Reform Healthcare to Make Hobby Lobby Irrelevant

The Supreme Court decided that some closely held businesses are exempt from Obamacare’s requirement that employers pay for their workers’ coverage for certain types of birth control. In a 5-to-4 decision, the Court sided with Hobby Lobby and Conestoga Wood Specialties, who charged that having to pay for four of the twenty methods of contraception covered by the mandate was a violation of their rights under the Religious Freedom Restoration Act of 1993.

Liberal critics of the decision are wrong to call it an attack on women’s rights, but they have a valid point when they complain about employers interfering with their workers’ health-care choices. For example, Rep. Debbie Wasserman Schultz (D-FL), who chairs the Democratic Congressional Campaign Committee, rightly accused the Court’s majority of allowing the “long hand of business to reach into a woman’s body and make healthcare decisions for her.”

Employers should not interfere with their employees’ health-care choices—just as they should stay out of their housing, travel, and entertainment decisions. Unfortunately, the federal tax code penalizes employees who buy their own health insurance, effectively forcing most of us to get coverage through our employers. Rather than solving this problem, Obamacare worsens it by adding layers of complexity and extra costs. It retains the employer-based health plan, and adds more government interference on top of it.

There is a much simpler way to ensure employers do not unduly impose their religious beliefs on their employees: Lawmakers could create a uniform, universal tax credit for individuals to use to buy health insurance that they choose, whether through their employer or not. Such a reform would make most of the Hobby Lobby decision moot.

Because U.S. law has long made health insurance the responsibility of employers, there is a perverse logic to the federal requirement that employers offer health plans that provide “preventive care and screenings” at no out-of-pocket cost. However, the Affordable Care Act does not define those terms and instead leaves this to the Department of Health and Human Services to interpret.

The agency’s definition includes twenty contraceptive methods approved by the FDA, of which four “may have the effect of preventing an already fertilized egg from developing any further by inhibiting its attachment to the uterus,” Justice Alito wrote in his opinion for the majority. These include two types of emergency contraception and two types of Intrauterine Device (IUD). Hobby Lobby did not object to paying for the other sixteen types of birth control, including vasectomies.

Despite liberal protests, the Court decision does not prevent any woman from using these four types of birth control. She just has to pay for it out of pocket. This may not be trivial. The majority opinion recognizes that the cost of an IUD is nearly equivalent to a month’s full-time pay for workers earning the minimum wage.

However, forcing employers to pay for it only disguises the cost to employees. It does not reduce it. Economists have long recognized that the division between premiums paid by employers and premiums paid by employees is not real. Employees pay one hundred percent of premiums for their health benefits. However, most of this “payment” comes in the form of lower wages rather than an explicit deduction from paychecks.

Research by MIT economics professor Jonathan Gruber and others has confirmed that mandatory coverage of maternity benefits in employer-based plans (mandated by the federal government since 1978) is associated with reduced wages for women versus men. More generally, University of Chicago economist Casey Mulligan and others have made a strong argument that the rapid increase in cost of health benefits has been a huge factor in suppressing American workers’ wage growth for many years.

Further, the Court’s majority noted that when the Kaiser Foundation Health Plan in California eliminated patient cost-sharing for IUDs, use of this form of contraception more than doubled. That is, eliminating out-of-pocket costs increased the total cost of coverage, and this showed up either in next year’s premiums or in smaller raises for women versus men.

Hobby Lobby made its case on moral, not financial grounds. A decision against the company would have been absurd, in that it would force the Green family to either violate their faith or cease operating a business. The case invites us to question why the government has forced employers and employees to struggle with these questions in the workplace, rather than as individuals in society.

The best way to get these moral decisions out of the workplace is to replace the exclusion of employer-based benefits from taxable income with a universal, refundable tax credit that every household can use to buy health insurance of its own choice.