• Entrepreneurship lock

    No doubt many readers have heard of “job lock,” the incentive to stay in a current job for the health insurance benefits, even if another job (or no job) may be preferable for other reasons. Well, there seems to be an “entrepreneurship lock” too. Fewer new businesses are started due to the cost and uncertainly associated with transitioning from a current position, with good benefits, to the head of a start-up.

    Robert W. Fairlie, Kanika Kapur, and Susan Gates investigated (ungated working paper here):

    [W]e compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. Business ownership rates increase from 24.6% for those just under age 65 to 28.0% for those just over age 65, whereas we find no change in business ownership rates from just before to just after for the remaining ages in our sample of workers ages 55–75. We estimate several regression discontinuity models to confirm these results. As expected because of the small change in actual age and the orthogonality of included controls, we find a similarly large and statistically significant increase in business ownership rates in the age 65 birth month when the worker qualifies for Medicare. These results are not sensitive to several alternative samples, dependent variables, and age functions, and we do not find evidence from previous studies and additional specifications that other factors such as retirement, partial retirement, social security and pension eligibility are responsible for the increase in business ownership rates in the month the individual turns 65 and qualifies for Medicare.

    Here it is in pictures:

    That’s almost a 14% increase in business ownership attributed to turning 65 and going on Medicare. It would seem that there are substantial gains to be had in moving away from the employer-based health insurance system. Is there really any good argument for retaining it?

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    • Just read abstract above, did not open the gate.
      Questions:
      1) Does entrepreneurial spirit increase for the <65 demographic, in those WITHOUT employee insurance, after aging into Medicare?

      2) Any other industrialized country with some life cycle track of coverage that could be used for comparison?

      What strikes me is 4% delta not all that eye rolling, although from an economists point of view, may be something (it might be significant and interesting, but what kind of entrepreneurship are we talking about–selling fudgie bars at the NASCAR race, or opening a health food store??).

      Also, although abstract states above, "retirement" adjusted for, and not that this info is handy, but what % of population retires at age.
      65?

      Brad

    • Interesting paper.

      One argument for retaining the ESI system is that it reduces problems of adverse selection, since people’s choice of work is not primarily based on type of health insurance plan.

      Still, there are many cons to go with that pro.

    • Self Funded employer plans deliver insurance far more efficently then government ever could.

      Selling 5 million employer policies is much cheaper then 300 million individual policies

      Most import and underlooked is employers are an interested counter weight to providers when it comes to cost. Without employers fighting providers to control cost who will?

      As a business owner free insurance would be nice but it wouldn’t prevent me from starting a company. What would effect the choice though is income. Social Security starts at 65 which means the new business would not need to be profitable. How they dismiss this as a non factor I didn’t see. The study would have more creditbility if they could get their facts on HIPAA right. Your allowed 63 days of no coverage. In their initial statement they also don’t even acknowledge COBRA exist., Why would we not expect a sliding increase starting 18 months prior to turning 65 if it was insurance lock?

      As far as spousal coverage wouldn’t spousal income be just as helpful in starting a business? Numerous states have small grouop guarantee issue plans for businesses as low as 2 employees.

    • To Nate Ogden: Full age for collecting Social Security is 66. For a lower monthly check, people can begin taking Social Security any time after age 62.

      Compared to COBRA or individual insurance, Medicare is a really good deal. Medicare Part B premium: $115.50 per month. Medicare supplement Plan F (in AZ) $110 per month. This type of coverage means no co-pays or co-insurance, no deductibles. Awesome!

      I am an insurance agent dealing mostly in Medicare-related products and I HATE individual insurance because 2 out of 3 people who come to me are un-insurable. One guy’s small company employer dropped their insurance …He’s 63 and had paid out $80,000 in premiums over the years…and now he doesn’t even have COBRA as an option. Turns out he is un-insurable for a number of reasons, so he enrolled in a plan through HIPAA. So he got insurance for $1,400 per month, which he needed to pay because he was diagnosed with prostate cancer just as he lost his small group coverage. What a system! If he was a bum on the street, the state would pay for his treatment through Medicaid. But because he worked all his life and saved money for retirement….he get to be ripped off. Well, thank goodness for HIPAA – and Medicare which is just a year away for him.

    • One more thing, Nate. Nobody is talking about “free” insurance. People are going to have to pay for it (with help from the government).

