Thursday, July 24, 2014
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Supreme Court's contraceptive decision shows its inability to understand basic economics

The conclusion that the mandate imposed a substantial burden on employers rests, in our view, on a flawed assumption that it is employers who pay for workers' health insurance at all.

Supreme Court’s contraceptive decision shows its inability to understand basic economics

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There are many reasons to be concerned about this week’s Supreme Court decision that the Affordable Care Act’s mandate requiring employers to pay for coverage of a wide range of contraceptive methods violated another federal law protecting firm owners’ religious freedom. Passionate counter-arguments have already been made involving issues of privacy, gender equity, reproductive autonomy, and the biologic mechanisms of specific contraceptives. But we can also challenge the Supreme Court for its inability to understand basic principles of economics.

The conclusion that the mandate imposed a substantial burden on employers rests, in our view, on a flawed assumption that it is employers who pay for workers’ health insurance at all. Fundamental principles of health economics accepted by economists of all political persuasions inform us that employers do not pay for “employer sponsored” health insurance. Workers pay for health insurance.

Workers pay for their coverage by sacrificing the additional wages they would earn if their employers were not using costly but valuable benefits as part of a compensation package to attract workers away from competitors. This was demonstrated in a classic 1994 study that showed that federal mandates to provide maternity coverage to women workers had the effect of lowering women’s wages by close to the full cost of the benefit, with no corresponding reductions in labor input or, by implication, firm profits.

If employers are not actually paying for the health insurance of their employees, their rights—assuming that corporations do indeed have rights—cannot possibly be infringed upon by mandates that require them to host coverage for a menu of services that an employee then chooses either to use or not, regardless of gender or reproductive goals. These choices are always made at a cost to the worker herself, pre-paid in the form of a lower paying job.

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Taking an economic perspective on the contraceptive coverage mandate avoids the slippery slope that the Court’s decision attempts to negotiate regarding other insurance benefits that employers with strong religious beliefs may question in the future using this case as precedent—for example coverage of vaccinations and blood transfusions. The Court itself seems reluctant to extend its tortured logic in “Hobby Lobby” but never articulates why: “This decision concerns only the contraceptive mandate and should not be understood to hold that all insurance-coverage man¬dates…must necessarily fall if they conflict with an employer’s religious beliefs. Nor dose it provide a shield for employers who might cloak illegal discrimination as a religious practice.”

By attempting to restrict the applicability of “Hobby Lobby” strictly to the issue of women’s health and contraception, the Court fails to recognize how health insurance works in our society, and seems to be participating in exactly what it warns against: discrimination. The rights most threatened by coverage mandates are not those of the employer with “sincerely held beliefs” but those of the workers compelled to take compensation in forms that they may not prefer—not just due to religious beliefs but a whole host of reasons including specific health needs and life circumstances that may make a certain medical option necessary or preferable over another.

The essential failure of the Hobby Lobby v. Burwell case is therefore that both parties’ lawyers and our Supreme Court justices themselves did not get their science or their economics quite right. Scientific fact: the contraceptive methods in question appear to function by preventing unintended pregnancy, rather than causing abortion. Economic fact: workers appear to pay for their employer-sponsored health insurance, not employers. If employers do not pay regardless, there is no need for an employer to assign value to one preventive service used by a worker relative to another.

The question that follows, of who pays for a cost-effective service that would be more accessible to low-income workers through public and not employer-based provision, seems like one for legislators, those elected to represent workers in the exercising of a collective choice that must extend beyond this iteration of health reform, a collective choice that cannot be effaced by the persistent paternalism of employers, policymakers, and the courts.

Pooja Mehta, MD is an obstetrician-gynecologist and Robert Wood Johnson Clinical Scholar at the University of Pennsylvania and Philadelphia Veterans Affairs Medical Center. Mark V. Pauly, Ph.D. is the Bendheim Professor of Health Care Management, Business Economics and Public Policy at the Wharton School of the University of Pennsylvania.

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Editor's Note: Cross-posted on the Voices@LDI blog of the Leonard Davis Institute of Health Economics of the University of Pennsylvania.

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The Field Clinic reports and analyzes health care laws, government policies, and political trends that are transforming the care we receive and the way we pay for it. Read more about our panel of bloggers here.

This blog is produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health-policy research and communication organization not affiliated with Kaiser Permanente. Portions of this blog may also be found on Inquirer.com and in the Inquirer's Sunday Health Section.

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Mark V. Pauly, Ph.D. Professor of Health Care Management, Business Economics and Public Policy at The Wharton School
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