The Effect of the Affordable Care Act on Entrepreneurship

We aim to determine the effect of the main provisions of the Affordable Care Act on entrepreneurship. Previous work has found substantial evidence that some Americans are deterred from self-employment because they are concerned about losing their employer-based health insurance. The Affordable Care Act (ACA) introduced several reforms aimed at improving the market for individual insurance, with one objective of reducing the problem of "entrepreneurship lock." We will assess whether, and the extent to which the ACA has made progress towards this objective, across various relevant margins and sub-populations, based on a quasi-experimental research design applied to data from the American Community Survey and Current Population Survey.

Because many of the main ACA provisions took effect in January 2014, it is only now becoming possible to study their effects; previous work on the ACA and entrepreneurship could only investigate the effect of relatively minor early provisions such as the dependent coverage mandate (Bailey 2013). As potential entrepreneurs are deterred because of concerns over their ability to maintain health insurance when they start a company, it is important to understand whether and to what extent the ACA solves this market failure for various groups, as well as the extent to which further reforms would be needed to keep the employer-based health insurance system from distorting the labor market and slowing the formation of new businesses. Market frictions that impede entrepreneurship may have adverse implications for efficient matching between worker skills and work and lead to labor market inefficiencies.

Our main analysis focuses on evaluating the net effect of the main ACA provisions as a whole. However, if policymakers aim to expand, scale back, or replace the ACA it will be important to understand potential effects of individual components. Because many of the main provisions, including guaranteed issue, community rating, and the subsidized exchanges began simultaneously on January 1, 2014, it is empirically difficult to separate their effects. Nevertheless, first-step evidence on the partial effects of some of these individual components can be gleaned by exploiting previous state laws mandating guaranteed issue and community rating and by further exploiting individuals from Massachusetts, who were subject to an individual mandate, as an additional control group.