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A Better Argument Against Hobby Lobby, Part II: The (Maybe?) Better Argument

July 3rd, 2014 · 9 Comments

In the previous post, I ran through some criticisms of the Supreme Court’s recent Hobby Lobby ruling that I don’t think are very impressive—some because they’re unconvincing, others because they wouldn’t be relevant to the core logic of the opinion even if they were otherwise absolutely correct.  For the purposes of this post, then, I’m going to assume that the Court got it right in finding Hobby Lobby to be a “person” under the Religious Freedom Restoration Act, just like religious non-profit corporations are, and that a mandate to include contraceptive coverage in any health insurance it provides employees counts as a “burden” on the religious convictions that its owners want the company to embody, whatever we might think of those convictions.  I’m also going to assume, as the Court did, that enabling widespread access to contraception is a “compelling state interest” weighty enough to justify that religious burden—but that the state’s interest has to be balanced against that burden, and pursued by less restrictive means where feasible.  With those assumptions in place, here’s a sketch of what seems to me like a plausible critique of the Hobby Lobby ruling, and one I haven’t really seen opponents making so far (though perhaps that just means I need to read more widely).

Justice Alito’s attempt to “balance” the competing interests in this case is actually surprisingly cursory, even though one might logically expect it to be the heart of the opinion. The reason is that the Department of Health and Human Services has already, as you may recall, created an exemption to the contraceptive coverage mandate for non-profit religious corporations like churches, charities, Catholic hospitals, and so on.  Moreover, they did so in a way that guarantees employees of those non-profits exactly the same contraception coverage they’d enjoy without an exemption, and apparently at no additional cost.  As Alito writes:

The effect of the HHS-created accommodation on the women employed by Hobby Lobby and the other companies involved in these cases would be precisely zero. Under that accommodation, these women would still be entitled to all FDA-approved contraceptives without cost sharing.

Well, this seems like a no-brainer.  Why would you force a religious institution (whether a church or a company that sells stuff) to violate its avowed religious convictions (even if they’re dumb convictions) if you could achieve exactly the same result without doing so, and at more or less the same cost?  No wonder Alito doesn’t spend much time here!  The trouble is, if the HHS exemption turns out not to scale well—if extending it to the “closely held” corporations that employ just over half of American workers ends up messing with incentives in a way that yields substantial additional costs and messes with the structure created by the Affordable Care Act in thorny and unpredictable ways, then Alito’s breezy treatment of the balancing question at the logical heart of the opinion starts to look much less adequate.  So let’s consider why that might be the case.

The solution HHS came up with for religious non-profits that object to covering contraception looks like an ingenious win-win compromise, basically an accounting trick that leaves employees with the same coverage while satisfying (many, though not all)  religious employers that they’re not contravening the tenets of their faith.  The employer buys its employees a health plan that excludes contraceptives, but then HHS requires the insurer to give those employees a separate plan that just pays for birth control.  This might seem like a bad deal for the insurers—why is it on them to buy something the employer won’t pay for?—but, at least according to HHS, it actually isn’t.  Pregnancy and maternity care are (apparently)  so very expensive that the cost of buying contraception for all those workers ends up being balanced or outweighed by the money the insurer saves from not having to cover the cost of more unintended pregnancies.  In other words, it would be in the insurer’s interest to offer contraception, for no higher premium, as part of any health plan that covered maternity expenses.  Under the HHS exemption rule, that’s arguably what’s still basically going on—but with some ledger shuffling to placate the religious employers who don’t want to be the ones paying for it on paper. Hey, if it makes them happy, why not?

That’s how it works for “fully insured” health plans, at any rate—plans where an employer’s only real role is buying its employees a benefit from an outside company.  The wrinkle is that roughly half of workers are getting their healthcare covered through “self-funded” plans, where the employer itself acts as the insurer for at least some types of health expenditures. Hobby Lobby, as it happens, is an employer that runs such a self-funded plan.

