Is it time to give the boot to employer-based health insurance?

The Supreme Court’s ruling in the Hobby Lobby case raises the question of whether it’s time to get employers out of the business of providing health benefits. 

Consider this: the Supreme Court ruling shines the light on deeply conflicting views that Americans hold about their employers’ roles in providing health insurance.  On one hand, many are sympathetic to the justices’ view that the owners of companies have the right to be protected from government health coverage mandates that substantially burden their religious beliefs. On the other hand, many believe that bosses have no right to impose their own religious views on their employees by withholding health benefits that they otherwise would be entitled to by law.  Both sides invoke freedom—the freedom from government mandates that violate owners’ beliefs, the freedom from owners that impose their beliefs on their workers. 

But what if employers were no longer involved in providing health benefits?  It is well-established and settled law that when the federal government collects taxes and premiums to finance healthcare directly (like it does with Medicare), it alone determines which benefits are guaranteed to all who are eligible.  People don’t have to use benefits that violate their beliefs although they would be available to them as a matter of law.  And if voters don’t like the benefits offered by federal programs, they can complain to their elected members of Congress.

And when the government pays directly for healthcare, businesses are not forced to pay directly for benefits that violate their owners’ beliefs; and employees aren’t denied benefits because their owners object to them.  This is the argument made by Fred Rotondaro and Christopher Hale of Catholics in Alliance for the Public Good:

“[The Hobby Lobby ruling] brings to the forefront something we’ve all known for sometime: that Obamacare—for all the good it’s done in increasing access to quality and affordable healthcare—is a messy law. It asks employees to be at the whim of its employers’ objectives and mission for what health care benefits they receive. It also asks employers to at times reject its deepest convictions in order to provide certain benefits to its employees.

This isn’t sustainable. A person’s access to quality healthcare shouldn’t depend on who their boss is. And an employer shouldn’t be heavily fined if they don’t compromise their religious convictions in providing healthcare for their staff. . . A single-payer public health care option eliminates such complications. No matter who your boss is or what business you work for, you get access to the healthcare you need. And employers will not be forced to compromise their religious beliefs while providing the public good of healthcare.

And let’s be clear, if you have something that is both supported by the United States Conference of Catholic Bishops and Planned Parenthood, you might be onto a plan that proves the angel Gabriel right: nothing is impossible with God.”

Princeton health economist Uwe Reinhardt suggests that “[t]he 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.” 

Imagine, he says, that you find “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.”

Last week, Mark Pauly and  Pooja Mehta noted in this blog that “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.”

So why then do we consider it okay for our bosses to decide how we spend our dollars, our compensation, on something as important and personal as our health care?  But they have been doing this for generations, long before the Hobby Lobby ruling.

Hobby Lobby, though, isn’t the only reason to re-think employer-based health insurance.  It adds layers of administrative complexities and high administrative costs.  It distorts hiring decisions.  It locks employees into working for a company they don’t like rather than risk losing their health benefits (although Obamacare eases “job lock.”)  It leads to unworkable policies like Obamacare’s employer mandate.

It won’t be easy to move away from employer-based health insurance, since it is how most of us get coverage; it’s the devil we know.  And people have very little trust that government could do a better job (although everyone seems to like Medicare) in financing health care.  But Hobby Lobby might make us all ask if there is a better way to finance healthcare than to put our employers in charge of our health benefits.