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Topics: Obamacare

Hobby Lobby debate exposes flaws with employer-based health insurance

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Opinion,Philip Klein,Columnists,Obamacare,Health Care,Contraception,Tax Credits,Hobby Lobby,Magazine,Tax Reform

Despite the controversy it has generated, the U.S. Supreme Court ruling in the Hobby Lobby case was rather straightforward.

The Religious Freedom Restoration Act, passed nearly unanimously in 1993 by a Democratic-controlled U.S. Congress and signed into law by President Clinton, set up certain tests to ensure that federal policies do not overly burden the free exercise of religion. And the court's majority ruled that a mandate forcing business owners to purchase insurance coverage for their workers that includes contraception coverage that violates their religious beliefs failed those tests.

Critics of the ruling have framed this protection of religious liberty as an intrusion into women's health. “We will continue to fight to preserve women's access to contraceptive coverage and keep bosses out of the examination room,” Senate Majority Leader Harry Reid, D-Nev., said in reaction to the ruling.

But the more fundamental question is, why should employers have influence over any workers' health choices in the first place?

The link between employment and health insurance can be traced back to a 1943 ruling by the Internal Revenue Service, later enshrined in the tax code, that allowed coverage to be purchased tax-free for those obtaining it through their employers. As a result, in the decades that followed, there was a surge in the number of businesses offering health insurance as benefit to their workers.

In 2012, according to data from the Kaiser Family Foundation, 57 percent of the insured population in the U.S. obtained their coverage through their employers - more than any other source. Government programs accounted for another 37 percent of the insured population, meaning just 6 percent purchased insurance on their own.

On the surface, employment-based insurance might seem like a good perk, but not once all of the effects are taken into account.

To start, when employers include health insurance as part of their workers’ overall compensation package, it means that they pay lower salaries than they otherwise could. Some workers might prefer more cash compensation and less compensation in the form of health insurance.

Also, tying health insurance to employment means that workers considering switching jobs have to weigh changing health policies, and possibly, losing their doctors. The fact that individuals are constantly switching jobs (and thus plans) means that insurers have a lot less interest in their clients’ long-term health.

When employers are buying health coverage, they control the type of coverage being offered, and thus workers’ choices are restricted to the one plan or maybe a handful of plans picked by the employer. If they choose to decline the coverage and look for plans on their own, they lose tax-advantaged status, making it cost-prohibitive in most cases.

A world in which employers purchase health insurance is a world in which companies such as Hobby Lobby can cite religious objections to paying for certain forms of contraception.

In an alternate world that ended the discrimination in the tax code against individuals purchasing insurance on their own, women would be earning more and free to take their health care dollars with them and purchase whatever coverage best met their health care needs.

Though President Obama's health care law created exchanges for purchasing health insurance, the exchanges do not offer tax benefits or subsidies to individuals who decline offers of qualifying employer-based insurance.

Moving away from employer-based health insurance had long been a standard proposal on the right, though in recent years it has fallen out of favor among many Republicans and conservative policy analysts who fear the political ramifications.

Obama effectively attacked Sen. John McCain, R-Ariz, as a tax hiker during the 2008 presidential campaign when McCain proposed replacing the employer-tax preference with a tax credit available to individuals.

Furthermore, the backlash against Obama’s broken promise to allow individuals to keep their plans if they like them has fostered the belief among conservatives that unwinding the employer-based health care system would be too disruptive to be feasible.

But the idea deserves another look, especially in the wake of the Hobby Lobby debate. Health coverage decisions shouldn’t be made by the government or by employers. They should be the sole province of individuals.

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