Plan B Forum

The Illogic of Employer-Sponsored Health Insurance
JULY 1, 2014 - Uwe E. Reinhardt - NYT

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.

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.

Long Run wrote:And, of course, the ACA eliminated the option of the employer to give employees money to go out and buy their own policies to meet their individual needs. So the employer, if it wants to provide a tax-free health benefit for its employees, has to decide on a compliant insurance policy or policies, creating a one-size fits all.

Big RR wrote:As for this opinion, after citizens united gave corporations the right to freedom of speech, freedom of religion couldn't be far behind. The system is consistent, but it makes no sense.

Ginsburg is absolutely right that the majority opinion in Hobby Lobby opens the door for any religious group to use the ruling as precedent to challenge the RFRA. But precedent alone is no guarantee of actual results. The Roberts Court doesn't seem particularly interested in granting exemptions under the Religious Freedom Restoration Act to just any sincerely held religious belief: after all, we would need to consider the legitimate governmental interests in each case. But here's what we do know: in the case of equal opportunity for women versus a religious doctrine held by the plurality of the members of the Supreme Court, the religious doctrine just won, even as they say in the same breath that no precedent should be considered established by their decision.

In short, the Supreme Court has decided that, far from interpreting the law consistently, it will get to be the ultimate arbiter, on an ad-hoc basis, of which religious claimants get exemptions from what governmental requirements. Evidence so far suggests they'll use it for the particular doctrines that suit them. With their decision in Hobby Lobby, the Court has basically given itself the right to establish preference for particular religions over others. And while the Obama administration may be able to fix the damage this ruling does to women's health, the lasting damage to religious pluralism may be a much more difficult consideration.

Lord Jim wrote: