The ACA: Improving Incentives for Entrepreneurship and Self-Employment

A few years ago I met a woman who had, to my mind, the dream life. She had her own health policy consultancy business and worked out of her home. She tackled interesting projects for clients, made a good salary, and was her own boss. She picked up her kids every day after school, took them to soccer and cello practice, and was there to help them with their homework. She was even able to get to the gym several times a week. She had autonomy and flexibility in her professional life – something most working moms and dads can only dream about.

But (health policy geek that I am) I had to ask her: “What do you do for health insurance?” Because I knew that for most people, access to high quality, affordable health insurance coverage is available only through an employer. Employers subsidize, on average, close to 80% of premium costs, and employees are guaranteed access to coverage, regardless of their health status. Employment-based coverage also tends to be comprehensive.

By contrast, buying insurance on your own can be a dicey proposition. Many people are denied coverage because of pre-existing conditions, or have to pay exorbitant rates. Individual coverage lacks the tax advantages of employment-based coverage, and is relatively more expensive. And the coverage itself is often skimpy, excluding or limiting critical benefits like maternity care, prescription drugs, or mental health services.

My friend was one of the lucky ones. Her husband worked for the federal government and had good health insurance, so she and their kids were covered through his plan. But many people who wish to launch their own business don’t have the same security of knowing their health care needs will be covered. As a result, they stay tethered to their jobs and feel unable to leave, even if their talents aren’t being optimally deployed. This is a common phenomenon – it’s called “job lock.”

But job lock should no longer hold people back, once the Affordable Care Act’s reforms are in full effect. In a Robert Wood Johnson Foundation report out today, which we co-authored with the Urban Institute, we estimate that the number of self-employed Americans will be 1.5 million higher in 2014, because the ACA’s insurance reforms will free people to pursue their dreams without worrying about their coverage. In particular, the ACA ensures that:

  • No applicant can be turned down for health insurance because of a preexisting condition.
  • Individuals cannot be charged higher premiums because of their health status.
  • Insurers must offer plans with a comprehensive set of essential health benefits.
  • Tax credits to help low- or moderate-income individuals and families will reduce premium costs.
  • Medicaid expansion, in some states, will provide coverage for those with the lowest incomes.

Our estimates show that the impact of the ACA on entrepreneurship will vary state to state, depending on the market reforms states may already have in place. For example, we estimate an increase of 247,000 newly self-employed in California, because the ACA’s reforms will dramatically improve people’s access to high quality health insurance. Massachusetts, however, will see no measurable change, because many of the ACA’s reforms are already in place.

I’m fortunate enough to have autonomy, flexibility and employer-sponsored health care coverage at Georgetown, so I’m not planning to leave to launch my own business. But it’s reassuring to know that for those who have that entrepreneurial spark, the ACA’s reforms can remove a major barrier to achieving their dreams.

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