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Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance

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  • Christina M. Dalton
  • Sara B. Holland

Abstract

When a firm offers health benefits to workers, it exposes the firm to the risk of making payments when workers get sick. A firm can either pay health expenses out of its general assets, keeping the risk inside the firm, or it can purchase insurance, shifting the risk outside the firm. Using data on insurance decisions, we find that smaller firms, firms with more investment opportunities, and firms that face a convex tax schedule are more likely to hedge the risk of health benefit payments. We show how firms trade off the benefits that come from financing and investment characteristics with the costs of regulation when choosing insurance. We provide understanding of how firms’ policy and financial characteristics affect firm outcomes as the Affordable Care Act provisions impacting plan funding continue to evolve.

Suggested Citation

  • Christina M. Dalton & Sara B. Holland, 2019. "Why Do Firms Use Insurance to Fund Worker Health Benefits? The Role of Corporate Finance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(1), pages 183-212, March.
    • Handle: RePEc:bla:jrinsu:v:86:y:2019:i:1:p:183-212
    DOI: 10.1111/jori.12207
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    Cited by:

    1. Saki Sugano & Michio Yuda, 2024. "Beyond the public universal health insurance system: The effect of population aging on insurer’s responses," TUPD Discussion Papers 58, Graduate School of Economics and Management, Tohoku University.
    2. Cozzolino, Alessio & Geiger, Susi, 2024. "Ecosystem disruption and regulatory positioning: Entry strategies of digital health startup orchestrators and complementors," Research Policy, Elsevier, vol. 53(2).
    3. Yuqi Gu, 2023. "Environmental performance and employee welfare: Evidence from health benefit costs," International Review of Finance, International Review of Finance Ltd., vol. 23(3), pages 484-501, September.

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    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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