Health Care Costs and Corporate Investment

Abstract

Health care costs for U.S. employers have tripled in the past twenty years. Using firm-specific health expense data, I show that firms negatively adjust capital expenditures and R&D expenses in response to changes in health care costs. The effects are more pronounced for firms that are financially constrained, employ more high-skilled workers, and have less bargaining power relative to insurers. Furthermore, policy uncertainty surrounding health care costs is substantial and discourages capital investment. The findings suggest that an elevated level of health care costs and the associated uncertainty limit a firm's ability to expand physically or through innovation.

Keywords: Investment; Healthcare; Insurance; Non-wage benefits; Health care policy uncertainty

JEL Classification: J32, G31, I11