Firm and Employment Effects of the MA Health Care Reform

Publication Date


Grant Type

Early Career Research Award


Although health care reform primarily targets improved medical coverage and insurance markets, it may also have unintended effects on business and employment dynamics because of the way it regulates firms. Massachusetts’ comprehensive health care reform, which was enacted in 2006 and in many ways resembles the national Patient Protection and Affordable Care Act of 2010, includes requirements on firms’ provision of health insurance to employees. Though in theory firms should be able to offset perfectly a new benefit with a reduction in wages as long as the workers value the benefit dollar-for-dollar with the cost to the firm, they may be unable to do so for several reasons. Most simply, employees that didn’t value the benefit at its cost before the regulation are unlikely to value it more afterwards. Using data from the Census’ confidential Longitudinal Business Database (LBD), this paper employs firm size discontinuities in the legislation, the timing of the legislation, and synthetic control methods to evaluate the effects of the Massachusetts health care reform on the entry, exit, and employment growth of firms of various sizes.