Pursuit of Truthiness

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Posts Tagged ‘Affordable Care Act

The ACA and Entrepreneurship

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In a newly published paperDhaval Dave and I tried to assess how the Affordable Care Act affected entrepreneurship. Many people have been speculating about this, but very few have actually tried to measure it. Part of the reason for this is that the appropriate data only recently became available; most earlier work, including my dissertation, had to focus on the relatively minor parts of the ACA that started earlier, while the biggest provisions didn’t kick in until 2014.

So, did the ACA help or hinder entrepreneurship? In short, it probably helped, but with huge heterogeneity. In our paper 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.

So, should we take that estimate and extrapolate it to everyone, and use that to imply that the ACA created a million businesses? I don’t think so. I expect that the biggest positive effect of the ACA was for exactly the group we studied- people in their early ’60s. Both because they 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) and because of the community rating provisions of the ACA (which generally reduced individual premiums for older people while raising them for younger people). The other new papers on the ACA and entrepreneurship use identification strategies that let them study adults of most ages, and they generally find no effect or smaller positive effects.

If I do more work on the ACA specifically, it will be to probe the effects on other subgroups that I expect to have particularly positive effects (e.g. less healthy people) or negative effects (e..g young, health people). Alternatively, we can start to look to post-ACA data and assess to what extent entrepreneurship lock remains a problem even after the full ACA implementation.

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Written by James Bailey

September 25, 2018 at 2:04 pm

Did the Affordable Care Act Reduce Job Lock?

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In a paper just published in Contemporary Economic Policy (ungated here), Anna Chorniy and I find that the answer is no- at least for one piece of the Affordable Care Act. The piece we study is the dependent coverage mandate, which since September 2010 has required family health insurance plans to cover young adults up to their 26th birthday, rather than just their 19th. The ability for young adults to go on their parents health insurance plans gave them a major option for insurance that wasn’t tied to their jobs. I expected this to reduce the “job lock” problem- people staying in a job because switching jobs would mean losing their current employer-based health insurance.

But this effect is just utterly absent from the data. I’ve never seen a result turn out so robustly insignificant in every single way we slice up the data or vary the analysis.

Perhaps the job lock problem is overblown in general, though many papers have found evidence of it; or perhaps 19-25 year olds were simply too young and healthy to really care. Certainly many journal referees thought the result was too obvious to be worth publishing (obvious after reading our paper, at least). Thanks to CEP editor Brad Humphreys for being willing to publish a “negative result”; the fact that so many editors and referees are unwilling to do so is a major source of publication bias and not-so-ethical behavior in response.

Negative results aside, I think we really do have an interesting point to make: that the effect of job lock should differ by age, going from non-existent for young adults to substantial for older adults. This is indeed obvious once we point it out. But it was ignored by a large previous literature on job lock, which has tended to lump all working-age adults together and pronounce what “the” job lock effect is (or to focus on a single age group without pointing out how their age makes them unusual). Always be on the lookout for how people respond differently to the same thing.

Written by James Bailey

July 18, 2015 at 4:44 pm