Retention Costs or Human Capital Investments: A Dual Perspective on Employer-Sponsored Health Benefits?

Part of the Lubar Research Seminar Series

Speaker:  Xuelin Li, Columbia University

Employer-sponsored health insurance is the predominant coverage source for the U.S. workforce, yet the rationale behind firms’ provision of these benefits remains debated. We examine two primary motivations: as a retention mechanism reducing employee turnover, and as a human capital investment enhancing workforce productivity. To disentangle these perspectives, we exploit policy-induced shocks to labor mobility and track firms’ benefit adjustments. We employ a stacked difference-in-differences approach using novel datasets on health plan details, individual healthcare utilization, and state-level variations in non-compete agreement (NCA) enforceability from 2013 to 2020. Our results show that increased NCA enforceability leads firms to lower premiums primarily by shifting to High-Deductible Health Plans (HDHPs). This shift, in turn, boosts HDHP enrollment rates and significantly reshapes healthcare utilization among affected employees, leading to fewer preventive care visits but a greater incidence of severe, high-cost medical procedures. Overall, our findings support the retention cost perspective while also highlighting the unintended long-term consequences of such cost-saving strategies