For those plans, the HHS exemption works slightly differently.  Generally there’s a “third-party administrator” managing the funds being pooled to cover employees’ claims for health expenditures, and who HHS makes responsible for ensuring birth control is covered:

The third party administrator must then provide or arrange separate payments for contraceptive services for the women in the health plan of the organization, at no cost to the women or to the organization. The costs of such payments can be offset by adjustments in Federally-facilitated Exchange user fees paid by a health insurance issuer with which the third party administration has an arrangement

The “adjustments” are effectively a backdoor government subsidy that offsets the cost of birth control for workers whose employers don’t want to include it in their self-funded plans.  If there are only so many religious nonprofits with self-funded plans, and their employees buy contraception at relatively low rates for the same religious reasons the employers don’t want to provide coverage, the cost to the government (in the form of lower  “user fee” revenue) ends up being small enough to absorb without much fuss—especially with the federal exchange filling in for all those states that haven’t gotten their own exchanges running yet.

But now what happens when an ordinary business with a self-funded plan can invoke the same exception, especially if their employees are more apt to avail themselves of the contraceptive benefit than, say, church employees?  The obvious effect is that the number of people whose birth control has to be covered via “fee adjustments” spikes significantly.  The less obvious effect is that shifting to a self-funded plan with an exemption starts looking like a much better deal for those for-profit companies.  All the benefits of lower pregnancy and maternity costs resulting from employees getting free birth control accrue to the company—but the cost of buying the contraception is offloaded, effectively, on the government.

If that ends up entailing substantial savings—relative, say, to buying a “fully insured” plan whose premiums have to cover outlays for both contraception and maternity  care—the company arguably has a fiduciary obligation to go that route.  The claimed religious exemption doesn’t even have to be pretextual: Just install an executive with the appropriate deeply-held religious convictions!   Depending on the numbers, you may see enough companies going this route that the costs eventually exceed what “fee adjustments” can reasonably absorb.  This possibility doesn’t really factor into the Hobby Lobby opinion—Alito just says HHS hasn’t provided any estimates that would provide the Court with a basis for finding the cost of widening the exemption unreasonably high.

I’m not going to pretend to any kind of expertise in healthcare economics, so I won’t make an estimate either.  But this at least seems like a superficially plausible story about how extending the current non-profit exemption could, over time, shift non-trivial costs to the government.  It could conceivably even incentivize such cost-shifting by firms that, absent the backdoor government subsidy, would find it economically advantageous to cover contraception themselves (or buy fully-insured plans rather than self-funding) in order to reduce their maternity care outlays.

It’s important to note that his is not yet another wacky reductio hypothetical along the lines of “what if all the CEOs suddenly joined the Church of Unsafe Working Conditions??”  By and large, religious exceptions and accommodations work because they’re exceptions.  If everyone were a conscientious objector, maybe we’d suffer a catastrophic military defeat… but everyone isn’t, so it works out.  Balancing real felt burdens on people’s actual religious practice against imaginary scenarios involving made up religious beliefs that sound like transparent pretexts to evade the law is not a particularly fair test.  But if it’s plausible that in our very own non-hypothetical world, there are many people with sincere beliefs of this sort who are in fact likely to invoke the exemption, that’s another story. Now we’re not dealing in dorm room “what ifs” about mechanically extending the court’s logic to some fanciful scenario, but the practical question of  what disruptive outcomes are actually probable.  That we might at least attempt to balance.

Whether this would ultimately change the outcome of the “balancing test” the Hobby Lobby majority engages in, it does at least seem like the sort of consideration that would have to factor in to an adequate test.  A fair reply might still very well be: “Look, if providing contraception is such a compelling state interest, the state ought to be willing to provide it directly, and maybe correspondingly reduce the tax advantage associated with employer-provided healthcare, rather than offering an all-or-nothing tax benefit that effectively penalizes business owners for not compromising their convictions.”   (That this seems politically implausible would be an understandable lament on policy grounds, but it’s not really a legal argument—amounting, as it does, to a prediction that Congress will not deem the interest so compelling after all.)  On the other hand, the Court might have concluded that the potential effect on costs and incentives involved would be substantial enough to exceed the degree of “accommodation” RFRA was meant to require.