      As an insurance broker, I recently worked with a tax accountant who turns 65 in March. He was thrilled to be getting Medicare so he would have health insurance. He had dropped his Blue Cross Blue Shield policy five years ago because it got too expensive. (He’s a tax accountant!!)

      He told me how he got very ill a year ago and ended up in the hospital. With no insurance and little money in the bank, the hospital social worker signed him up for Medicaid, and the state of Arizona became his health insurance provider. We call Mediaid here the Arizona Health Care Cost Containment System (AHCCCS pronounced “access”).

      So I signed this man up for a Medicare Advantage plan which has no monthly premium and includes drug coverage. So he’ll pay $115.50 per month for Medicare and have excellent coverage – though not as complete as having a Medicare supplement. (He said he couldn’t afford a Medicare supplement.)

      So this guy sends me an email a week or so later in which he rants against Obamacare. He asks his friends to pray that Obamacare is stopped. So I wrote him back that he had benefited from the state program that is absolutely socialist. And I informed him that he had enrolled in Medicare which is also a socialist program – but at least he had paid into the system over many years of working.

      Geeze! This guy had opted out of paying for health insurance and then happily let the state of Arizona pay for his health care. But Obamacare is a terrible thing! And he’s a tax accountant! (I sure wouldn’t use him as he is terribly misinformed.)

    • If he was a tax accountant how did he qualify for Medicaid? If anything sounds like he was a retired tax accountant. Curious if along with this sob story you could share what type of car he drove, does he have a cell phone, cable TV, smoke or drink? Nothing personal but I don’t respond to sob stories unless they have all the facts. Its amazing how different the story can be when all the facts are on the table.

      “Compared to COBRA or individual insurance, Medicare is a really good deal. ”

      For who? Average private insurance cost $3400ish a year. Medicare alone is over $7000. Its a good deal for the individual getting the huge tax payor subsidy, its a terrible deal for tax payors, with all that fraud and waste you know.

      ” I HATE individual insurance because 2 out of 3 people who come to me are un-insurable.”

      This is the crux of the problem yet I fear you don’t see it. Insurance is to be purchased before you need it. If 2 out of 3 of your customers don’t qualify then that means they went without insurance while healthy and waited until they needed it, system won’t function that way.

      ” Nobody is talking about “free” insurance. People are going to have to pay for it ”

      Actually that is not true millions wont be charged a penny and seeing that they don’t pay federal taxes either they are really in every sense of the word getting it free.

      When Obamacare eliminates his Medicare Advantage plan that he loves can he complain then?

    • Regarding the currently working, self-employed tax accountant: When a person’s medical bills exceed his income, Medicaid will pay the bills – at least that’s how it works in Arizona. I have talked to several people whose medical bills qualified them for AHCCCS/Medicaid. This system encourages people to be uninsured.

      The man is currently working and has internet and cable tv. From his opinion on Obamacare, I’d say he watches Fox News.

      On the un-insurables: Some of the people I’ve dealt with did wait to get insurance until they had issues. Others lost insurance coverage for one reason or another. People really are stupid when it comes to insurance and deciding whether or not to pay $100 a month for something they might not need. I certainly agree that everyone should have insurance before they get sick and this is why I support the mandate.

      The Tax accountant’s Medicare Advantage plan: His plan is with United and they aren’t going away. They are the biggest Advantage plan player and will be able to stay in the business – as one of their companies, Pacificare, did in the late 90’s when payments were slashed. Arizona has had Advantage plans in one form or another since the early 90’s, through good times and bad. For political and practical reasons, I don’t think the Dems can kill Medicare Advantage.

    • Regarding the cost of insurance and Medicare: $3,400 per year for health insurance? Divided by 12 that’s $283 per month. Anyone younger than 40 might get coverage with a $2500 deductible for that price. People in their late-50’s and early 60’s will pay $400 to $800, even $1,000 per month.

      What did you mean by Medicare alone costing $7,000? Part B premium is $115.50 per month this year. I understand that Medicare pays out on average (in Arizona) $800 per month per person. Though most people are healthy and it is the sick folks for whom Medicare (like any insurance plan) pays the big bucks.

      Regarding free health insurance: Don’t most of those non-taxpayers already get Medicaid? So they’re already being supported by taxpayers. Maybe you are referring to the working poor whose employers, like McDonalds or Walmart, don’t provide health insurance. One way or another, it sounds like the government picks up the tab when these folks get sick.

