Entrepreneurship and Health Care

Andrew Sullivan gets letters:

I'm an American who has also decided to leave the US ... because of my concerns over healthcare. You see, my European wife has a chronic disease that worsened soon after we moved to the U.S. two years ago. I have insurance, but with a sick wife and two children, our bills are quite high. Worse, should I ever change jobs, or get fired, I have no doubt our insurer would drop us, or at least dramatically increase our premiums.

I'm a senior exec in a software company. I've always wanted to run my own company, and I have an idea that I think will work.

But we'll move back to Europe before I take that risk. In the U.S., I just cannot be without healthcare for any length of time. I wonder how many other potential entrepreneurs are discouraged from striking out on their own for this very reason?

MIT economist Jon Gruber has looked into this, and the effect is quite significant:

Over the past fifteen years, dozens of studies have documented the detrimental impact that job lock has on the economy. These studies typically compare the mobility of workers who are at firms with insurance but do not have an alternative source of coverage (such as spousal insurance or COBRA continuation coverage) to those who do have an alternative source of coverage should they leave the firm. The studies find that mobility is much higher when workers do not have to fear losing coverage; job-to-job mobility is estimated to increase by as much as 25 percent when alternative group coverage is available. …

There are fewer direct studies of the impact of job lock on entrepreneurship. But the most convincing research, by Alison Wellington, mirrors the findings of other job mobility studies: Americans who have an alternative source of health insurance, such as a spouse’s coverage, are much more likely to be self-employed than those who don’t. Wellington estimates that universal health care would therefore likely increase the share of workers who are self-employed (currently about 10 percent of the workforce) by another 2 percent or more. A system that provides universal access to health insurance coverage, then, is far more likely to promote entrepreneurship than one in which would-be innovators remain tied to corporate cubicles for fear of losing their family’s access to affordable health care. Indeed, even the Galtians among us should be celebrating the expanded potential for individual enterprise once the chains tying them to a job that provides insurance have been broken.

It's also unclear how internalized this is: We may just have a culture in which people who care about health-care coverage don't think about becoming entrepreneurs, as they know perfectly well that they can't sacrifice the safety provided by a large employer. You've heard of learned helplessness? This is learned corporatism. A culture in which people didn't worry about health-care costs might also be a culture in which they were more willing to consider occupational risks.

So will health-care reform fix this? It will help. The various health-care plans under consideration all make life better for a would-be entrepreneur who wants to buy health insurance. The subsidies will help him afford coverage. The regulations will make sure insurers can't deny his family outright our jack up their rates. The exchanges will give him purchasing power and choice.

But the out-of-pocket costs can still prove crippling. The fact that you can buy insurance does not mean you can afford illness. If you can barely shoulder your premiums, and your out-of-pocket limit is $11,000 dollars, a few bad years could wipe you out completely. Conversely, in a country like France or Germany or Canada, an eager innovator need never worry that the budget doesn't have room for illness. You can live your life without worrying about health-care costs. I don't know exactly how much that peace of mind is worth, but surely it's worth something.