Impact of Health Insurance Hike on Would-Be Entrepreneurs Subject of New Colorado State Research Project

How health insurance costs affect individuals’ decisions to leave wage employment for self-employment is the subject of a new research project to be conducted by David Mushinski, an associate professor in Colorado State University’s Department of Economics.

"A problem for people who are employed and are thinking of starting their own businesses is that they can face substantial increases in health insurance costs if they leave their job," Mushinski said, noting that one reason for this increase in costs is that larger companies are able to pool risks.

"In large companies, people whose expected health care costs are lower are pooled together with people whose expected health care costs are higher," he said. "This pooling makes health insurance cheaper. When individuals purchase health insurance on their own, on the other hand, the people with lower expected health care costs tend not to purchase health insurance."

Important questions, from society’s perspective, are whether people are deterred from becoming entrepreneurs because of these higher health care costs and, if so, the magnitude of that effect. The health economics literature has not provided definitive answers to these questions. Mushinski’s study will seek to answer these questions.  

The study will be funded with a grant from the Kauffman Foundation, a Kansas City, Mo.-based organization dedicated to issues of education and entrepreneurship.