The voices of Urban Institute's researchers and staff
February 5, 2014

Will the ACA spur innovation and entrepreneurship?

February 5, 2014

Guest post by Sabrina Corlette, a research professor and project director at the Health Policy Institute at Georgetown University. A frequent Urban Institute collaborator, she authored this post in response to the release of a new Congressional Budget Office (CBO) report that discusses the Affordable Care Act’s potential impacts on the labor market. An original version appears on the Center on Health Insurance Reforms’ CHIRblog.

Last year, we—along with colleagues at the Urban Institute—projected that the ACA would lead to an estimated 1.5 million new entrepreneurs bringing innovation, new businesses, and jobs to our economy.

What does the CBO report say?

The CBO believes that some people will decide to work less—or not at all—because of the ACA. Specifically, they project an overall reduction in the number of hours people work by up to 2 percent between 2017 and 2024—or the equivalent of 2 million fewer full-time employees in 2017, rising to 2.5 million by 2024. However, the CBO is also careful to say that that reduction is almost entirely because people will choose to supply less labor, and not because employers are shedding jobs. CBO calculates that people will reduce their participation in the labor force because of the new incentives they will face and the financial benefits some will receive because of the ACA.

What are the new incentives people will face?

The CBO’s analysis focuses primarily on the incentives people—particularly lower-income people—will have to work less, because the lower their income, the higher their premium subsidy. Thus, older workers might retire earlier than they otherwise would; parents may decide to spend more time with their children. But there are other, less tangible incentives worth considering—incentives that could spark innovation and job creation.

As we discussed in our report on ACA and entrepreneurship, before the law went into effect, people contemplating leaving the security and stability of a company job to become self-employed had to consider the implications for their health insurance, as well as the financial risks associated with launching a new business. Many people have stayed in jobs that were not optimal for their talents and skills because they needed to maintain access to employer-sponsored insurance coverage—they either could not afford to purchase insurance on their own or had a pre-existing condition that would have made it difficult, if not impossible, to obtain it. This phenomenon—unfortunately all too common— is called “job lock.”

However, under the ACA, access to comprehensive, affordable insurance is no longer tied to your job. Because the ACA bans discrimination based on pre-existing conditions and provides financial assistance for people to purchase coverage on their own, we projected that 1.5 million people will be freed from job lock and decide to pursue their dreams of starting their own business.

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