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A Simple Solution To Healthcare Woes: Separate Health Insurance From Employment


While everyone parses the Hobby Lobby decision for effects on religious freedom and women and whose rights trump whose, a solution goes unnoticed. The question presented to the court stems from the fact that someone besides the insured pays for insurance. Remove the employer middleman from the health insurance market and the conflict between party A’s religious beliefs and party B’s contraception disappears.

Before we get to the solution, we should start by understanding what the Hobby Lobby decision actually says. (There is a huge amount of truly astonishing misrepresentation floating around the fever swamps of the Left.). In plain English, here is what happened.

Obamacare mandated that certain employers, including those in Hobby Lobby’s position, provide to their employees healthcare insurance. By regulation (not an act of Congress), the U.S. Department of Health and Human Services required that insurance pay for a broad range of treatments, drugs, and procedures, among which were 20 contraceptives, four of which also have the effect of acting as abortifacients.

There are many other ways to ensure the provision of contraceptives besides mandating that employers provide them.

It was uncontested that the family members who own Hobby Lobby have a religious objection to abortion or facilitating or promoting abortion. The Free Exercise clause of the First Amendment and the Religious Freedom Restoration Act (RFRA) prevent the government from burdening a person’s religious beliefs unless there is a compelling state interest and no less burdensome way to achieve the government’s goal. There are many other ways to ensure the provision of contraceptives besides mandating that employers provide them, and indeed some of these methods were already in use. Because it was not necessary to override Hobby Lobby’s religious objections in order to provide contraceptives to its employees, the Supreme Court found the relevant provision of Obamacare to violate the RFRA at least when applied to closely-held companies such as Hobby Lobby. The Court did not “ban” contraceptives or anything like that.

One further preliminary observation: the drafters of Obamacare regulation on contraceptives knew of the other methods of providing this coverage, knew what the RFRA and Free Exercise standards were, and knew that the approach adopted would burden companies with religious objections. The most logical conclusion to draw from this? The administration wanted to establish the government’s right to override religious objections. It was a test case. Their base wanted this fight.

The Government Will Continue to Lose

By statute, the analysis before the court asked whether the government action at issue, the contraception mandate, imposes a “significant burden” on religious exercise. If it does, then the government must show that it is pursuing a “compelling interest” and uses the “least restrictive means” to achieve that interest. The government did not meet the “least restrictive means” portion of the analysis.

The administration wanted to establish the government’s right to override religious objections. It was a test case.

The court used the RFRA standard, but the plaintiffs had also argued under the Free Exercise Clause, which requires a similar analysis: “strict scrutiny” requires the government must show that the law at issue is necessary to achieve a compelling state interest, and if so, that the legislation is narrowly tailored to achieve the intended result. In U.S. Supreme Court jurisprudence, “necessary” has many meanings not always consistent with standard English usage, but in these instances “necessary” means that Congress doesn’t have other potential solutions that don’t impinge on a Constitutional right.

Under any analysis, therefore, to burden a Constitutional right the law basically needs to be Congress’s only option. It wasn’t. The Court mentioned two potential options: the government could pay for the four disputed contraceptives itself or it could extend the regulatory exemptions that it has granted churches and religious institutions, but there is another, so plain and obvious that we rarely notice it. Congress could disentangle health insurance from employment. The burdens on religious freedom disappear if the insured procure their own policies.

That is, under our current healthcare structure, the government will never be able to show least restrictive means in these cases. Separating health insurance from employment presents a presumptive solution.

Why Insurance Is Tied To Employment

Americans are so used to our system we hardly notice the oddity of having employers pay for employee health coverage. But it is odd. Having government as a third-party payer for healthcare at least makes theoretical sense as public welfare even while it is inefficient and expensive. But what theory supports employment-based healthcare? It isn’t a theory. It is a tax dodge.

To burden a Constitutional right the law basically needs to be Congress’s only option. It wasn’t.

The U.S. government tied health insurance to employment during the New Deal. Under the 1942 Stabilization Act, Congress set salary caps—limits on what employers could pay employees. They permitted employers, however, to offer other benefits as a recruitment tool. This was about the same time that health advances made health insurance desirable. (Prior to World War II, healthcare tended to be routine or palliative.) Faced with salary caps, employers started offering health coverage to employees as additional compensation.

In a few short years, those benefits became an essential part of compensation. In 1945, the War Labor Board ruled that employers could not modify or cancel group insurance plans during the contract period. Soon, employment-based health insurance became a way to avoid taxable income. Under the 1954 Internal Revenue Code, employer contributions to employee health plans were exempt from employee taxable income.

In short, when Congress prevented employers from paying employees what they would have earned in a free exchange —a rather ironic position for progressives to take—then advances in medicine converged with tax-avoidance manipulations—another ironic position for progressives—to create the United States’s employer-provided health insurance market. It is a bad habit encouraged by the tax code.

Employer-based healthcare isn’t a theory. It is a tax dodge.

This third-party payer scheme creates problems, such as the current issue, the tension between belief and healthcare presented in Hobby Lobby. It is a magnet for burdens on Constitutional rights. According to footnote 37, the government even argued that the Court should allow the burden on freedom of religion because it benefited a third party. The court wisely found this ridiculous.

But it could not reasonably be maintained that any burden on religious exercise, no matter how onerous and no matter how readily the government interest could be achieved through alternative means, is permissible under RFRA so long as the relevant legal obligation requires the religious adherent to confer a benefit on third parties. Otherwise, for example, the Government could decide that all supermarkets must sell alcohol for the convenience of customers (and thereby exclude Muslims with religious objections from owning supermarkets), or it could decide that all restaurants must remain open on Saturdays to give employees an opportunity to earn tips (and thereby exclude Jews with religious objections from owning restaurants). By framing any Government regulation as benefiting a third party, the Government could turn all regulations into entitlements to which nobody could object on religious grounds, rendering RFRA meaningless.

Without compelling individuals to buy insurance and tying health insurance to employment, Congress would have no leverage over the insurance market to make Obamacare work.

If we separate health insurance coverage from employment–eliminate the tax incentive and employers will start bumping up salaries in lieu of health coverage–then we would no longer need to worry whether contraceptive coverage violates another’s morality because the other wouldn’t write the coverage check. Insurance companies could easily tailor policies for a wide variety of insurance needs, from the young, healthy, and typical to families to singles to those who want plastic surgery. Congress would have many non-burdensome options for insurance regulation at its disposal.

For the record, I understand this undermines the Affordable Care Act. Without the individual mandate compelling individuals to buy insurance and without the tie of health insurance to employment, Congress would have no leverage over the insurance market to make Obamacare work. We would have to have a straight debate about healthcare: single payer or free market. I’d prefer that. The United States’s third-party payer system interferes with clarity, honesty, and pricing. We will never figure out the best healthcare regulation options while we are engaged in legal wrangling over third-party problems, patchwork solutions, and poses.