This is a continuing series called Apple Pie Economics about the deliberate forces and unhappy accidents that are getting in the way of us living up to our entrepreneurial potential. Right now, we’re talking about the problems. Later, we’ll talk about solutions. Part 1 is Intro to Apple Pie Econ. Part 2 is 7 Reasons We Don’t Have More Entrepreneurs (and jobs).

We started Apple Pie Economics with the story of Laura, a successful entrepreneur who folded up her successful business and got a job.

From the beginning, her company was a smash. After only six months, Laura had booked jobs across the country. Using her husband’s theater networks, she was able to produce meetings in different cities, using hometown actors, providing local flavor to her productions and jobs for communities of actors in and outside Chicago. After a mild dip in 2009, her business started to make real money and she felt creatively and intellectually fulfilled. But, then, after a few years, Laura took a new job with a big accounting firm. She is an employee again, and her employees are looking for jobs.

Why did she quit when things were just getting really good? Because she needed health insurance.

As a new small business, Laura had to go out into the market and buy a policy just for her company’s full time employees, which included her and her husband and actors who worked for her full time.  Though young and healthy, her husband has asthma, which either disqualified them from some policies or raised the rates through the roof for others. So, they bought catastrophic insurance and funded health care costs out of pocket. Paying costs for treatment from medical specialists, plus yearly exams, medication, dental and vision was usually unaffordable and always stressful.  After a few years of this, she got health care juggling fatigue. Laura’s experience is not surprising; the only surprising thing is that she jumped to start her own business in the first place, in spite of her lack of health insurance options.

The problem is not just the health insurance industry’s practice of denying coverage to people who may really need it – it is the lack of competitive alternatives that is so deadly to entrepreneurship. Scholars have known for years that the lack of affordable, reliable or even available health insurance keeps people chained to their employers. [i] Those shackles, called “job lock,” keep roughly 607,000 people from launching a business.[ii]

In fact, when individual states create avenues for people to get affordable health insurance, the number of entrepreneurs increases. When New Jersey reformed its health insurance laws to create markets for individual insurance and guaranteed policy renewals and limited exclusions for preexisting conditions, entrepreneurial activity soared. [iii]

American entrepreneurs ought to have to do battle with market demand, logistics and competition, but not with America itself. The health insurance marketplace that disqualifies entrepreneurs makes starting a business a life or death decision and that is too much for most people to bear. Hopefully, the health insurance reform will take care of this and it won’t get repealed, only improved.

In the next post, we’ll talk about the suffocating pressures Laura experienced trying to figure out the law.

[i] Buchmueller, T. C., and R. G. Valletta. 1996. “The Effects of Employer-Provided Health Insurance on Worker Mobility.” Industrial and Labor Relations Review 49(3): 439–455.; Cooper, P. F., and A. C. Monheit. 1993. “Does Employment-Related Health Insurance Inhibit Job Mobility?” Inquiry 30(4): 400–416

[ii] Fairlie, Robert W., Department of Economics University of California, Santa Cruz and RAND; Kapur, Kanika School of Economics and Geary Institute University College Dublin and RAND; Gates, Susan, RAND“Is Employer-Based Health Insurance a Barrier to Entrepreneurship?” UCD GEARY INSTITUTE, DISCUSSION PAPER SERIES, June 2009.

[iii] DeCicca, Philip, 2010, “Health Insurance Availability and Entrepreneurship.” W.E. Upjohn Institute for Employment Research, April 2010, 10-67.

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