We investigate the impact of employee-related ESG policy on firm leverage. To establish causality, we exploit a policy-induced exogenous shock in the implementation of Chinese national public health insurance program starting in 2007, which is Urban Resident Basic Medical Insurance (URBMI). Using a difference-in-differences approach, we find that Chinese listed firms in pilot cities implementing the URBMI program maintain higher leverage ratios than those in non-pilot cities. Firm-specific investment, employee risk tolerance, and industry concentration are the plausible mechanisms through which public health insurance affects corporate leverage. This study sheds light on the effects of employee-related ESG policy on firm financing decisions.