Saturday, November 30, 2013

Hobby Lobby: Federal Agent

Joey Fishkin

Micah Schwartzman, Richard Schragger, and Nelson Tebbe began an important conversation with their post on this blog about the contraceptive mandate and the Establishment Clause.  It’s important in part because it brings into the picture the people who are the key to understanding the constitutional stakes in Hobby Lobby and Conestoga Wood Specialties: the employees.

These cases are triangle-shaped.  Government, employers, and employees each have an important relationship with each of the other two.  Because of the design of the Affordable Care Act, all of these relationships are implicated in the litigation over the contraceptive mandate and religious exceptions to it.  However, only two corners of the triangle are parties to the litigation: the employers and the government.  Employees are not represented.  This makes it easy to overlook much of the real action.  I look forward very much to the rest of Micah, Rich & Nelson’s series.

My aim in this blog post is to make a pretty simple point.  Here it is: As large employers in a post-ACA world, Hobby Lobby and Conestoga Wood Specialties are acting partly on behalf of the federal government, with subsidies from the federal government (as well as extensive regulation), when they offer health insurance to their employees.  Large private employers have been enlisted, by law, as one part of an overall federal project of health insurance provision.  Their role is essential.  Hobby Lobby is the exclusive instrument through which the federal government provides the benefits of the ACA—federally subsidized, affordable insurance—to a set of individuals entitled to the benefits of the ACA (the company’s employees).  That is the key background fact against which one must measure the First Amendment implications—on both the Establishment side and the Free Exercise side—of the special exceptions being sought by large private, for-profit employers with religious owners.

On the face of it, it may seem odd to suggest that a private employer, going about its own business, offering a health plan to its own employees, could at the same time be acting partly on behalf of the federal government or as an instrument of the federal government.  Yet that is exactly what is going on, post-ACA.  To understand why, we need to understand how the ACA works and how it alters the basic setup of the American social welfare state.

Subsidies Four Ways: A Comprehensive Scheme

The ACA creates, for the first time, a comprehensive federal scheme of health insurance under which every American will be entitled to insurance that is both (a) affordable (hence the name of the Act), and (b) adequate in terms of what it covers and how much it pays.  Achieving both (a) and (b) requires substantial subsidies.  The federal government provides these subsidies four ways.  First, for employees—anyway, employees whose employers offer health plans—the subsidy is in the tax code: the employers deduct the costs of employee health plans, yet employees do not include this in their income.  This combination of a deduction and an exclusion amounts to a large subsidy; this predates the ACA and is how the largest group of Americans get their federal subsidies.  Second, low-income people—specifically, those with incomes low enough to qualify for Medicaid—get their subsidy by enrolling in Medicaid.  Third, elderly people get their subsidy by enrolling in Medicare.  Finally, fourth, everyone else gets their subsidy in a new way: they buy insurance on the individual market, and the federal government pays the subsidy directly to the insurance company.  This subsidy is on a sliding scale: it applies only to approximately the bottom 80% of households by income.  (The top 20%, the thinking goes, need no subsidy—the idea is universally affordable coverage, not universally subsidized coverage.  But in reality, the vast majority of households in the top 20% have insurance through an employer, so they get the subsidy anyway.  Thus, the sliver of Americans who will actually pay the full unsubsidized cost of their health insurance will be extremely slim.)

Now here’s the key thing to understand, which I’ve found that a lot of people don’t understand.  In most cases, you don’t get to pick which way you get your subsidy.  Assuming you’re under 65 and you earn too much for Medicaid, the ACA provides that either you get employer-based insurance, and you get your subsidy that way, or you get your subsidy on the exchange, but not both—and it’s not up to you, it’s up to your employer.

If your employer steps up and does what the law requires suggests and incentivizes* (under the “employer mandate”), and offers you adequate insurance, then you can’t get your subsidy any other way—in particular, you cannot turn around and get your subsidy through a separate, individual policy on the health insurance exchange.  (You can, in theory, buy a policy on the exchange, but you can't get any subsidy.)  This assumes you are working for an employer that offers a policy that meets the ACA’s standards—it has to be “affordable” to you, meaning it costs less than 9.5% of your income, and it has to provide “minimum value,” meaning that it pays out enough if you get sick.  Assuming those things, the employer coverage is the only way you’re allowed to collect your federal subsidy.  Your employer is the exclusive instrument through which the federal government guarantees you affordable coverage.

What This Means for Employees

Let’s make this concrete.  Suppose you are a Hobby Lobby employee and you earn the U.S. median income ($50k/year).  You want affordable health insurance.  (Indeed, you are required by law to get it—or perhaps not exactly required, see NFIB v. Sebelius, but anyway, you’ll pay a tax penalty if you don’t get it.)  Suppose you want that insurance to include coverage for contraceptives that are verboten according to the religious views of the owners of your employer, Hobby Lobby.  What are your options?

If you were an ordinary, self-employed person making $50k/year, you could just go get your subsidy through an individual plan from the exchange—one that would certainly cover contraception.  But because you work for Hobby Lobby, you can’t do this.  Your employer offers affordable insurance under the statute, so your options for affordable insurance are… that or nothing.  That’s how the law works.  Sure, you can go to the state exchanges and pay the full, unsubsidized price, which very few people pay (minimum income, for a family of four, ballpark, $100k+, and as mentioned above, the vast majority of people earning that kind of money have employer-based insurance).  If you do go that route, your insurance costs might double, or more.  (If we vary up the facts and make your income lower, but not quite low enough for Medicaid, it is possible to find situations where insurance on the exchange is completely free with the subsidy, while paying the full, unsubsidized price could require a large proportion of your entire income!)  So if you want affordable insurance—that is, if you want the federally subsidized insurance to which you’re entitled under law—then you’d better go back to Hobby Lobby HR and sign up for the employee plan.

