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The cost of health insurance and entry into entrepreneurship

Author

Listed:
  • Frank M. Fossen

    (University of Nevada, Reno
    IZA Bonn)

  • Mobarak Hossain

    (Northern Arizona University)

  • Sankar Mukhopadhyay

    (University of Nevada, Reno
    IZA Bonn)

  • Peter Toth

    (University of Nevada, Reno)

Abstract

Unavailable or expensive health insurance may hinder the transition of individuals from paid employment to entrepreneurship, a phenomenon called entrepreneurship lock. The literature argues that the guaranteed availability of health insurance introduced by the Affordable Care Act (ACA) in the USA in 2010 could reduce this barrier to entrepreneurship and thereby increase entrepreneurial activity. In this paper, we investigate to what extent entrepreneurship lock exists due to health insurance costs even when the availability of health insurance is given. We use individual-level data from the Current Population Survey (CPS-ASEC) combined with county-level panel data on health insurance costs in local health insurance exchanges (HIX) introduced by the ACA to estimate county-treatment fixed effects regressions. The results indicate that a hike in the premium of the benchmark HIX plan by 1% decreases the entry rate into self-employment by 0.76%. Men react more strongly to local HIX premiums than women. There is a stronger effect on starting incorporated businesses than on starting unincorporated businesses, which suggests that the additional businesses triggered by lower HIX premiums are of relatively high quality.

Suggested Citation

  • Frank M. Fossen & Mobarak Hossain & Sankar Mukhopadhyay & Peter Toth, 2025. "The cost of health insurance and entry into entrepreneurship," Small Business Economics, Springer, vol. 64(2), pages 383-405, February.
    • Handle: RePEc:kap:sbusec:v:64:y:2025:i:2:d:10.1007_s11187-024-00927-x
    DOI: 10.1007/s11187-024-00927-x
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    More about this item

    Keywords

    Health insurance; Premium; Health Insurance Exchanges; Entrepreneurship;
    All these keywords.

    JEL classification:

    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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