    • How will United continue to offer no premium, full rx, and other additional benefits when the 16% premium is eliminated as Obamacare does? No one said United will go out of business, the Medicare Advantage plans with all the additional benefits will go away though. An efficent MA plan can deliver Medicare benefits for 97-98% of what Medicare does. The additoinal benefits they offer in exchange for the 16% premium cost 13%,. There is no place for them to make up 10-11% of premium, benefits will be cut.

      “Anyone younger than 40 might get coverage with a $2500 deductible for that price. People in their late-50′s and early 60′s will pay $400 to $800, even $1,000 per month.”

      Apparently you don’t know anything besides Medicare advantage. FOr example 50-54 male in NV, $2500 is $200. 40-44 is $121. NV is on the high side, go to UT, ID, OH, and pretty much any southern State but Florida it is even cheaper.

      Only people paying $1000 per month are those that wait till they are sick to buy coverage.

      FYI both McDonals and Wal Mart provide health insurance.

      Not sure what part of Cost you don’t understand.

    • Nate: I do some individual insurance here in Arizona, but I hate it. Only plans with very high deductibles would have the low premiums you quoted. These plans would probably not include doctor visits for a co-pay. Instead doctor visits would come under the deductible.

      As concerns $1000 premiums, my business partner and her husband have had the same insurance for many years, and their premium together is $1400 per month. They did not wait until they had issues to get insurance. The premiums just kept going up, and once they did have health issues they were trapped in that plan because no other company would take them.

      As for all those extra benefits, to what are you referring? Here in AZ, MA plan extra benefits are limited to a free gym membership. Humana does offer one dental exam and cleaning per year with their plans.

      I’ve seen things written about how the extra benefits are why people sign up for MA plans and this has not been my experience with my clients. I have visited new clients living in gated communities who are enrolled in MA. They have a golf course outside their door and their own gym, so they are interested in the MA because of the $0 premium. The company that can stay with $0 premium will be the last one standing – or people will get used to paying a $25 premium or higher as they have done in states like Pennsylvania, Colorado, and CT. When people move to AZ from those states, they are amazed to get the same plan for $0 premium.

    • “These plans would probably not include doctor visits for a co-pay.”

      They all include doctor and rx co-pays outside the deductible. In the 20-30 states we operate the only place I see rates as high as you claim are NY, MA, FL, and parts of CA.

      “As concerns $1000 premiums, my business partner and her husband have had the same insurance for many years, and their premium together is $1400 per month.”

      Thats only $700 each, which is under $1000 per person. Yes if you have a family of 4 you could spend $1000 a month on insurance, an individual does not.

    • As someone in the startup/entrepreneur world I’ve always said healthcare is more important than taxes. The startup world is a bit different than the small business world where you are taking a known thing and starting it yourself (local gas station, pizza place, franchise business, etc), where success or failure is a cashflow thing and taxes matter a lot.

      To startups, you may or may not make a lot of money. Taxes only factor in if you have invented something new and innovate and have cashed out, in which case you will have made so much more money than being an employee for someone else that taxes really are an afterthought. If you fail, which most do, taxes won’t matter at all.

      But healthcare does matter. It’s one thing to quit my job and start a startup, blow through my life savings, and when I’m almost out of money stop, get a regular job, and continue on with my life. It’s another thing to quit my job, start a startup, and during that time period have a health issue that sucks up my money, my health, and makes me bankrupt. It is another level or risk that is unnecessary but is a reality of our healthcare system. It is simply not easy to get individual coverage. I’m in my 20s and healthy and it’s not easy. When you are buying, it looks fine, but when it comes to actually using it the insurance companies deny individuals more readily.

      So one of the bits of knowledge getting passed around the startup world is to found your company in MA. Boston is a good place for entrepreneurs, but so is NYC, Silicon Valley, Boulder, Austin, etc. But only MA has sane healthcare.

      I had MA (born/raised in NYC, Yankees fan etc), but the idea of sane healthcare is so enticing I’m seriously considering moving my business to MA just for the healthcare. Whenever I hear the idea that healthcare should be done on the state level, I think of the exact opposite of what most people think. I’m not moving to the state with the cheapest healthcare, I’m moving to the state with the best. And if all the smart guys building companies think that way too, you will see a lot more economic growth in the states that actually have more “socialized” healthcare.