Prospective Effects of the Affordable Care Act on Entrepreneurship

Prospective Effects of the Affordable Care Act on Entrepreneurship

Many claims about the prospective effects of the Patient Protection and Affordable Care Act (ACA)—positive, negative, and sometimes both—were made before and after its enactment on March 23,2010. Those assertions sometimes were based upon analytic findings, and sometimes on little more than political calculations. The actual effects cannot be known until the law is implemented fully and ensuing adjustments are completed both in the health care and health coverage markets, and in the U.S. economy more broadly. That is likely to consume many years; and so it is important in the interim to examine the effects of the ACA as they unfold and to apply inference that might be available from experiments in the states, however crude they might be as analogues.

This study examines the impact of the ACA on entrepreneurship, that is, on startup activity. The prospective impact of the ACA on entrepreneurship is important for both employment and GDP growth. The modern economic literature finds that it is new and young businesses—startups—that contribute disproportionately to both gross and net employment creation. This prospective effect of the ACA cannot be known in advance, as several hypotheses are equally plausible but yield contrasting implications.

Because the ACA has not been implemented fully—and because ensuing adjustments to it in the private sector will take years—the effect on startup activity cannot be measured directly or fully. But three states—Massachusetts, New Jersey, and Tennessee— have implemented health coverage reforms similar in greater and lesser degrees to the ACA, and an examination of startup activity in those states over time provides some insights that can inform our thinking about this question.

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