Would Universal Health Care Encourage Entrepreneurship?

I’ve always thought that the answer to that question is a resounding yes.

While I do think that employers have a role in the health, balance, and overall well-being of their employees, it never made sense to me that as an employer I decide my employee’s health care options any more than it would make sense for me to make decisions about their schools, parks, and roads. Nothing about running an e-commerce company makes me qualified for those types of decisions.

We provide our employees with good insurance, we pay 100% of the premiums for single plans, and we now extend that benefit to our hourly warehouse employees. But we don’t have to, we do it because we think it’s the right thing to do, and we only can do it because my partners and I own the entire company and can make those types of decisions without fear of pushback from an investor.

Nor does it make sense to me that someone should have to make a career decision based upon whether or not they’ll have good medical care. A few weeks ago on the Exponent podcast, Ben Thompson summed up his thoughts on the topic:

I’m a passionate advocate of universal health coverage, not simply for the human reasons, which are real, but I believe it’s critical for unlocking entrepreneurship. If people don’t have to worry about losing their job or giving up this crap job they don’t like because they’re worried about their health insurance benefits. Tying health insurance to employment, I think it’s deadly. It is sapping the sort of entrepreneurialism that we need. And the sort of entrepreneurialism we need is not Silicon Valley startups, it’s not these big companies. It’s one person businesses that are viable on the internet in a way that they never were viable. I want that person in Ohio or that person in Alabama or that person in New Mexico or wherever it may be, that is passionate about some sort of obscure subject that I don’t give two flips about, but you know what? There’s 1,000 people on the internet that do. And they’re interested, they want to be part of that community that forms. It’s like a snow flake. There’s that speck of dust in the middle of a snow flake. You need something to form around it. There’s someone out there waiting to be that speck, but they’re staying at some sort of dead end job for health care benefits. It’s frustrating.

How did we get here?

Let’s take a step back. I figured that this was so illogical that it must have an interesting back story, and I was right. It turns out that during World War II a confluence of economic factors incentivized employers to provide health insurance to employees. Marketplace investigated earlier this year:

That year, the National War Labor Board forbade employers from raising their workers’ salaries — a wage cap. If our employer-sponsored insurance system has an origin story, it is this.

Beyond the wage cap, the labor board also ruled health insurance was exempt from the cap, so employers began to dangle health insurance as a benefit to attract the best and brightest.

The cherry on top: The IRS decided employer contributions to health insurance premiums were tax free, which meant workers paid less out of their pocket.

This all happened as a medical miracle unfolded — the arrival of penicillin.

“Before the 1930s, you probably didn’t want to be treated if you were a rational human being,” said NYU’s Glied. “This is the moment where medical care really takes off.”

So, despite most western nations offering universal health coverage, the US was left on the outside looking in, a place that we’re still stuck today.

Has anyone studied this?

Surprisingly, there has been very little actual research into whether or not universal health care would encourage entrepreneurship.

I started by emailing my friend Prof. Wales, the entrepreneurship professor at SUNY Albany. He is intimately familiar with all research entrepreneurship related (in part because he’s been published a lot himself), so I thought he’d be able to point me in the right direction. Unfortunately the few studies that have been done in the entrepreneurial realm seem to be focused on developing nations and comfort/capital in general, not specifically health insurance.

For example, he co-authored What Makes Muslim Women Entrepreneurs Successful? A Field Study Examining Religiosity and Social Capital in Tunisia, which showed that the capital that comes from marriage correlates with entrepreneurial success for Muslim women. I do think that this study and others help show that comfort leads to being able to take entrepreneurial risks, but they don’t address the health insurance question.

I then turned to good old Google Scholar and was able to find a paper in the economics field that addressed the issue more directly, Health Insurance Coverage and Entrepreneurship from 2001 by Alison J. Wellington:

The best estimates suggest that a guaranteed alternative source of health insurance would increase the probability of self-employment between 2.3 and 4.4 percentage points for husbands and 1.2 and 4.6 percentage points for wives. The author’s more conservative estimates suggest that universal coverage could increase the percentage of self-employed in the workforce by 2 to 3.5 percentage points.

ThinkProgress followed up with a good article Universal Health Care Would Boost Entrepreneurship that references research from that same paper.

Clearly, more research needs to be done. If I’m missing something please leave a comment below. Honestly, I hope I am because it’s unbelievable that this hasn’t been explored more in the past 16(!) years.

Young entrepreneurs still have an advantage

In the meantime, there’s one group that can take advantage of a universal health care of sorts: anyone under 26.

Under current law, if your plan covers children, you can now add or keep your children on your health insurance policy until they turn 26 years old.

