Hobby lobby decision based on economic confusion

Paul F. deLespinasse
| The Daily Telegram

The Affordable Care Act requires most U.S. companies to cover contraception as part of the insurance provided to their employees. Several companies have challenged this requirement, claiming it violates their right to the free exercise of religion protected by the First Amendment or by the Religious Freedom Restoration Act of 1993.

In 2014, the Supreme Court ruled that private businesses (that is, with only a few owners) should be exempt from this requirement if their owners had religious objections to contraception. Burwell v. Hobby Lobby Stores Inc. (573 U.S. 682 (2014)

Fortunately, the Supreme Court avoided ruling on the ridiculous question of whether a private corporation, as opposed to a human individual, can have religious rights at all. Instead, it based its decision on the Religious Freedom Restoration Act of 1993 and addressed only the religious rights of the small number of people who owned the closely held corporations.

Supporters of Obamacare had feared that the court would use the precedent set by the Citizens United decision — which found that corporations have a right to free speech under the First Amendment — to hold that corporations are also protected by the Free Exercise clause of that same amendment. Critics of Obamacare hoped the court would do just that.

However, there was no need for the Supreme Court to even consider this question, as the challenges to the contraceptive requirement were based on fundamentally flawed economic assumptions. The challenges assumed that a company that writes a check to pay for insurance for its employees is spending its own money and therefore has an interest in the purposes for which that money is spent.

The interests of a company obviously do not extend to the purposes for which its employees spend their own salaries. But the money an employer transfers for an employee’s health care is only part of the compensation paid for that employee’s work. For that employee, it is simply income in kind and not money, and the purposes for which that income is spent are therefore not the employer’s responsibility.

The situation is confused by the widespread perception that employers bear the cost of insurance. In effect, employers just write the check for the insurance and this money is deducted from the fund from which the cash wages are paid to the employee. The money the company spends is part of labor costs and not part of insurance costs.

This important point is worth repeating: even though the company writes the check, the costs are actually borne by the employees, in the form of lower cash wages.

As Paul Starr, a leading expert on medical economics, has noted, when it comes to health insurance, “economists generally agree that workers … bear both the full and their own share of the company.”

That Starr is right here is evident from the particular problems that Obamacare posed for restaurants and other employers of many low-wage workers. Employers can simply subtract their insurance waivers from what they have available to pay higher-wage workers, but it is illegal to do so if the resulting hourly cash wage falls below the floor established by minimum wage law.

Many employers of large numbers of low-wage workers therefore protected themselves from the Affordable Health Care Act’s insurance requirement by allowing many of their employees to work part-time, since the ACA only required them to obtain insurance for those it defined as full-time.

Because insurance is not a cost borne by employers, they have no role in the game nor do they have any option to file a lawsuit. The Supreme Court should have thrown these litigants on their ear and not put itself in the ridiculous position of perhaps having to decide whether corporations have a right to the free exercise of religion.

— Paul F. deLespinasse is professor emeritus of political science and computer science at Adrian College. He can be reached at [email protected].

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