Health system discourages innovation

(Corrects tax treatment of health benefits in paragraph 23)

By Andy Sullivan

WASHINGTON (Reuters) - Countless workers in the United States are trapped in jobs they would like to leave because they cannot get health insurance elsewhere, calcifying innovation and mobility in the world's largest economy.

Daunted by health-care costs, a would-be technology entrepreneur in Texas decides not to start her own business. A communications expert in Washington decides not to strike out on his own. And a freelance magazine editor in Brooklyn decides to take a less satisfying corporate job.

"I would rather be freelancing, no question," said Jessica Tolliver, a former editor who now works in public relations. "I got my work done in less time, because once I finished what I had to do, the time was my own."

Economists call this phenomenon "job lock," and studies suggest that it keeps between 20 percent and 50 percent of workers from leaving their current jobs.

Because health insurance is tied to employment in the United States, workers who leave their jobs can see health bills skyrocket if they strike out on their own or take a position with a company that offers fewer benefits. Workers who would like to retire early stay on, unable to qualify for the government's Medicare program until they turn 65.

And those who have existing health problems may not be able to get coverage at all.

Job lock is difficult to measure because many employees don't like to advertise their unhappiness. But economists and small-business advocates say it takes an enormous toll on productivity.

SLOWING INNOVATION

"We can definitely say that it's slowing down the rate of innovation," said Tim Kane, an economist with the Kauffman Foundation which promoted entrepreneurship.

For Mike, a Washington-based communications professional who did not want to use his last name, health costs may force him to pass up the chance to be his own boss at a time when he could easily pick up several major clients.

With two children at home, Mike said he was reluctant to abandon the generous benefits he gets at the trade group where he currently works. Self-employment would probably mean spending more for fewer benefits.

"I don't want a bad event to knock me and my family out of the box," he said. "It's a real hurdle."

As head of the National Federation of Independent Businesses, Todd Stottlemeyer frequently encountered would-be entrepreneurs who let their ideas go stale and their products languish on the workbench because they did not want to shoulder their own health care costs.

When he asked audiences if health insurance has affected their employment decisions, often half the hands in the room would go up.