Health Costs of Firms

Abstract

Firms differ in their contribution to otherwise similar workers’ healthcare expenditure. I use linked Dutch employer–employee data and workers moving across firms to separate persistent worker and firm differences in healthcare expenditure. Moving a worker to a firm with a fixed effect one standard deviation higher would raise expected annual expenditure by 17.8%. The top-bottom quintile gap in firm effects is comparable to the expenditure gradients by income and wealth. Over half of the across-firm dispersion is within industry. Supporting a health-risk interpretation, moving to a firm with higher coworker expenditure increases use of pain management medication, and exposure to high-effect firms predicts disability and mortality. These firms pay higher wage premia, but mainly between rather than within industries. Because healthcare is collectively financed, firms generate a fiscal externality: healthcare expenditure they do not fully bear.