This paper demonstrates that health insurance tax subsidies increase self-employment, but that the effect differs substantially based on nongroup market regulations and health status. Using the Panel Study of Income Dynamics, I show that households that cannot purchase health insurance because of a preexisting condition do not respond to tax subsidies in states in which they would be denied insurance, but they respond strongly in states in which they face risk-rated premiums. Households respond similarly to tax subsidies in states with nongroup market regulations similar to those established by the Affordable Care Act, regardless of preexisting conditions. (JEL H20, I13, J30).
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