Self-employed fear repealing Affordable Care Act will bring back 'job lock'

Joshua Lapp left a full-time job with health benefits in 2014 to launch an urban planning firm with two partners. Columbus, Ohio-based Designing Locally has grown rapidly, with projects all over the county.

There's no way Lapp, 27, would have considered starting his own business before the Affordable Care Act took effect because he has a congenital heart condition. He was able to buy a health plan through the federal exchange, which costs him $300 a month. He hasn't had to worry about insurers denying him coverage—as they could before the law—for his condition, which requires a $100,000 operation every five to 10 years to replace his cardiac pacemaker.

His two business partners and their significant others also have ACA coverage as self-employed people. “Being able to buy my own affordable plan on the exchange allowed me to step out on my own,” he said. “It's a big enabler for all of us.”

But now Lapp is deeply worried about the push by President-elect Donald Trump and congressional Republican leaders to rapidly repeal the ACA and then craft a replacement system over the next several years. He's particularly nervous about whether the individual market he depends on will collapse in the interim, and whether Republicans will adequately replace the ACA's ban on insurance discrimination against people with pre-existing conditions like his.

He and other young entrepreneurs don't like that the GOP repeal-and-delay strategy will leave them hanging in insurance limbo for several years. “If it's repealed, I might have to go back to working for a bigger employer,” he said. “The prospect of losing my business because I'm losing my insurance is sort of ridiculous to me.”

But Republican experts say people in Lapp's position have nothing to fear because Trump and Congress will keep the ACA provisions in place for two to three years and then establish a solid replacement system. GOP replacement proposals, such as House Speaker Paul Ryan's Better Way white paper, still lack many key details, however.

“I don't think they should be worried about affordable plans,” said Douglas Holtz-Eakin, president of the conservative American Action Forum and former director of the Congressional Budget Office. The GOP has “committed to keeping the premium subsidies, and they've pledged to stabilize the individual insurance market.” The health plans available under the replacement system “will be even better.”

Access to affordable health insurance has long been a major factor for Americans in deciding whether to leave a job with health benefits and start their own business or work independently. Lapp is one of an estimated

23 million self-employed entrepreneurs in the U.S., according to the federal Small Business Administration.

Before the ACA, people thinking about self-employment, particularly those who were older or had pre-existing conditions, had no guarantee that insurers would sell them a comprehensive, affordable plan—or any plan at all. Some experts say women are more averse than men to the risk of leaving a job with health benefits to strike out on their own.

As a result, many Americans stuck with jobs they didn't want just to have health insurance. A 2008 Harvard Business School study estimated that

11 million people were caught in so-called job lock tied to health coverage. Economists say job lock crimps the dynamism of the U.S. economy, discouraging entrepreneurs from developing potentially successful new products and services and reducing the number of startup firms that may go on to hire workers and boost the economy.

“Both logic and evidence show that the ability to buy health insurance at reasonable prices, even if you don't work for a big firm, allows people to take chances in their work that benefits the economy and society in the long run,” said economist Doug Elmendorf, dean of Harvard's Kennedy School of Government and former head of the Congressional Budget Office.

Both Republican and Democratic policymakers have decried job lock and urged adoption of a portable insurance system where people can keep their coverage no matter where they work. In 2009, Ryan said “the key question that ought to be addressed in any healthcare reform legislation is, are we going to continue job lock or are we going to allow individuals more choice and portability to fit the 21st century workforce?”

When the ACA insurance exchanges opened in 2014, entrepreneurs and would-be entrepreneurs for the first time were guaranteed access to comprehensive coverage outside the employment context, without regard to pre-existing conditions. The Urban Institute projected in 2013 that the number of self-employed people would increase by about 1.5 million, or more than 11%, with the advent of universal availability of affordable individual insurance under the law. Experts say it's too soon to tell how the ACA actually has affected self-employment.

Still, there's evidence that publicly provided health insurance prompts more people to start businesses. A 2015 Harvard Business School study found that after the Children's Health Insurance Program was started in 1997, the self-employment rate for parents of CHIP beneficiaries jumped 23%, and the ownership rate of incorporated businesses increased 31%.

A 2013 study found that after the ACA provision took effect allowing young people ages 19-25 to stay on their parents' health plans, they were more than twice as likely to start their own businesses.

That's what Chicago public relations consultant Alyssa Conrardy did. At age 24, she co-founded Prosper Strategies, staying on her parents' plan for two years while she got the company off the ground. It now employs eight people and provides them with group health insurance.

“I don't think we could have gotten here without the security the ACA provided,” she said. “If the ACA is repealed, there are so many young people for whom entrepreneurship will no longer be a feasible financial option.”

Trump and other GOP leaders say they'll keep that popular ACA provision allowing young people to stay on their parents' plan until age 26. But it's not clear what kind of health plans the replacement system will offer or what the out-of-pocket costs will be.

How the GOP's alternative model addresses annual and lifetime benefit limits and maximum out-of-pocket costs is a huge concern for Namir Yedid, 35, of San Diego. He left a job with health insurance in 2014 to develop several technology products.

Soon after buying a plan on the California exchange, he was diagnosed with a rare cancer. His medical bills totaled about $150,000. Without the ACA's annual cap on out-of-pocket costs, he would have been on the hook for tens of thousands of dollars.

Yedid's cancer is now in remission, and he's preparing to bring his first product to market. He currently employs five people. “There are plenty of talented people in the tech scene who couldn't take the risks I did and go out on their own without the ACA,” he said.

Ryan and HHS secretary nominee Dr. Tom Price have proposed putting people like Yedid into high-risk pools. Yedid notes that these state pools generally did not work well in pre-ACA days in providing affordable coverage for those with pre-existing conditions.

He's angry that the Republicans are rushing to repeal the ACA without telling the public exactly what they're going to put in its place, making it impossible for people to plan their business lives.

Lisa Martin, 35, of Cambridge, Mass., expresses similar frustration. She left a job with health insurance in 2014 to start her own website consulting business, made possible by the availability of ACA coverage. Soon after leaving her job, she suffered a minor stroke. Even though she recently switched to her partner's employer-based health plan, she hates the uncertainty of not knowing for several years what the GOP plan will look like and how it will address pre-existing conditions.

“What am I supposed to do in the next two to four years?” she lamented. “Why create anxiety and replace something that's meeting people's needs?”

Asked what he would advise people considering self-employment during the uncertain interim period following repeal of the ACA, Holtz-Eakin said: “I'd make the leap. There are policies available now. If you like them, you can have them. They have more to look forward to in the replace plans. I don't think they should be worried.”

But Elmendorf disagrees, arguing the Republicans have not put out nearly enough details for the CBO to determine how good and affordable the plans under a replacement package will be and how it will affect the nation's uninsured rate. There's no evidence, he added, that Republicans are willing to spend the large amount of federal money or impose the rules necessary to ensure good coverage.

“These self-employed folks should be quite concerned,” he said. “I don't know how they should proceed.”