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Posted at 2:05 PM ET, 02/25/2011

How Medicare -- and health-care reform -- help with 'job-lock'

By Ezra Klein

One of the theoretical problems with our health-care system is that it discourages entrepreneurship. We get health care at a subsidized rate, with no discrimination for preexisting conditions, from our employers. But if we leave our jobs, we lose that health care. And buying our own health care is expensive, and occasionally impossible: Plans sold to individuals cost $2,000 more than equivalent plans sold to businesses, the employer subsidy (and the tax break underpinning it) vanish, and we can be turned away because of back pain that got resolved a decade ago. So a lot of people decide to stick with their employer and forgo starting that business. It's the responsible thing to do, particularly if you have a family.

At least, we think they do. But it's a bit hard to test why someone didn't do something. Robert W. Fairliea, Kanika Kapurb and Susan Gates, however, came up with a clever way to measure it. They used a data set that allowed them to compare "business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65." That is to say, business ownership before getting Medicare, and business ownership after getting Medicare. Not surprisingly, Medicare appears to make people more entrepreneurial. "We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55–75."

The Affordable Care Act will help solve this problem. Repealing it won't.

By Ezra Klein  | February 25, 2011; 2:05 PM ET
Categories:  Health Economics  
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How does the affordable care act address this exactly? I'm not doubting you. I'm just still so unclear over what provisions have been made.

Posted by: simon341 | February 25, 2011 3:20 PM | Report abuse

Yeah I'm a little confused about how the ACA has effects comparable to Medicare on this point as well. Isn't the ACA explicitly structured to keep people from leaving locked-in employer plans for the portable plans offered by the exchanges?

Posted by: NS12345 | February 25, 2011 3:34 PM | Report abuse

It would be far superior to reform the tax code to eliminate employer-monopoly health benefits in favor of an individual tax deduction or credit. That would not require new government spending, regulations, or bureaucracies.

Posted by: marincanuck | February 25, 2011 3:43 PM | Report abuse

The important thing that the ACA does is to make it possible to move to a new plan without being rejected for pre-existing conditions, and with the assurance that the new plan will meet at least minimum standards of coverage. No tax benefit scheme will provide that. (You can always tell a Republican - they think tax breaks are the answer to everything).

This "job-lock" issue is a very important one that I wish would be emphasized more by supporters of HCR. I just chuckle when I hear Tea Partiers saying that HCR goes against freedom. Quite the opposite is the case. Having assurance that you and your family will be protected, even if you have existing health issues, opens up doors that remain closed to so many in the U.S. Regardless of your or your loved ones’ health histories, you can follow your own star – try to make it as a writer, a musician, an artist, a basement entrepreneur.

A family member of mine who lives in Europe recently quit his corporate job to go into a risky partnership venture. He and his wife are in their later 40s, they have three children, and he has a cancer history. Fortunately, the new venture has been a success and they are doing well, but there was never a guarantee. How many people in the U.S. would be willing to give up their family’s health coverage and take such a risk? But since they live in a country with universal coverage, they can take risks and pursue their dreams. That’s real freedom, baby.

Posted by: Virginia7 | February 25, 2011 4:13 PM | Report abuse

Before I had kids, I was an independent contractor and often went without health insurance (stupid, but I was young and feeling invincible). Once we had our first kid on the way, I took a w2 job that I've had ever since - which is also the longest I've held one job. Consulting paid better & was far more stimulating, but was also far riskier in terms of cash flow and access to health insurance. So here I sit.

Posted by: bsimon1 | February 25, 2011 4:44 PM | Report abuse

"How does the affordable care act address this exactly?"

Heavy subsidies and the elimination of pre-existing conditions.

Consider a business which builds net income in the following manner, and the associated salary the entrepreneur gives himself:

Year 1: -$40,000, Salary: $26,000
Year 2: +$17,300, Salary: $26,000
Year 3: +$16,400, Salary: $26,000
Year 4: +$65,300, Salary: $38,000
Year 5: +$152,800 Salary: $74,000
Year 6: +$372,400 Salary: $92,000
Year 7: +$724,000 Salary: $100,000
Year 8: Sold PayOut: $4,500,000

If health insurance costs $15,000/yr currently, but will be far cheaper than that with subsidies, then it helps this business owner get into the entreneurial game.

Ex-ante, the business owner might fail - he doesn't know he'll eventually sell his business for $4.5 million.

Posted by: justin84 | February 25, 2011 4:56 PM | Report abuse

Some other studies on "job lock" have been done.
They've found that universal health care would increase job mobility by 25%. This would really help on productivity because it allows workers to work in areas were they are experienced at instead of areas that provide health care.
Also they've found that universal health care would increase self-employed buisness owners by 20%. These studies were done by. Alison Wellington.

