KY Policy Blog

Implementing Health Reform Will Promote Entrepreneurship in Kentucky

By Jason Bailey
May 30, 2013

Another reason that Medicaid expansion and the rest of the Affordable Care Act (ACA) is good for Kentucky’s economy is that it will help support the entrepreneurs and small businesses that are critical to innovation and growth.

The Medicaid expansion is expected to make coverage available to up to 308,000 Kentuckians, while the ACA’s health insurance exchange could cover another 332,000. That access to health insurance will help address the problem known as “job lock.” That’s when people are reluctant to change jobs because they will lose their health coverage or because insurance will become unaffordable. MIT economist Jonathan Gruber notes that there are dozens of studies showing that job lock is harmful to the economy because it means people aren’t moving to work where they might be more productive. According to Gruber, the lack of an alternative source of coverage is estimated to reduce mobility by as much 25 percent.

Job lock also applies to people who would like to strike out on their own to start a small business. By deterring entrepreneurship, lack of alternative coverage can stifle innovation and lead to less local ownership of the economy. A study by economist Alison Wellington shows that people who have an alternative source of health coverage—such as through a spouse—are more likely to be self employed than those who do not. She estimated that universal health coverage could increase the share of self-employed by between 2 and 3.5 percentage points.

And Kentucky could use help in this area. According to a 2008 study done for Mountain Association for Community Economic Development (MACED), Kentucky is below the U. S. average in entrepreneurs as a share of employment and in measures of entrepreneur income.

In addition to helping people take the leap into entrepreneurship, the ACA also assists existing small businesses by helping them provide affordable health insurance to employees. Small businesses currently pay about 18 percent more on average than large businesses for the same health insurance policy because they lack the bargaining power that big businesses have with insurers.

Under the ACA, many small businesses with less than 25 employees can qualify for tax credits to help with the cost of providing insurance. Those with less than 100 employees will be able to utilize the health insurance exchange, giving them the benefit of participating in a larger insurance pool and allowing them to avoid the administrative costs of setting up their own plan.1

The economic benefits of implementing the Affordable Care Act are many: it will result in a healthier workforce, protect otherwise uninsured Kentuckians from financial disaster in case of illness, bring in billions of federal dollars that will create health care provider jobs, and save money now spent to provide emergency room and other care to the uninsured. We can add to that list the support the law provides to entrepreneurs and small businesses.

  1.  Also, businesses with less than 50 employees avoid any penalty associated with not providing health insurance.

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