Hobby Lobby: Are Employers Unfaithful Agents?

jacobi_johnThe Affordable Care Act created a distinctly American health finance system, largely built on the foundation of employment-based insurance.  The list of controversies the statute has created is a long one; most recently, the Supreme Court has granted cert. in two cases challenging the “contraception mandate” on religious exercise/RFRA grounds.  There has been a lot of interesting writing on the RFRA issue, which is sure to be central in arguments before the Court.   Eugene Volokh has voluminously and thoughtfully posted on the RFRA issue, and Marty Lederman has also tackled these interesting issues.  As I’m an insurance and not a Con Law/First Amendment guy, the recent post that grabbed my attention was one  by Joey Fishkin.

Fishkin argues that the ACA in effect converts Hobby Lobby (and other private firms contesting the “contraception mandate”) into a “federal agent” for purposes of providing access to health insurance.  He describes the effect of a Hobby Lobby victory on a lower or middle income Hobby Lobby employee.  He points out that the employee would be unable to obtain a subsidy in an exchange for insurance covering contraception, because Hobby Lobby would (presumably) be providing ACA-compliant, affordable coverage.  And the employee would be unable to afford unsubsidized coverage unless she earned a relatively high income.  So, the employee would be obliged to purchase coverage, but functionally be left with only the coverage without contraception coverage, because Hobby Lobby (the “agent” of the federal government for the provision of coverage) has religious beliefs that have received an official imprimatur.   This, Fishkin argues, raises Establishment Clause problems to rival the Free Exercise Clause problems advanced by Hobby Lobby.

The constitutional/RFRA issues aside, Fiskin nicely frames a health policy/health insurance issue: are employers such as Hobby Lobby unfaithful agents to their employees for health insurance purposes?   The ACA is a compromise in many ways.  Most relevant to the issue at hand, it reflected a compromise by which most Americans continued to receive their coverage through employment – and not through a single payer system or a disintermediated individual marketplace.  The compromise was not built on entirely solid ground, however, and Hobby Lobby adds additional cracks to that foundation.

Does a Hobby Lobby victory threaten our continued reliance on employers as central players in the American health finance system?  Maybe not; but the problem Fishkin points out at least calls into question the continued usefulness of the acceptance of the employer as fiscal agent for employees for health insurance purposes.

As many have noted, including David Hyman and Mark Hall, and Kathryn Moore, employers, while not qualifying as agents under common law agency principles, nevertheless perform many agency functions and are frequently regarded as agents in connection with their employees’ insurance coverage.  Employers do good things for their employees in this role.  Their selection of coverage reduces search and transaction costs, and they can provide expertise in resolving disputes and bargaining for more favorable prices.  Studies have reported that many employees are satisfied with their employers’ choices – although such surveys are always suspect as they may be skewed by the fact that only a small percentage of employees are likely to have serious illnesses such that they can test the appropriateness of the trade-offs their employers have made.

And, as Hyman & Hall have thoroughly described, the employment-based system is entitled to no more than “two cheers,” due in large part to the structural conflicts of interest between the employer’s and employees interests in the coverage selected.

The ACA’s mandate to cover preventive services with no cost-sharing, including  some contraceptive drugs and devices, serves  purposes similar to those in the ACA’s broader essential health benefits provision.  First, these coverage mandates give federal legal content to the term “health insurance,” providing some assurance that coverage will be meaningful.  Second, the uniformity of comprehensive coverage increases purchasers’ ability to compare “apples to apples” when selecting health insurance, driving improvements in quality and cost.  In short, the contraception mandate and the broader EHB mandate are pro-consumer and pro-competition provisions.

Religious employers, however, have significant arguments that the contraception mandate, as interpreted, is offensive to their religious observance, perhaps in violation of RFRA.  But to permit the religious exercise rights of employers to impair consumers’ access to coverage is inconsistent with the employer-as-agent metaphor so central to the American health finance system. As Marty Lederman has noted, Judge Rovner’s dissent in the 7th Circuit’s recent contraception mandate case demonstrates that allowing employers to pick and choose which services are permissible for their employees threatens to create a “crazy quilt” of coverage – some covered by employers and some offered, if at all, through some patched-together governmental wrap-around coverage.

How to escape this dilemma?  Hobby Lobby may mark the beginning of the end of a big part of our social and economic history.  It may be that respecting religious employers’ interests while advancing employees’ rights to equal access to federally supported and mandated coverage signals the need for a final parting of the ways between America and the sometimes convenient, never loved, employment-based insurance system.

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