Posted by: mynameisblehbleh | February 25, 2011 6:12 PM | Report abuse

I'm in this situation. Had a job with a good health plan, just got laid off. 3 of the 4 in my family have pre-existing conditions. No way we could ever get insured individually. I can pay 3x my house payment per month to keep us on that plan, or go without. Thanks, spineless Democrats.

Posted by: mutterc | February 25, 2011 8:49 PM | Report abuse

Well, I happen to know one 65 year old that started collecting his pension at that age, retired, came back as a consultant under his own company and started making a lot more money.

On the other hand, COBRA gives you 18 months runtime with your existing coverage. PEOs like Administaff can get you group plans as you get going. With many two income families, one person goes on the other's insurance.

I'd venture to say that if you can't figure it out, you're going to have a hard time running a business. You are risking a lot more than health insurance when you are starting out, you're risking your whole income.

Posted by: staticvars | February 25, 2011 11:26 PM | Report abuse

I would recommend this health insurance plan i found through wise health insurance to anyone with a growing family who is looking to minimize their medical expenses.

Posted by: ruthrichard123 | February 26, 2011 3:34 AM | Report abuse

No doubt dealing with pre-existing conditions will help this. However, isn't there other options than this bloated bill? You conclusion is a lot like saying getting getting a pre-school aged child to class will help them learn, so parents should buy a school bus to take them. Sure it works, but it's overkill for the problem.

Also, you contention about individual insurance costing more than group isn't true. The employee's subsidized cost may be less, but total cost is usually lower. In fact, Dependant coverage isn't usually subsidized by the employer and I write individual policies for the Dependants every day to lower their costs

You can help this problem by implementing a law like: if someone has existing coverage, they can buy health coverage without a pre-existing clause. If they don't have current coverage they can still buy, but their pre-existing doesn't get covered for 18 months. Also, if you have medical care without coverage, you are responsible for the bill and it can't be dropped by using bankruptcy laws.

The burden of health care reform on the self-employed will cause a bigger problem than what we have now.

Finally, let's call it what it is. It's not health care reform, it does very little to reform health care and control costs. It should be called Health Insurance reform. It does a lot to change the insurance industry, puts the burden of cost on the insurance industry and is designed to fail. If would be the same as if your 40 year old son wasn't making enough money at work and I put the burden on you to have his pay increased.

Posted by: mwoplock | February 26, 2011 11:12 AM | Report abuse

what a ridiculous article! your premise is both interesting and true. the conclusion is nothing short of bizarre, but expected given the source... a plug for ACA.

healthcare reform was (and still is) a national priority. we needed to to 3 things:
1) reduce the rising cost of care (NHE)
2) ensure access to and portability of health insurance
3) extend care to all americans, regardless of employment or income status

the problem with ACA is that objective #1 is critical to the success of all healthcare reform objectives... and we completely punted on cost reduction. the ACA bill actually accelerates the cost of healthcare slightly. ACA is built on wholly unsound economics. we tax insurance, medical devices, RX, etc. this only makes healthcare MORE expensive. we then make it affordable by subsiding it... with nearly 75% of american household qualifying for subsidies. but "purchase" subsidies do nothing but drive prices higher. the bill does virtually nothing to help with the rapidly rising cost of healthcare.
it's truly bizarre that we're debating the constitutionality of of the insurance mandate, when it's the bill's economics that are most in doubt. while the vast majority of american's opposed the drastic move to a single-payer system... i'd have to admit that we'd have been better off jumping off this cliff than the one the "sausage factory" in washington chose.

Posted by: kiapa52 | February 26, 2011 1:34 PM | Report abuse

makes me think of this ad

With all due respect to our host, I still think it is the finest 21t century contribution to the US policy debate.

Posted by: rjw88 | February 26, 2011 2:25 PM | Report abuse

Ezra and the rest of you 'head in the clouds' liberals are wrong about this. Because Obamacare does nothing to address the rising costs of health care, the insurance that you have at your current job will be significantly cheaper than any that you can buy on the exchanges. The funny part will be when job mobility does not increase after Obamacare is fully implemented, you guys will find a way to blame it on the mess that Obama inherited.

Posted by: cummije5 | February 26, 2011 4:43 PM | Report abuse

Perhaps it's buried in the study you reference, but you don't mention the *other* big event that coincides with turning 65 - which is retirement and collection of pensions and social security. Also, how many of those who started a new business at 65 are really just working on their own, as a contractor, doing more or less exactly what they'd been doing before for essentially the same companies? Or to put it another way - how many of these businesses create a product or have full time employees other than the business owner?
It certainly makes sense that not having to worry about insurance would increase entrepreneurship, but I'm not sure the study focusing on this particular milestone can explain how much of a factor that is.

Posted by: djorgga | February 28, 2011 11:33 AM | Report abuse

The degree to which not having access to health insurance discourages entrepreneurship might be demonstrated in a more convincing way if you look at couples. What's the difference for those where the spouse's insurance can cover the entrepreneur vs. where it's not an option?

Posted by: djorgga | February 28, 2011 11:47 AM | Report abuse

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