Academic journal article Economic Review (Kansas City, MO)

Does Health-Care Reform Support Self-Employment?

Academic journal article Economic Review (Kansas City, MO)

Does Health-Care Reform Support Self-Employment?

Article excerpt

Health insurance access is an important factor in individuals' labor market decisions. A majority of workers in the United States receive health insurance through employers. This creates a strong relationship between paid-employment and access to health insurance. Some economists argue that employer-provided health insurance has been a barrier to entrepreneurship, as self-employed individuals might have had more difficulty obtaining health insurance on their own.

The Patient Protection and Affordable Care Act (PPACA) stipulates major changes to the health-care system with the goal of decreasing the nation's uninsured rate. These changes break the traditional link between employment and health insurance access by introducing additional options to purchase insurance outside of employer-provided coverage. By improving health insurance access, the PPACA might affect the self-employment rate in the United States.

This article examines the effects of improved health insurance access on the rate of self-employment using evidence from the health-care reform enacted in 2006 in Massachusetts. The Massachusetts Health Care Reform Act and the PPACA share many similarities, providing a case study. This article finds that the uninsured rate for working-age individuals in Massachusetts declined following the adoption of the reform. The uninsured rate for the self-employed decreased as well. Additionally, while the share of the self-employed in total employment (and in the total working-age population) declined steadily after 2006 in the rest of the country and in other Northeastern states, it stayed flat in Massachusetts.

Section I describes the close link between health insurance access and self-employment. Section II presents the key components of the healthcare reform in Massachusetts. Sections III finds that the reform led to a substantial decrease in the uninsured rate for working-age individuals in general, and the self-employed in particular. Section IV demonstrates that the reform might have supported self-employment in Massachusetts. Section V uses these results to predict that after full implementation of the PPACA, the uninsured rate will drop in the nation, and more individuals may choose to become or remain self-employed.


Self-employed individuals are an important part of the labor force in the United States. About 7.5 million individuals were self-employed in the first half of 2014. (1) Self-employment is the main source of income for many individuals, and a basis for forming new businesses.

Despite this importance, the share of the self-employed in total employment has gradually declined over the past 30 years. Several factors might explain this decline. Taxes and regulations may have been more burdensome on small, unincorporated businesses than on big corporations, making self-employment less attractive. Recessions or adverse business conditions may have also forced individuals out of self-employment, or discouraged them from leaving paid-employment to start their own businesses. More importantly, self-employment may have been less appealing than paid-employment because the self-employed may have lacked access to affordable health insurance.

Health insurance access has always been an important consideration for entrepreneurs in forming new businesses as it provides a valuable safety net for the self-employed and their families, especially given the inherent risks in new ventures. Historically, health insurance options for the self-employed have been costly and limited. This has led to a higher uninsured rate among the self-employed. In 2012, only 64 percent of the self-employed had either private or public insurance coverage. (2) In contrast, 85 percent of private sector employees worked at firms that offered health insurance options in 2012. (3)

The need for affordable health insurance has led many individuals who would otherwise prefer self-employment to work for an employer that offers group insurance (Holtz-Eakin and others). …

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