Will Obamacare Lead to Lots More Small Businesses?

The Wall Street Journal's Will Health Care Law Beget Entrepreneurs? suggests that once fully implemented, the Affordable Care Act (a.k.a. Obamacare) could lead to a substantial increase in new small businesses.

Key quote:

The Obama administration has touted a boost for entrepreneurship as one of the health-care law's key benefits. The Kauffman-RAND Institute for Entrepreneurship Public Policy in Santa Monica, Calif., says the law could increase the number of new U.S. businesses by as much as 33% over several years.

The reasons for this forecast is Obamacare reduces health insurance related job lock, which is the term economists use to describe the reluctance of workers to leave their jobs because doing so would mean losing fringe benefits, especially health insurance.

Obamacare reduces job lock because people going out on their own will be able get health insurance through mandated state or federally run insurance marketplaces. 

We covered this topic earlier in the year in our article Obamacare, Job Lock and Freelancers. We agree that the Affordable Care Act will reduce job lock and likely increase the number of people starting small and solo businesses.  

But having said that, a "33% increase over several years" is quite large. Depending on how they are defining small business (I couldn't find a source for this forecast except for the WSJ article), this could mean as many as 2-3 million more small/solo businesses over several years.  

As we point out in our article, studies on job lock vary in terms of their view of its impact. But I haven't seen a job lock study showing this big an impact.

Also, we've done a lot of work on the decision process people go through prior to starting a small or solo business. While health insurance related job lock often plays a role, it's but one of many factors people consider.  

I hope they're right, but this seem too optimistic to me.  My guess is we will see an increase of 5% - 10% over this time frame.  

I also hope the mandated state and federal exchanges offer decent health insurance at a reasonable price.  We'll start finding out over the next few months as more coverage and cost details emerge.

Our advice to small businesses and solopreneurs (and to those considering it) on this topic continues to be the same. Spend some time coming up to speed on the status of the mandated exchanges in your state and monitor their progress.  

A good place to start is the Health Reform section of the Kaiser Family Foundation.  The information is a bit deep for most of us, but they have good summaries and calculators, as well as news feeds on new information.

Comments

[D]

Will Obamacare Lead to Lots More Small Businesses?:

NO.... Nothing positive will come from it.

[Steve]

D: There are certainly a lot of people who agree with you that nothing positive will come from Obamacare.

But this is based on politics, not a non-partisan view of the facts.

A fair view is there are a lot good things about Obamacare. Examples include more Americans having access to health insurance, kids 27 & under being able stay on parents plan, no existing condition limitations, etc.

More specific to this blog, we also think it will improve health insurance options for independent workers and owners of small and micro businesses.

Having said that, Obamacare is going to be expensive for the country and because many provisions are not well thought out, difficult to implement.

So at least in my opinion, the jury's still out on whether or not Obamacare's net overall impact on the country will be positive or negative.

Regardless, it's the law of the land and will continue to be so for at least 4 more years (and its highly likely for much longer).