It's a situation that is familiar to most of us. You're thinking of switching jobs, maybe even starting your own business and your mind starts racing through all the exciting possibilities the future holds. But soon you dreams hit a snag. You wonder what will happen to your health care insurance and start to worry if change is really for the best.
The major source of health insurance for people of working age is employer provided health insurance. The downside of this arrangement is that if you switch jobs you will lose your current health insurance. Your new employer may not offer insurance, may have a waiting period of a few months or may offer different plans than you currently have leading to care disruption. If you're starting your own business you would have to get individual insurance, which is often prohibitively expensive or even impossible to obtain. Alternatively, you could try to get an employer provided plan which can be prohibitively expensive for very small companies. Given all these concerns, is it worth pursuing a new opportunity given the resultant certainty that your health insurance coverage will be disrupted?
An interesting new study suggests that this concern does weigh heavily on people’s choices. Three researchers looked into what they call "job lock" which is the reluctance of people to switch jobs because of concerns about loss of health insurance coverage. They found that men who were getting their health care through their spouse's employer as part of a family plan were more likely to start a new business than those who had coverage through their own employer. On average, every year about 3% of people create a business and an extra 1% would do so if not for their concern about health care coverage.
Perceptively, they then looked at what effect getting Medicare coverage would have on the rate of business creation. They surmised that eliminating the concern of coverage uncertainty would boost business creation in those who just turned 65 and they found just that. In the months before turning 65 business ownership rates were 24.6% whereas in the months after turning 65 they were 28.0%. There were no similar jumps in business creation around any other birthday from age 55 to 75.
Taken together these findings highlight how our current employer provided health insurance system is a barrier to entrepreneurship and job mobility. There's no good reason that your health insurance should be tied to your job (it’s a historical legacy) and yet fear of losing health coverage keeps people in their jobs even if they have a compelling reason to change jobs. The Affordable Care Act (ACA), though it keeps our employer based health insurance system intact, moves towards severing this tie by making it easier and more affordable to get health insurance in the individual market. As a country that values the entrepreneurial spirit we should celebrate the ACA for making it easier to follow your dream.