Will Obamacare Inspire Small-Business Ownership?

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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One theorized benefit of the Patient Protection and Affordable Care Act is that it will unleash a new era of entrepreneurship. Undoubtedly, there are people in the U.S. who wanted to start a business but feared losing their health insurance. Now that they know they can buy it, presumably they'll be freed to take risks without fearing that they could end up uninsured and uninsurable.

Andrew Sullivan, who has bravely taken his blog solo, voices this hope poignantly:

"But I'm also encouraged that I will no longer be punished for entrepreneurship with fear of losing health insurance, a punishment the Republican party apparently wants to restore indefinitely. I may also be biased, having grown up in a country with a once substandard and still far from ideal socialized system. But I love America's free market in healthcare -- and believe, despite Republican hostility, that this reform simply extends much of that to many, many more people. Why can we not celebrate that milestone? Politics does not always lead to a tangible increase in many people's peace of mind, security and health. This time and this year -- thanks to president Obama -- it has."

I have a natural affinity for this sort of argument. The core argument of my new book, "The Up Side of Down," is that failure and risk-taking are a necessary part of success -- and that the best way to be a more successful person, or a more successful society, is to minimize the cost of failure. Not to eliminate that cost: Failure should hurt, because that's what discourages us from doing things that don't work. But the pain should be short and sharp, not catastrophic. Societies that help people minimize catastrophic downside risks are societies that maximize their growth potential.

That said, social insurance has costs as well as benefits. I could tell you a completely plausible story in which Obamacare unleashes a wave of entrepreneurial energy. I could also tell you a completely plausible one in which young people who might have started a business are deterred by the additional cost of the health-care mandate. Or one in which a 50-year-old displaced worker, with the knowledge that he'll now be able to get cheap health insurance, chooses early retirement over the uncertainty and strain of trying to start his own business. Or one in which the increase in insurance premiums that many unsubsidized people experienced causes a budding entrepreneur to throw up his hands and go back to a corporate job. Thought experiments like this tend to tell us a lot more about our priors -- and what we want to believe -- than about reality.

Unfortunately, we just don't have that much empirical evidence. European nations with more generous social safety nets have lower rates of entrepreneurship than the U.S. does, even though a thought experiment might suggest that generous welfare programs would encourage people to take more risks. Nor did we see a radical unfurling of entrepreneurial energy in Massachusetts after RomneyCare. It seems plausible that making health insurance easier to buy might make people more willing to start new companies. But if there's an effect, it seems to be pretty small -- too small to conclusively tease out of noisy economic data. And, in fact, that's not entirely surprising, because as I noted last week, people who already have health insurance can keep buying some form of coverage thanks to the Health Insurance Portability and Accountability Act of 1996. People who don't have health insurance now probably aren't being held back from starting a business, because they probably wouldn't have health insurance then, either.

Meanwhile, of course, the law imposes significant new penalties for growing a company; anyone with more than 50 employees not only has to provide health insurance for their employees, but they also have to meet a substantial regulatory burden to demonstrate that they're providing affordable coverage. That might discourage people from growing their firms.

Or not. We tend to think of the policy issue of the day as being the key issue for everyone. But entrepreneurs think about a lot of things when they're deciding to start a business, or grow it; health insurance is only one of many. Things such as market conditions, access to capital and overall labor costs loom much larger. Even for someone with a family or an expensive chronic condition, issues such as "How will I pay for food and shelter?" and "Can I really put in the 16- to 18-hour days that are needed to get a new business off the ground?" will often be more important than "How will I afford health insurance?"

The thought experiments are certainly intriguing. And I look forward to seeing what the data show about entrepreneurship after Obamacare. But as we learned with emergency-room usage, a thought experiment can be plausible without being true.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net