affordable Care Act Dependent coverage mandate 

JEL Classification

L26 J20 I13 I18 M13 



This research was funded in part by the Ewing Marion Kauffman Foundation. The contents of this publication are solely the responsibility of James Bailey. Thanks to my committee members (Douglas Webber, Michael Leeds, and Erwin Blackstone), audience members at the Society of Labor Economics 2014, American Economic Association 2014, Eastern Economic Association 2013, Western Economic Association 2013, Southern Economic Association 2013, Temple University, Samford University, the University of Alabama at Birmingham, the University of Tulsa, Louisiana State University, Creighton University, Wayne State University, West Virginia University, and Bentley University, as well as Art Carden, Michael Morrisey, Taylor Jaworski, Anna Chorniy, David Slusky, Norma Coe, Eleanor Lewin, Deepak Hegde, Natarajan Balasubramanian, Scott Stern, David Audretsch, William Kerr, Thomas DeLeire, and anonymous referees for helpful comments.


  1. Akosa Antwi, Y., Moriya, A.S., & Simon, K. (2013). Effects of federal policy to insure young adults: evidence from the 2010 affordable care act’s dependent-coverage mandate. American Economic Journal: Economic Policy, 5(4), 1–28. Scholar
  2. Bailey, J., & Chorniy, A. (2015). Employer-provided health insurance and job mobility. Contemporary Economic Policy.
  3. Barbaresco, S., Courtemanche, C.J., & Qi, Y. (2015). Impacts of the affordable care act dependent coverage provision on health-related outcomes of young adults. Journal of Health Economics, 40(0), 54–68. Scholar
  4. Blumberg, L., Corlette, S., & Lucia, K. (2013). The affordable care act: improving incentives for entrepreneurship and self-employment. Tech. rep., Urban Institute.
  5. Borghans, L., Heckman, J.J., Golsteyn, B.H.H., & Meijers, H. (2009). Gender differences in risk aversion and ambiguity aversion. Journal of the European Economic Association, 7(2-3), 649–658. doi: 10.1162/JEEA.2009.7.2-3.649.CrossRefGoogle Scholar
  6. Buchmueller, T., Carey, C., & Levy, H.G. (2013). Will employers drop health insurance coverage because of the affordable care act? Health Affairs, 32(9), 1522–1530. Scholar
  7. Busch, S.H., Golberstein, E., & Meara, E. (2014). Aca dependent coverage provision reduced high out-of-pocket health care spending for young adults. Health Affairs, 33(8), 1361–1366. Scholar
  8. Cantor, J.C., Monheit, A.C., DeLia, D., & Lloyd, K. (2012). Early impact of the affordable care act on health insurance coverage of young adults. Health Services Research, 47(5), 1773–1790. doi: 10.1111/j.1475-6773.2012.01458.x.CrossRefGoogle Scholar
  9. Chua, K. -P., & Sommers, B.D. (2014). Changes in health and medical spending among young adults under health reform. Journal of the American Medical Association, 311(23), 2437–2439. doi: 10.1001/jama.2014.2202.CrossRefGoogle Scholar
  10. DeCicca, P. (2010). Health insurance availability and entrepreneurship. Tech. rep., Upjohn Institute.
  11. Depew, B. (2014). The effect of state dependent mandate laws on the labor supply decisions of young adults. Journal of Health Economics, 39, 123–134. Scholar
  12. Depew, B., & Bailey, J. (2015). Did the affordable care act’s dependent coverage mandate increase premiums? Journal of Health Economics, 41, 1–14. Scholar
  13. Dillender, M. (2014). Do more health insurance options lead to higher wages? Evidence from states extending dependent coverage. Journal of Health Economics, 36, 84–97. Scholar
  14. 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. Scholar
  15. Gilleskie, D.B., & Lutz, B.F. (2002). The impact of employer-provided health insurance on dynamic employment transitions. The Journal of Human Resources, 37(1), 129–162. Scholar
