Skip to main content

The Illogic of Employer-Sponsored Health Insurance

The Supreme Court’s ruling may prompt Americans to re-examine whether the traditional, employment-based health insurance that they have become accustomed to is really the ideal platform for health insurance coverage in the 21st century.

printer friendly  
, Credit Magoz
Imagine yourself in a bar where a pickpocket takes money out of your wallet and with it buys you a glass of chardonnay. Although you would have preferred a pinot noir, you decide not to look that gift horse in the mouth and thank the stranger profusely for the kindness, assuming he paid for it. You might feel differently, of course, if you knew that you actually had paid for it yourself.

Persuaded by both theory and empirical research, most economists believe that employer-based health insurance is an analogue of this bar scene.

The argument is that the premiums ostensibly paid by employers to buy health insurance coverage for their employees are actually part of the employee’s total pay package – the price of labor, in economic parlance – and that the cost of that fringe benefit is recovered from employees through commensurate reductions in take-home pay.

Evidently the majority of Supreme Court justices who just ruled in Burwell v. Hobby Lobby case do not buy the economists’ theory. These justices seem to believe that the owners of “closely held” business firms buy health insurance for their employees out of the kindness of their hearts and with the owners’ money. On that belief, they accord these owners the right to impose some of their personal preferences – in this case their religious beliefs — on their employee’s health insurance.

Score it 1-0 in “Supremes v. Economists.”

In the ruling, the owner of Hobby Lobby, a chain of craft stores, gained the right not to include certain contraceptive goods and services in the insurance bought for employees, because use of these services conflicts with the owner’s Christian beliefs. Although the justices argue that their ruling is narrowly confined to contraceptive services, one must wonder what other items other business owners in the future may seek to jettison from benefit packages on the basis of this or that professed religious belief.

The ruling raises the question of why, uniquely in the industrialized world, Americans have for so long favored an arrangement in health insurance that endows their employers with the quasi-parental power to choose the options that employees may be granted in the market for health insurance. For many smaller firms, that choice is narrowed to one or two alternatives – not much more choice than that afforded citizens under a single-payer health insurance system.

Furthermore, the arrangement induces employers to intervene in many other ways in their employees’ personal life – for example, in wellness programs that can range from the benign to annoyingly intrusive, depending upon the employers’ wishes.

And what kind of health “insurance” have Americans gotten under this strange arrangement? Once again, uniquely in the industrialized world, it has been ephemeral coverage that is lost with the job or changed at the employer’s whim. Citizens in any other industrialized country have permanent, portable insurance not tied to a particular job in a particular country.

Nor has this coverage been cheap by international standards. American employers can be said to have played a major role in driving up health spending per capita in the United States measured in internationally comparable purchasing power parity dollars, to roughly twice the level found in other industrialized populations. As a recent article in the health policy journal Health Affairs reported, a decade of health care cost growth wiped out real income gains for the average American family during the period from 1999 to 2009.

The Supreme Court’s ruling may prompt Americans to re-examine whether the traditional, employment-based health insurance that they have become accustomed to is really the ideal platform for health insurance coverage in the 21st century. The public health insurance exchanges established under the Affordable Care Act are likely to nibble away at this system for small and medium-size business firms, especially those with a mainly low-wage work force.

In the meantime, the case should help puncture the illusion that employer-provided health insurance is an unearned gift bestowed on them by the owners and paid with the owners’ money, giving those owners the moral right to dictate the nature of that gift.

Correction: July 1, 2014

A previous version of this article misspelled the last name of the Health and Human Services commissioner originally named in the case, and gave an outdated name for the case. It is Sebelius, not Sibelius, and the case is now known as Burwell v. Hobby Lobby. 

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

ily on private entities to deliver a public good – health care.

