How the Affordable Care Act Encourages Entrepreneurship
While broad access to healthcare is a cornerstone of social justice, some critics have characterized the Affordable Care Act (ACA) as a form of socialism. Others emphasize the regulatory burden it places on small businesses, which under its terms must offer healthcare plans if they have 50 or more employees.
But as Republicans work to repeal President Obama’s landmark legislative effort to reform the American healthcare system while offering few concrete plans on how they will replace it, it’s also worth noting a feature that most have overlooked — how the ACA bolsters entrepreneurship, innovation, and risk-taking.
Prior to what came to be known as Obamacare, those who lacked access to employer-sponsored health coverage often had few viable options to purchase individual coverage. In many cases, individuals had pre-existing medical conditions that caused insurers to deny them policies or to exclude coverage for treatments related to their conditions – a practice the ACA ended. In other cases, people might qualify for individual coverage – but simply couldn’t afford it.
In a pre-ACA environment, where viable healthcare coverage was tied so directly to employment, there was an obvious disincentive to start your own business or to pursue self-employment: you might have to forgo health insurance in order to do so – for yourself and for your children and/or spouse.
This risk caused many workers to stick with jobs that didn’t match their talents or goals, primarily because they were uncertain how they’d maintain affordable healthcare if they left those jobs. This phenomenon, known as “job lock,” inhibited entrepreneurship, self-employment, or even switching companies – and thus reduced the ways that individuals could pursue their highest calling.
Obamacare changed that dynamic, replacing “job lock” with greater economic autonomy and more opportunities for people to pursue the work they find most meaningful.
It may seem paradoxical, but it’s true: while entrepreneurs and investors tend to champion the virtues of free markets unhampered by excessive regulation, they also favor stable and predictable environments in which to operate. This frees them to bear the many risks of bringing a new product or service into the world without also having to contend with corruption, lawlessness, or “lightning strikes.”
Thus, for champions of innovation, one way to view government is not as an impediment to entrepreneurism and free enterprise, but rather as the platform that provides the stability and services that allow entrepreneurism to flourish at scale. The services it provides, like rule of law, public education, the creation and maintenance of energy utilities, communications systems, and transportation systems all help create an environment conducive to entrepreneurship.
Obamacare is a key addition to this platform. Because of its provisions that make it much easier for individuals to obtain health insurance without having to do so through an employer, it increases the workforce’s capacity for risk, mobility, and innovation in ways that I believe have a positive impact on our overall economy.
As Y Combinator founder Sam Altman pointed out in a blog post last week, many of the founders he’s worked with have taken advantage of ACA coverage while launching their companies. Whether they were leaving old jobs and relocating cross-country, or forging ahead with startup plans even in the face of a pre-existing medical condition, the ACA gave them freedom and flexibility to take a chance. Secure healthcare coverage allowed these founders to create new enterprises that have led to jobs and opportunities for additional American workers and consumers.
But it is not just venture-backed founders whom the ACA enables in this manner. It’s any American who chooses to work for themselves. According to a 2014 study by the Freelancers Union, approximately 54 million Americans are “independent workers” now. As the gig economy grows, this number is increasing. Some estimates suggest that more than 60 million people – or 40 percent of the American workforce — will be contingent workers by 2020.
In other words, more access to alternatives beyond traditional employer-sponsored coverage is exactly what is needed now, and it’s exactly what the ACA provides.
Because the ACA is still so new, there’s not much specific data yet on its impact on entrepreneurism. But what we’re seeing so far suggests that it does help individuals gain more control over their work lives and economic destinies.
According to a newly released U.S Treasury report, more than 1.4 million self-employed or small business owners obtained coverage through ACA marketplaces in 2014 – the first full year of ACA implementation and most recent year with available data.
In addition, economist Dean Baker recently noted that the “number of self-employed is up by 890,000 or just over 6.0 percent” in the 3 years since December 2013, when major aspects of the ACA took effect. Moreover, he notes that the number of workers who choose – voluntarily – to work part-time has risen by 2.4 million in that same period — presumably, Baker concludes, “because they no longer need to get insurance from their employer.”
In other words, this data suggests less “job lock” and more freedom and choices.
As with any new product or service, the ACA has “bugs” and we should continue to iterate on it, looking for opportunities to decrease costs and increase competition within the Marketplaces. But if the law is simply repealed without a credible plan to offer healthcare to over 20 million Americans who have coverage and protection through the ACA – including small business owners and self-employed workers – we’ll regret the loss of workforce mobility and dynamism it has engendered.
By creating a path to healthcare that does not rely solely on a person’s employer, the ACA helps create an environment where individual citizens have more capacity to adapt to changing market conditions, apply their creativity and energies to new businesses, and take intelligent risks that can improve their economic livelihoods.
In this respect, the ACA provides not only a safety net but also a trampoline. If you want an economy in which every American can contribute to entrepreneurial dynamism and to the consistent job growth we’ve seen over the last 75 months, don’t let Congress repeal the ACA. Call your representative now. Tell them that having access to the affordable healthcare that the ACA enables is vital to having an American economy that works.
This post was originally published here on January 20, 2017.