There are a lot of reasons why I’m a big believer in starting businesses in college or soon after, but this is one that I haven’t mentioned in the past, and it’s a big deal. My business partners and I didn’t have this option when we graduated college. When I left my job I paid a small fortune (with the help of my parents) for COBRA so that I could focus on being an entrepreneur. My business partners all applied for various state-assisted programs for health insurance because we weren’t making much money at the time. It was a major stressor for us. Had we been able to stay on our parent’s insurance for another few years it absolutely would have freed up more time and energy to focus on starting the business, not to mention make my decision to leave my job a lot easier.

4 comments on Would Universal Health Care Encourage Entrepreneurship?

  1. Dave says:

    Super interesting insights, I never really thought about it from this perspective, and it makes total sense!

    It’s a big part of the stress from my own business, being a husband/wife team. In fact, we’re having my wife go back to a regular job, a big part of that reason is because of the crazy cost of healthcare taking its toll to the point where her role here isn’t make financial sense.

    I too was in the same COBRA boat as you and could have easily gone the other way in just sticking with my job rather than pursuing the business.

    • Adam McFarland says:

      Thanks for sharing Dave. Your example is a perfect one, where health insurance becomes a major factor in your wife’s career decisions.

      I too was in the same COBRA boat as you and could have easily gone the other way in just sticking with my job rather than pursuing the business.

      Can you imagine if we both stayed at our jobs because of this? Both of our companies wouldn’t exist – the satisfied customers, the jobs created, the taxes paid, etc. Makes you wonder how many people just like us couldn’t do it, and how many awesome businesses we’ve missed out on because of it.

  2. Rob says:

    It’s a really interesting topic.

    First off, it’s great that you’re looking after the workers the way you are. Too few companies, safe in the knowledge that there are more people looking for jobs than there are posts to fill, simply give the bare minimum.

    It’s a very unfortunate chain of events that has lead to the current situation with the parasitic insurance companies. I think it’s going to be very difficult to shift too – those that benefit from the system use parallels between universal healthcare and communism to get the public to vote and campaign against their own interests.

    I wonder if parallels could be drawn with other countries? There may be too many other factors at play to get a clear idea, but for instance in much of western Europe there is universal healthcare and depending on how you cut the data – higher rates of entrepreneurship: https://www.theatlantic.com/business/archive/2012/10/think-were-the-most-entrepreneurial-country-in-the-world-not-so-fast/263102/ – the types of businesses you see tend to be different however – in Europe there are lots of very small businesses (owner-operator or just 1-2 employees) and fewer of the explosive growth startups. It’s quite apparent when walking around smaller towns – in Europe I feel I’ve seen lots more independent shops and restaurants compared to walking around towns in America and seeing chain stores and lots of franchised restaurants.

    I think a lot of the attitude differences between Europeans and Americans can be boiled down to ideas about freedom. On one side of the pond it seems like the idea of freedom is to be free to be able to do something – for instance, to be free to choose a health insurance company. On the other side of the Atlantic the idea of freedom is to be free from something – in this case, to be free from the worry about the financial aspects of healthcare.
    One place this difference is evident is if you compare the kinds of discussions going on between expectant mothers in places with universal healthcare vs places without – one side can focus entirely on the baby and practicalities & logistics, whereas the other has large financial implications to consider too. Finland takes this process further, with the government providing “äitiyspakkaus” containing many essentials the baby will need during their first months. https://en.wikipedia.org/wiki/Maternity_package

    • Adam McFarland says:

      Great insights as always Rob.

      I think it’s going to be very difficult to shift too – those that benefit from the system use parallels between universal healthcare and communism to get the public to vote and campaign against their own interests.

      Agreed, and it drives me nuts that people equate any sort of socialism with communism.

      The Atlantic article you shared was really interesting, would love to see those #s updated with the last 5 years of data. The last few sentences sum it up nicely to me:

      So we’re not the most entrepreneurial nation. So our start-ups aren’t unquestionably the most innovative. Americans still have a fairly strong, if weakening, tradition of creating businesses from scratch and trying to support those who do. But here’s the what’s important to remember: we don’t have a monopoly on entrepreneurship. Many other economies — all with different tax structures, safety nets, and regulatory regimes — seem to be just as exceptional as we are.

      Our startup mythology isn’t quite as grand as we think it is. And even if we’re creating more Google’s and Facebook’s, might it be better if we had a few less of those and a few hundred thousand more very small businesses like you mentioned is the case in Europe? I think the answer is yes.

      One place this difference is evident is if you compare the kinds of discussions going on between expectant mothers in places with universal healthcare vs places without – one side can focus entirely on the baby and practicalities & logistics, whereas the other has large financial implications to consider too.

      Having a baby at home, I know this problem all too well. Babies are hard, and should be the entire focus of your time. Instead, mothers and fathers have to navigate taking only a few weeks(!) off from work, and then feel financial pressure if they want to take any additional time off. Hospital bills can be outrageous even for a normal delivery, and they send you home waaay too early with almost no follow-up support. We were lucky to have a better situation than most of our friends, and a healthy delivery, and we still could have used a lot more time to adjust.

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