April 18, 2024

You’re the Boss Blog: Assessing the Impact of Health Care Reform on New Businesses In Massachusetts

The Agenda

How small-business issues are shaping politics and policy.

A couple of weeks ago, when The Agenda discussed Jon Stewart’s musings on creating a safety net for entrepreneurial risk-taking, we touched briefly on how health insurance reform might spur people to go out on a limb and open a new business. “What about the risk of, you’re afraid to leave your job and be an entrepreneur because that’s where your health insurance is?” Mr. Stewart asked his “Daily Show” guest, Austan Goolsbee, the former Obama administration economist.

That led to this question from an Agenda reader, Joyce Carpenter, who wrote that she lives near Boston: “Is there any data from Massachusetts to show that Romney-care a k a Obama-care would help mitigate the risk and encourage entrepreneurship?” Excellent question, Ms. Carpenter, and one we’ll explore here. (Spoiler alert: the answer will be disappointingly murky.)

To begin to answer the question, you have to know first whether the health insurance legislation signed by Governor Mitt Romney in 2006 has in fact lowered the cost of individual insurance in Massachusetts enough to make it attractive to prospective entrepreneurs. That is according to Yasuyuki Motoyama, senior scholar at the Ewing Marion Kauffman Foundation, which focuses on issues related to entrepreneurship. For this, Mr. Motoyama referred us to a study of the Massachusetts health insurance market by economists John Graves of Vanderbilt University and Jonathan Gruber of MIT. (As an adviser to then-Governor Romney, Mr. Gruber helped devise the Massachusetts health reform law.)

The study looked at the average premiums for non-group health insurance plans in each state from 2006, when Massachusetts began to implement the new law, through 2009. (The premium costs were compiled by the Association for Health Insurance Plans, a trade association.) In those years, the average cost of individual coverage grew by 14 percent across the country, but in Massachusetts, premiums fell by more than 21 percent. For family plans, the difference was even more stark: across the United States, premiums rose by around 13 percent; in Massachusetts, they fell by nearly 40 percent. “The estimates show enormous reductions in Massachusetts over this period relative to the national average,” the study’s authors wrote.

“There’s no way — there’s no way — that that health care law doesn’t free people up to start their own companies,” said Robert Nakosteen, a professor at the Isenberg School of Management of the University of Massachusetts Amherst. “It’s absolutely certain, to a 100-percent degree of probability, that the health care law in Massachusetts has created an environment where individuals can quit their jobs to take the risk to start new companies.”

There is also, however, no way to verify this with a look at data. According to figures from the Census Bureau, entrepreneurs in Massachusetts and across the country created more new companies in each year from 2002 to 2006, but the rate of growth in new Massachusetts companies lagged far behind the rate for the entire United States — and even behind the rate of growth in neighboring New Hampshire and Rhode Island. From 2006 to 2010, the last year for which figures are available, the number of companies under a year old recorded by the Census Bureau fell across the United States and in Massachusetts at roughly the same rate. In New Hampshire and Rhode Island, the rate of start-ups fell even faster.

Professor Michael Ash, chairman of the economics department at the University of Massachusetts Amherst sees a silver lining for the state in these figures. From 2002 to 2010, he said, “Massachusetts went from pretty week performance to bad performance, but the U.S. and the rest of New England went from better-than-Massachusetts performance to worse-than-Massachusetts performance. Massachusetts bombed less than the other places.”

On the other hand, this company-creation data can be read to suggest no linkage between the theoretical opportunity provided by portable and affordable health insurance and entrepreneurial activity. Connecticut performed roughly as Massachusetts did over the same periods — but without a 2006 health care law. And when the numbers for new companies are expressed as a percentage of the total population, the per capita rate of new entrepreneurs in Massachusetts has lagged behind the whole of the United States since 2004.

“Whatever impact the Massachusetts health care act may have had on business start-ups has been washed away in the flood of the financial crisis and resulting recession,” said Mr. Nakosteen in a follow-up email. “In recent years I think we are mostly seeing cyclical effects rather than anything that can be tied to a state policy.”

This is why it is impossible — or perhaps irresponsible — to attempt to tease out any connections, or the absence of a connection, between any of these facts and the health care law, according to Mr. Nakosteen and every other economist we spoke with. There are just too many other variables at play, not least of which is the greatest economic calamity since the Depression. “This kind of impact research is really difficult to conduct, because you should have a clear intervention like the health care law, and you have to assume that no other factors are intervening,” Mr. Motoyama said. “And in reality, that kind of hypothetical situation does not exist.”

Mr. Gruber pointed out that many more small firms in Massachusetts now offer health insurance than did before the reform. “Beyond that,” he said, “it’s just theory.”

But two authorities on entrepreneurship at Babson College, outside Boston, were skeptical of a link between the health law and start-ups. Donna Kelley said that studies of American entrepreneurs have found that “health insurance is one factor when it comes to entrepreneurship, but there are many factors, and this is a smaller factor.”

“The health care affordability act is a small step in the right direction but not a complete solution,” said Dennis Ceru, a professor who teaches entrepreneurship but also works with business owners as a consultant and as the head of a networking organization called The CEO’s Group. “It seems like it has helped a little bit but not a great deal. There are still all of the taxes, and small- to medium-sized businesses still have difficulty obtaining bank loans or other funding.”

Article source: http://boss.blogs.nytimes.com/2012/11/02/assessing-the-impact-of-health-care-reform-on-new-businesses-in-massachusetts/?partner=rss&emc=rss