Maybe we can say this much for the Hobby Lobby ruling either way: If this scenario doesn’t manifest, then the Court will indeed have spared religious business owners a painful choice without much effect on the benefits workers enjoy.  If it does, either Congress can try to craft its own solution, or the Court will  get another opportunity to run the RFRA “balancing test” again with the benefit of more information.

Tags: Law


       

 

9 responses so far ↓

  • 1 Tim Hopper // Jul 4, 2014 at 3:17 am

    What Alito refers to is the accommodation given to non-profit religious orgs. by HHS. This is different than the exemption given to Churches. It’s an important distinction because the exemption allows safe harbor and means that the insurance company does NOT have to provide no-copay birth control to the enrollees.

    Hobby Lobby would be getting the accommodation, though. It’s really important that these two words not be mixed up or used interchangably.

  • 2 Adrian Ratnapala // Jul 4, 2014 at 3:58 am

    The courts might leave it up to individuals to judge what their religious beliefs are, but judges can pry into whether they are really sincere. A sudden conversion after figuring out the pecuniary advantages is exactly the kind of thing that gets exceptions thrown out.

    Also if you are worried about this subsidy, you can still demand that plans provide maternity care. If the expected value of pregnancies saved is really greater than contraception, third-party administrators will still profit from offering contraception even without adjustments.

  • 3 CP Norris // Jul 4, 2014 at 4:21 pm

    The courts might leave it up to individuals to judge what their religious beliefs are, but judges can pry into whether they are really sincere.

    I thought the Hobby Lobby decision explicitly said that a religious belief is whatever the believer says it is. Otherwise the issue of what is or is not an abortifacient might fall victim to science.

  • 4 Pithlord // Jul 5, 2014 at 10:46 pm

    CP,

    A court can’t inquire into whether a sincere belief is reasonable or required by orthodox doctrine, but it can inquire as to whether the person really believes it.

  • 5 Julian Sanchez // Jul 7, 2014 at 5:10 pm

    Tim – A good point; I should have been clearer about that distinction.

    CP- What Pithlord said. The Courts don’t generally get into judging theology, or evaluating the internal coherence of the objection, but they are allowed to assess whether they’re dealing with a real religious objection and not just an effort to dodge a legal requirement that might be burdensome.

  • 6 Pithlord // Jul 13, 2014 at 2:37 pm

    Julian, I think you miss the main intuition behind the liberal objections to the decision.

    I sus

  • 7 Pithlord // Jul 13, 2014 at 2:53 pm

    Sorry about that. It is ill-bred to try to comment from an iphone.

    Anyway, I think the basic intuition of liberals is that corporate personhood is a legal fiction, but the “real” corporation is not for all purposes the shareholders, but is (or at least includes) the employees. It might be economically efficient to give the equity investors the residual claim on profits, but that is only just if there are a whole bunch of cultural and legal restraints that protect the employees. Among these restraints is an obligation to provide health insurance to the extent the state does not. As we all know, that requirement comes out of the total compensation of the employees anyway.

    If that’s right, then Hobby Lobby looks like a situation in which the shareholders are exercising their religious beliefs at the expense of employees who have different religious beliefs.

    If you think the rights of employees as against the firm (which is really the equity investors) are limited to those they can negotiate by explicit contracts, then this intuition does not make sense. But on the other hand, we know that no firm can actually operate on the basis that all the employees rights are those set out in explicit contracts. Progressives, pretty much by definition, think the state should step in and protect employees from being exploited along infra-marginal dimensions for their investment in firm-specific human capital.

  • 8 A Better Argument Against Hobby Lobby, Part II: The (Maybe?) Better Argument | zachryindustrial // Jul 13, 2014 at 4:52 pm

    […] A Better Argument Against Hobby Lobby, Part II: The (Maybe?) Better Argument. […]

  • 9 Jason Taylor // Jul 18, 2014 at 9:27 pm

    Tim Hopper, no. See my comment here, which quotes the fed. reg.’s def.

    http://joshblackman.com/blog/2014/06/30/the-basis-for-hhss-contraceptive-mandate-exemption-for-non-profits/#comment-1492120608

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