Many were the benefits promised by supporters of the Affordable Care Act. If you like your doctor and health plan, you will be able to keep them. Health insurance premiums will fall by an average of $2500 per year for a typical family, even as coverage will be extended to 30 million additional individuals, and as coverage benefits will increase sharply. Improved efficiency in the delivery of health care services will reduce the aggregate cost of medical care.
And: By eliminating the risk of losing health coverage, the ACA will encourage entrepreneurship, that is, business startups. President Obama made this argument explicitly in his recent state of the union address. This promise, while perhaps less newsworthy, was crucially important in that it is startup businesses that account for most gross and net employment creation. Accordingly, expanded startup activity engendered by the ACA might yield an important jobs benefit.
However, the flies in the ACA ointment have become manifest. Only about 18 million individuals are newly covered, many of whom have been diverted into expanded Medicaid programs. Premiums are rising rather than falling, by about 7.5 percent in 2016 for the average silver plan—the silver plans are the most popular—and the least-expensive silver plan is up 13 percent. Across all four metallic plan classes, the increase this year is 20.3 percent.
The proportion of beneficiaries who are healthy and young versus unhealthy and older are skewed toward the latter more than predicted, yielding higher costs. The Obama administration calculated that 40 percent of the younger, healthier group is needed to cover the costs of the older and sicker patients who use the system more intensively. To date, only 26 percent of 18-34 year olds have signed up on the exchanges. There is evidence that gaming of the system has proven more serious than the proponents of the ACA were willing to admit; an example is coverage beneficiaries who receive expensive treatments and then fail to pay their premiums for the last three months of the given year, increasing costs for everyone else. Unsurprisingly, large insurers experiencing significant losses are beginning to exit or are considering exiting the ACA “exchanges” where individuals and businesses can find coverage. United Health and Cigna are two examples of the latter. Rising costs have yielded narrowing provider networks in given coverage plans, meaning that many patients have been forced to find new doctors. Nationwide, 70 percent of ACA plans offer narrower networks than pre-Obamacare plans.
And so the actual effect of the ACA on startup activity is far less obvious than many were predicting a few years ago, as rising costs might discourage the creation of new businesses. The early signs may be problematic, as the Kauffman index of startup activity has been negative each year since 2011 (with a smaller negative index in 2015). Because entrepreneurship is affected by far more than the ACA, the recent data, while perhaps suggestive, do not reveal the net effect of the ACA on the creation of new businesses. Moreover, the ACA still has not been implemented fully, and economic adjustments to it are likely to be ongoing for years.
Accordingly, it is useful to examine the experience with respect to startup activity in three states—Massachusetts, New Jersey, and Tennessee—that have implemented health coverage reforms similar in greater and lesser degrees to the ACA. An examination of startup activity in those states over time provides some insights that can inform our thinking about this question with respect to the ACA.
Massachusetts implemented its reform program in 2006 under then-Governor Mitt Romney, while New Jersey and Tennessee implemented their programs in 1993 and in 1993-2005, respectively. If we examine the data on startup activity and net job creation for the three states individually for 1977-2013, we cannot find a perceptible effect of the state programs on startup activity; and a more-sophisticated statistical analysis confirms that finding. State health coverage programs more-or-less similar to the ACA have not yielded effects on entrepreneurship, whether positive or negative.
Political promises may be a dime a dozen, but they can yield public policies with important unintended consequences. One lesson from the ACA experience is old but in need of constant repetition: The states are laboratories in which policy experimentation and experience can yield insights useful for the body politic writ large.