Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

The role of health insurance availability and cost on individual decisions to become entrepreneurs remains an open question. An early analysis of the impact of health insurance availability on individuals' decisions to move from wage employment to self-employment produced statistically insignificant results, although some of the results suggested large effects. Another analysis of the determinants of self employment suggested that the availability of an alternative source of health insurance could increase self-employment by approximately two to four percent. A standard problem in analyses of the role of health insurance in employment transition decisions is the possibility that the estimated effect of health insurance on the transition is actually capturing unobserved heterogeneity. That heterogeneity might arise from unobserved factors such as positive job characteristics and individual-specific characteristics. Additionally, the insurance offer decision faced by individuals and the insurance holding decision made by individuals may be endogenous. We revisit issues surrounding the effect of health insurance availability and cost on individual decisions to become entrepreneurs. Our analysis uses the first and fifth rounds of each of the eighth and ninth panels of the Medical Expenditure Panel Survey (MEPS). MEPS includes data on source of health insurance, health insurance offer and holding, and health insurance premiums, in addition to information on employment transitions, and job and employer characteristics. While earlier analyses acknowledged and sought to account for heterogeneity in their samples, we use a different econometric approach. We model possible heterogeneity explicitly using a semi-parametric estimator (estimation of the heterogeneity is non-parametric). We also account for the possible endogeneity of insurance offer and insurance holding decisions faced by individuals. We estimate jointly the heterogeneity, employment transition equations, equations for the offer and holding of insurance, and equations for initial conditions. In light of notable differences between very small businesses (with 10 or fewer employees) and larger businesses in the probability of health insurance offer and in health insurance premiums, we will also model employment transitions from larger employers (with, say, over 50 employees) to those very small businesses if a sufficient number of such transitions are available in our data.