  16. Gruber, J., & Madrian, B.C. (2002). Health insurance, labor supply, and job mobility: a critical review of the literature. Working paper 8817, national bureau of economic research.
  17. Gruber, J., & Poterba, J. (1994). Tax incentives and the decision to purchase health insurance: evidence from the self-employed. The Quarterly Journal of Economics, 109(3), 701–733. Scholar
  18. Gumus, G., & Regan, T.L. (2014). Self-employment and the role of health insurance in the US. Journal of Business Venturing, 30(3), 357–374. Scholar
  19. Gurley-Calvez, T. (2011). Will tax-based health insurance reforms help the self-employed stay in business? Contemporary Economic Policy, 29(3), 441–460. Scholar
  20. Handel, B. (2013). Adverse selection and inertia in health insurance markets: when nudging hurts. American Economic Review, 103(7), 2643–82. Scholar
  21. Heim, B., Lurie, I., & Simon, K. (2015). The impact of the affordable care act young adult provision on labor market outcomes: evidence from tax data. Tech. rep., Indiana University.
  22. Heim, B.T., & Lurie, I.Z. (2010). The effect of self-employed health insurance subsidies on self-employment. Journal of Public Economics, 94(11-12), 995–1007. Scholar
  23. Heim, B.T., & Lurie, I.Z. (2014). Does health reform affect self-employment? evidence from massachusetts. Small Business Economics, 43(4), 917–930. doi: 10.1007/s11187-014-9572-6.CrossRefGoogle Scholar
  24. Henderson, J. (2002). Building the rural economy with high-growth entrepreneurs. Economic Review-Federal Reserve Bank of Kansas City, 87(3), 45–75. Scholar
  25. 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. Scholar
  26. King, G., & Zeng, L. (2001). Logistic regression in rare events data. Political Analysis, 9(2), 137–163. Scholar
  27. Madrian, B.C. (1994). Employment-based health insurance and job mobility: is there evidence of job-lock? The Quarterly Journal of Economics, 109(1), 27–54. doi: 10.2307/2118427.CrossRefGoogle Scholar
  28. Mulcahy, A., Harris, K., Finegold, K., Kellermann, A., Edelman, L., & Sommers, B.D. (2013). Insurance coverage of emergency care for young adults under health reform. New England Journal of Medicine, 368(22), 2105–2112. pMID: 23718165. Scholar
  29. Nikpay, S. (2016). Entrepreneurship and job lock: the interaction between tax subsidies and health insurance regulations. Tech. rep., Vanderbilt University.Google Scholar
  30. Pauly, M.V., & Lieberthal, R.D. (2008). How risky is individual health insurance? Health Affairs, 27(3), w242–w249 . Scholar
  31. Perry, C.W., & Rosen, H.S. (2001). The self-employed are less likely to have health insurance than wage earners. so what? tech. rep., NBER working paper.
  32. Puhani, P.A. (2012). The treatment effect, the cross difference, and the interaction term in nonlinear difference-in-differences models. Economics Letters, 115(1), 85–87 . Scholar
  33. Slusky, D. (2015). Significant placebo results in difference-in-differences analysis: the case of the aca’s parental mandate. Eastern Economic Journal. doi: 10.1057/eej.2015.49.
  34. Solon, G., Haider, S.J., & Wooldridge, J. (2015). What are we weighting for? Journal of Human Resources, 50(2), 301–316. Scholar
  35. Sommers, B.D. (2012). Number of young adults gaining insurance due to the affordable care act now tops 3 million. Tech. rep., U.S. Department of Health and Human Services.
  36. Wellington, A.J. (2001). Health insurance coverage and entrepreneurship. Contemporary Economic Policy, 19(4), 465–478. doi: 10.1093/cep/19.4.465.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.Heider College of BusinessCreighton UniversityOmahaUSA

Personalised recommendations