The ACA and Entrepreneurship: The Importance of Age

Thinking about one of my older papers today, since I just heard it won the Eckstein award for best paper in the Eastern Economic Journal in 2019 & 2020.

One big selling point of the Affordable Care Act was that by offering more non-employer-based options for health insurance, it would free people who felt locked into their jobs by the need for insurance. This would free people up to leave their jobs and do other things like start their own businesses. Did the ACA actually live up to this promise?

It did, at least for some people. The challenge when it comes to measuring the effect of the ACA is that it potentially affected everyone nationwide. If entrepreneurship rises following the implementation of the ACA in 2014, is it because of the ACA? Or just the general economic recovery? Ideally we want some sort of comparison group unaffected by the ACA. If that doesn’t really exist, we can use a comparison group that is less affected by it.

That’s what I did in a 2017 paper focused on younger adults. I compared those under age 26 (who benefit from the ACA’s dependent coverage mandate) to those just over age 26 (who don’t), but found no overall difference in how their self-employment rates changed following the ACA.

In the 2019 Eastern Economic Journal paper, Dhaval Dave and I instead consider the effect of the ACA on older adults. We compare entrepreneurship rates for people in their early 60’s (who might benefit from the availability of individual insurance through the ACA) with a “control group” of people in their late 60’s (who are eligible for Medicare and presumably less affected by the ACA). We find that the ACA led to a 3-4% increase in self-employment for people in their early 60’s.

Figure 1 from our 2019 EEJ paper

Why the big difference in findings across papers? My guess is that it’s about age, and what age means for health and health insurance. People in their 60s are old enough to have substantial average health costs and health insurance premiums, so they will factor health insurance into their decisions more strongly than younger people. In addition, the community rating provisions of the ACA generally reduced individual premiums for older people while raising them for younger people.

In sum, the ACA does seem to encourage entrepreneurship at least among older adults. At the same time, our other research finds that the employer-based health insurance system still leads Americans to stay in their jobs longer than they would otherwise choose to.

Job Lock is Still Here

Most Americans are covered by employer-sponsored health insurance, either through their own job or a family member’s. This can make it difficult to switch jobs- the new job might not offer insurance, or might have a worse insurance plan or network- locking people into their current job.

Economists have documented since at least the 1980’s how our insurance system seems to reduce job mobility. Several reforms have tried to improve the situation- COBRA, HIPAA, and most recently the Affordable Care Act.

In a paper published this week, Gregory Colman, Dhaval Dave and I evaluate how the extent of “job lock” has changed over time. In short, we find that job lock remains substantial and the Affordable Care Act doesn’t appear to have done anything to improve the situation. The paper has many tables of regression results, but the pictures tell the basic story:

Trends in job mobility for those with and without employer-sponsored insurance (ESI) using Current Population Survey data

The details differ a bit depending on which dataset and identification strategy we use, but a few things are clear:

  1. Macroeconomic factors are dominant in the short run; mobility falls during recessions like 2001 and 2007, then recovers.
  2. The long run trend has been toward lower job mobility for those with AND without employer-based insurance
  3. Those without employer-based insurance are still much more likely to switch jobs (we find 25-45% more likely)
  4. To the extent that this gap has closed since the year 2000, it has come through falling job mobility for those without employer-based insurance more than rising job mobility for those with employer-based insurance

Why does the Affordable Care Act appear not to have improved things? This remains unanswered, but we conclude the paper with some hypotheses:

In fact, our point estimates suggest that job lock actually got stronger following the ACA. One possible explanation for our finding is that the ACA’s individual mandate made insurance even more desirable by fining the uninsured. Another possibility is that workers continue to value employer-provided health insurance more over time as premiums continue to rise