The Hobby Lobby case was decided not under the constitutional rights guaranteed by the First Amendment, but under those dictated in the Religious Freedom Restoration Act of 1993, drafted to prevent laws that substantially burden a person’s free exercise of religion. Under that act, the government must prove that a law that hinders religious expression serves a “compelling state interest” and does so in the “least restrictive” way possible.

Justice Samuel Alito’s majority opinion concedes that the government has a “compelling state interest” in providing contraception, but claims the Affordable Care Act does not do so with the “least restrictive means” to achieve this end. Unacknowledged, however, is that there is almost no way to provide comprehensive birth control coverage in a minimally restrictive way to businesses without widening government jurisdiction over health care. If businesses will not pay for health insurance that covers contraception, then the government must.

This exposes the primary and unavoidable weakness of the ACA. Because it still requires that private companies enforce what should be considered public policy – health care – the ACA will always face potential legal contention with the personally held religious beliefs of employers.

Moreover, Hobby Lobby Inc., Conestoga Wood and Mardel were able to preserve legal standing before the court while completely ignoring science and reality. The Religious Freedom Restoration Act protects their religious liberty so thoroughly that all the Greens and the Hahns had to do was believe that the forms of birth control in question, including emergency contraceptives, caused abortions. But, they very obviously do not. The American College of Obstetrics and Gynecologists has maintained for years that “emergency contraception is not effective after implantation; therefore, it is not an abortifacient.”

Public policy needs to be based on empirical fact, not disproved or unproven beliefs. But we cannot do this until the American health care policy eliminates the role of private companies in administering public goods.

Intentionally or not, Justice Alito makes the case for an expansion of government control of health care. He maintains throughout his 49-page decision that the best way to ensure comprehensive birth control access under insurance plans “would be for the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.”

Ironically, this represents a potential increase in the scope of the federal government that most conservatives would protest – and did protest when the ACA and the public option (in which the government would offer a publicly funded insurance plan as an alternative to private insurance) were up for debate four years ago.

Justice Alito’s offered solution to the newly formed coverage gap is the expansion of an ACA “accommodation” currently in place for religious nonprofits. Via an exemption to the ACA crafted by the Department of Health and Human Services, employees of these nonprofits are still eligible for contraceptive coverage through their existing insurance companies directly, and not through their religiously affiliated employer. Justice Alito maintains that “HHS has provided no reason why the same system cannot be made available when the owners of for-profit corporations have similar religious objections [to contraception coverage].”

Interestingly, interest groups on both side of this debate rejected Alito’s alternative, albeit for completely different reasons.

Lori Windham, Senior Counsel for the Becket Fund for Religious Liberty and counsel for Hobby Lobby, maintains that the accommodation “fails to solve the moral problem created by the mandate for many religious organizations.”

Judy Waxman, Vice President for Health and Reproductive Rights at the National Women’s Law Center, said that expanding the existing accommodation would separate birth control from other health care drugs and services. “Birth control is a basic health service that almost all women in this country use for health care. And it is important that it be covered like every other service,” Waxman said.

President Obama seems to have taken note. When White House Press Secretary Josh Earnest was asked Monday afternoon if the administration was looking to expand the current ACA accommodation in place for religious nonprofits, Earnest simply said “no.” Instead, he affirmed that the ruling made clear “that there is an opportunity for Congress to take the kinds of steps that would mitigate this problem.”

Unfortunately for American women, congressional action is very unlikely to happen, even though there is plenty of fervor over the issue among Democrats. Senate Majority Leader Harry Reid (D-Nev.) took to the Senate floor Monday morning to declare “If the Supreme Court will not protect women’s access to health care, then Democrats will.”

There are various legislative solutions to the contraceptive coverage gap left by the decision, including giving the federal government the power and the funds to cover contraception specifically and amending the Religious Freedom Restoration Act. But none of these are considered viable options amidst the current congressional dissonance.

But something must be done. A single-payer public health care option should be reexamined to detach employer whims from public needs. We must minimize the influence of bosses and businesses in the implementation of health care. No one elected them.