Impact of employer-sponsored health insurance on firm capital structure: evidence from the Affordable Care Act

ABSTRACT

This article investigates how employer-sponsored health insurance (ESHI) expenses affect firm capital structure. Since 2015, the Affordable Care Act employer mandate has required firms with more than 100 full-time employees to provide health insurance benefits to their employees. We exploit the exogenous increase in ESHI expenses for large firms after the mandate to identify the causal effect of ESHI on firm capital structure. Using COMPUSTAT merged with the Form 5500 data, we find that firms with higher ESHI expenses have higher long-term but lower short-term leverage. That is, accounting for ESHI expenses provides important explanatory power for firm capital structure.

KEYWORDS:

• Employer-sponsored health insurance
• employer mandate
• capital structure
• tax deduction
• Affordable Care Act

JEL CLASSIFICATION:

• G32
• I13

Acknowledgments

The author thanks Terry Shevlin, Eric Zivot, Stephen Turnovsky, Neil Bruce, Seik Kim, and Ju-Yeon Lee, as well as attendees of the public finance and corporate finance seminars at Iowa State University, University of Washington, Peking University, and KAIST for their valuable comments.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ For example, according to the 2017 report by Kaiser Family Foundation and Health Research and Education Trust, the average firm cost of ESHI premiums increased from $8,824 in 2007 to $13,049 in 2017 for family coverage.

² The IV Tobit estimates are qualitatively consistent with the main estimates. Owing to non-concavity and nuisance parameter problems, it is not feasible to control for firm fixed effects.