Do Health Care Insurance Expenditures and State Policies Affect State Self-Employment Rates?

Previous research on self-employment has focused on employers as insurance-providers or how individuals make job choices under health insurance constraints. We add to the literature by examining whether certain health insurance factors determine the self-employment rate at the state level. One explored variable is the per capita health insurance expenditure for states. Using panel data for the years 1999-2004, a random effects model indicates that per capita private health expenditures reduce the state self-employment rate. We also analyze the impact of state health insurance regulations that support small businesses and self-employment. The results indicate that those states with relatively strict limits on health insurance premiums charged to small businesses or the self-employed have higher average self-employment rates. The mandate may be reducing the cost difference between paid and self-employed workers, making the decision between paid and self-employment less about health insurance costs. And, if health insurance costs distort the choice between the two labor market paths, state regulation on carriers, at least as they relate to premiums, may be leading to economic decisions that are more socially efficient.