Capital Structure and Financing in the Health Insurance Industry: Evidence from the Affordable Care Act

: In this study we examine how the passage of the Affordable Care Act (ACA) impacts health insurer capital structure and financing decisions. Economic theory suggests that a firm’s capital structure depends on the institutional environment, including the regulatory environment. Using a panel of firm-level data on health insurers from 2004 to 2016, we first test whether insurer capital structure changed following the ACA. We then test whether specific provisions of the ACA influenced capital issuance. We find that the ratio of health insurer liabilities to capital significantly increased following the ACA. Furthermore, we observe that capital issuance determinants differ following the ACA and that this difference is influenced by medical loss ratio requirements, Medicaid expansion, and exchange participation. Our study contributes to the capital structure literature, as well as the literature examining the impacts of the ACA. Our study also has important implications for evaluating financial stability in the health insurance sector.