Health Care Costs and Corporate Investment

Abstract

Health care costs for U.S. employers tripled in the past twenty years. Using firm-specific health expenses data, I show that firms negatively adjust capital expenditures and R\&D expenses in response to changes in health care costs. The effects are greater for firms that are financially constrained, employ more high-skilled workers, or work with fewer insurers. Additional tests confirm that hiring fewer workers and reducing wages do not offset rising health costs enough to counteract this lower investment channel. My findings suggest that increased health care costs limit a firm's ability to expand physically or through innovation.

Keywords: Investment; Healthcare; Insurance; Non-wage benefits

JEL Classification: J32, G31, I11