The Hobby Lobby case has lit up conservatives and liberals alike by opening the door for certain employers to refuse to provide contraceptive coverage to employees on religious grounds. But the case also raises a more fundamental question about the U.S. health care system: Why should employers be involved in some of the most intimate decisions of our personal lives to begin with?
“It’s a perfect example that the present relationship makes no sense whatsoever,” says former GOP Sen. Robert Bennett, a Utah Republican who’s long pushed for an alternative.Nearly half of all Americans currently receive health insurance through employers. But the current model was actually a historical fluke: The advent of World War II rapidly increased the demand of production, and employers began to offer extra benefits to attract employees. The government first introduced tax-exemptions for health-care spending on employees in 1943, prompting the employer-based coverage systen to take off.
That tax exemption is still in effect today, costing the government about $250 billion a year. Though the rate of employer-based coverage has declined, about 48 percent of Americans still receive coverage through the workplace, according to the Kaiser Family Foundation.
Bennett is among those who believe that approach is fundamentally flawed, inefficient, and costly.
“Nobody sat down and designed it intelligently,” he said, arguing that the system reflects “a paternalistic attitude that was dubious in the beginning and is absolutely irrelevant today.”
Health economists doubt that many employers will actually decide to invoke the religious exemption for contraceptive coverage opened up by the Hobby Lobby case. “It will be a small, incremental impact,” says Tim Jost, a law professor and health care expert at Washington and Lee University. “For many of them, it’s the last thing they want to get involved in.”
But the Supreme Court case highlights some of the potential downsides of having health care tied to employers, in arenas well beyond contraceptive coverage. Jost points to the growth in company “wellness programs” that aim to lower health-care costs through preventative measures.
“It can be patronizing and very intrusive,” he says, describing his own employer’s program that requires employees to log in their exercise routine. “It puts your employer in charge of your entire life—that’s none of my employers’ business.”
There are other, more obvious flaws: Employer-based health care makes it more difficult and disruptive for employees to change jobs; higher-income employees benefit more from the tax exemption; and the system has high administrative costs. “Economists have long advocated for a move away from our employer-based health insurance system, but politicians and people don’t always think like economists,” says Larry Levitt, senior vice-president of the Kaiser Family Foundation.
While in Congress, Bennett worked with Oregon Democratic Sen. Ron Wyden on a health-care overhaul that would end the current employer-based system, requiring employers to redirect the money they spend on employee health care to their employees directly instead. The proposal would satisfy conservatives who want health care decisions in individual hands. It would also appeal to liberals by offer universal coverage in a regulated marketplace.
“Hobby Lobby can say, ‘Here’s the amount of money we’re currently spending on your health care, we can now give it to you directly and have it still remain tax free. And you go buy what you want—‘If you want a IUD feel free; if you want to buy abortion coverage, that’s your right,’” says Bennett.
But the plan wasn’t politically feasible. Getting rid of the health-care tax exemption would be an enormous tax increase, which would be hard to pass muster with Congress or the public.
“While wages would go up if employer-based insurance went away, that wouldn’t necessarily happen immediately or equally for all workers,” says Levitt. “There would be scary sticker shock for many workers as they all of a sudden have to pay the full cost of insurance out of their own pockets, with the average family policy costing over $16,000 per year.”
That’s one reason why the architects of health reform went in another direction. “To try and rush it would be very disruptive,” says Jon Gruber, an MIT economist who helped designed Obamacare. “What kept us from [embracing Wyden-Bennett] is that most Americans are reasonably happy with their insurance arrangements,”
Obamacare, in fact, includes new mandates for employers to provide affordable health care. Beginning next year, companies with 100 or more full-time workers will have to provide affordable health insurance or pay a penalty; those employing between 50 and 100 full-time workers have until 2016 to do so.
That said, Obamacare also offers new coverage options for individuals through the exchanges, establishing new options that aren’t tied to employers.
“It was never before feasible to think about moving away from employer coverage since there was no alternative in place. Now, under the Affordable Care Act, people can buy insurance on their own in new marketplaces without the fear of being denied coverage because they have a pre-existing condition,” says Levitt.
And both economic pressures and ideological concerns could reduce the appeal of an employer-based health care.
“Hobby Lobby for all of the acrimony on both sides—and excessive claims of doom and glory on both sides—may very well have been a very tiny but maybe influential fuse to blow open an opportunity to move in that direction,” Bennett says.