Health Insurance and Job Creation by the Self-Employed

Abstract

Nearly half of all companies surveyed by the National Federation of Independent Business's Education Foundation reported that health insurance costs were a critical problem. States regulate health insurance by mandating minimum levels of certain benefits as part of policies offered. In this paper, we evaluate the impact of state health insurance mandates on job creation by small firms, using data from the Survey of Income and Program Participation for 1993-95. Results from an ordered probit regression indicate that the greater the number of mandates in a state, the lower the probability that a self-employed person will hire additional people. These results hold when we consider both the sum of mandates as well as a cost weighted measure of the most expensive mandates. The predicted probability of owning a business with at least one employee decreases by nearly 10 percentage points as the number of mandates increases from 0 to 16.