Some folks are putting forward theories that the new health bill will increase entrepreneurship in the US, as individuals are freed from reliance on large employers for health care. I think the theory is both wishful and unempirical.
The glib (but correct) answer is that, if this were true, Silicon Valley would be in Europe.
The longer answer is that the theory is myopic; it looks at a very small part of the picture.
To be clear, I do agree that “job lock” is an impediment to entrepreneurship. I greatly prefer that insurance be tied to individuals instead of employers. But on balance, going out on one’s own will become more, not less, risky due to the new health plan.
First, the mandate will require young, healthy people to pay for insurance that doesn’t benefit them. (The debate over whether this is just from a societal perspective is not part of my discussion; I am simply looking at what I believe are likely outcomes.)
Many entrepreneurs (this one included, except for the “young” part) are willing to forgo health insurance for some time while they start their businesses. It’s a calculated, chosen risk.
Under the mandate, this path is not possible. Many entrepreneurs will now have greater personal expenses that they would have otherwise, and this will reduce the pool of risk takers.
Second, insurance rates will increase. I understand that many people believe otherwise, but there is no historical evidence for this in the US. Massachusetts, which enacted a similar plan a few years ago, now has the highest insurance rates in the country. This is more money out of founders’ (and funders’) pockets.
The third reason, and the one which gets to the heart of the issue, is that trillions in new health care costs will simply drain other parts of the economy. Taxes (or interest rates, or both) will increase. This reduces available capital and reduces the rewards for risk-takers.
The cost/benefit ratio of trying something new and crazy — like, say, Google — becomes larger. If a founder (or funder) has a 1-in-10 chance of making 20x their investment, they might take that bet. If the numbers become less appealing, there will be a concomitant reduction in the number of bettors.
Put another way, funding that would have gone to entrepreneurship will be wicked away to other places.
In terms of evidence, I would offer this: we have a long history of immigrants coming to the US to do something great. They include Sergey Brin at Google, Jonathan Ive at Apple, Andy Grove at Intel, Pierre Omidyar of eBay and Linus Torvalds of Linux fame. I am not aware of entrepreneurial talent flows of that scale in the other direction, though of course I may be ignorant.
I am sure that there are a number of people for whom the new health care plan will encourage striking out of their own. But I believe their numbers will be dwarfed by those who don’t, or can’t, for the reasons above.