Self-Employment as Bridge Employment: Did the ACA Unlock Flexible Retirement Pathways for Older Workers?

Abstract

Does self-employment facilitate gradual retirement by offering older workers flexibility to reduce hours while maintaining employment? Prior to the Affordable Care Act (ACA), the link between employment and health insurance constrained older workers' ability to pursue self-employment before Medicare eligibility at age 65. Using data from the American Community Survey (2012-2022), I estimate inverse propensity weighted regressions comparing self-employed and wage workers aged 55-74, with Medicare-eligible workers (65-74) serving as a placebo group. Self-employed workers aged 55-64 work approximately 1 hour fewer per week than comparable wage workers, consistent with self-employment serving as a bridge employment pathway. However, this gap widened similarly for both pre-Medicare (55-64) and Medicare-eligible (65-74) workers after the ACA, with a triple-difference estimate of only -0.05 hours (statistically indistinguishable from zero). The results suggest that while self-employment enables reduced hours for older workers, the ACA had at most modest effects on this margin, potentially because other constraints (capital, skills, risk preferences) dominate health insurance in the self-employment decision. The findings contribute to our understanding of retirement transitions and the limits of health policy in affecting labor supply at the extensive margin.