Now suppose Hobby Lobby convinces the U.S. Supreme Court (as they convinced the Tenth Circuit) to grant them an exception so that they can exclude some list of contraceptives from their employee plan.  Now you, as an employee, are being deprived of something to which you would otherwise be entitled under the ACA: affordable health insurance coverage that includes preventive care—without co-pays—for a list of items (spelled out in HHS regulations) that includes the disputed contraceptives.  Everyone else in the U.S. earning $50k/year can have this—whether they’re employed, under-employed, self-employed, etc.**—but not you, because you have the very special bad luck of being an employee of a company with religious owners who object.  As a result, you lose out on an entitlement that was supposed to be universal: affordable insurance coverage that covers a minimum core of preventive care.

This baseline of affordable coverage for all Americans is new.  It is the result of the ACA.  In light of this change, what Hobby Lobby is really seeking is the right to deprive its employees of a basic benefit to which they would otherwise be universally entitled—not as employees, but as Americans.

The New Baseline

From the point of view of Hobby Lobby, this might seem both unfair and a bit confusing.  After all, they’re just offering health insurance as an employee benefit—like a 401(k) plan, a long term disability insurance plan, or anything else.  How can doing this in the area of health care, alone, make Hobby Lobby an instrument of the federal government?  Why is health insurance different from all other employee benefits?

The answer is the Affordable Care Act.  It moved the baseline.  Pre-ACA, a health plan was just a health plan; it was a benefit employers might or might not offer.  Post-ACA, every American is entitled by federal law to affordable insurance that covers certain things.  Employers have been enlisted as agents in effectuating this new, universal entitlement.

Hypothetically, we can imagine statutes that do this same thing with other employee benefits—the difference is just that those laws don’t exist.  For instance, imagine there’s an employer who objects to 401(k) plans on some religious ground.  It’s no problem; they don’t have to offer a 401(k) plan, so they don’t.  Done.  But what if Congress decided to replace Social Security with 401(k)’s for the employees of large employers—that is, what if under new rules, you either get Social Security or you get a specially subsidized company 401(k), but not both—and the relevant companies are required to offer them.  Now, all of a sudden, any refusal on religious (or other) grounds to offer a 401(k) is creating a gap: employees of that company would be the only American workers without access to federally subsidized retirement savings.

Or similarly, imagine if Congress required large employers to offer long-term disability insurance, and then provided that if you work for such a large employer, who does offer long-term disability, you can’t get SSDI.  Such a change would cast in a much different light the actions of a hypothetical employer who refuses, on religious grounds, to insure against long-term disability.  All of a sudden, instead of just not offering a benefit, they’re depriving their employees of something that everyone else can get—and that everyone has a right to.

Hobby Lobby certainly didn’t ask for this new role in the federal scheme.  And frankly, a lot of people on the left would have been more than happy not to get into this: if Congress had gone with Medicare for All, we could have avoided enlisting private businesses in the project of the ACA.  But that’s not how things went.  Employers have an essential, irreducible role to play in the federal scheme as it exists.

An Insurance Scheme—And Why That Matters

Employers’ role has to do with health insurance—not health care.  Thankfully, employers are not being told by the federal government that they must employ doctors and nurses and actually provide drugs and procedures for their employees. The ACA is only partly about “care” (despite the name); it’s mostly about insurance.  And insurance has consequences: having insurance coverage for X is meaningfully different, in a variety of respects, from merely having the opportunity to purchase X with your own money.  For instance, covering certain kinds of doctor visits, drugs, and procedures without any co-pays or patient costs has an enormously important public health function: when stuff is free, people are much more willing to do it, and much less likely to skimp or delay when times are tight.  To make the new comprehensive scheme work, employers don’t provide care but they must provide insurance.  And that includes insurance for contraceptives.

The president of Hobby Lobby, Andy Newland, argued recently on CBS: “We’re not saying don’t go buy them.  We’re not putting barricades in front of Wal-Mart. We’re saying we simply don’t want to pay for them.”  The statement is true, but misses the point.  Hobby Lobby’s job in the federal scheme is not to hand out drugs.  It’s to pay for insurance—so that its employees, like everyone else in America, does not have to worry every month about the cost of birth control pills.  The public health reasons for this are obvious.  Saying that employees can go out and buy the pills with their own money—outside of the insurance system—doesn’t address the problem.  These drugs are among those that the federal government has determined need to be covered by insurance, not because that’s the only way to pay for them, but because paying for them that way has important consequences for public health.

There’s also something else highly material omitted from the quote above.  Hobby Lobby is not acting only on its own behalf, saying “we simply don’t want to pay.”  Rather, Hobby Lobby is saying to its employees, in effect, “we don’t want to touch contraception coverage, so if you want an affordable plan that includes this coverage, we’re going to block the federal government from giving it to you by the only route the ACA allows, which is our plan.”

The First Amendment

I’ll leave it to others (especially Micah, Rich & Nelson) to think through the implications of this situation in terms of First Amendment doctrine.  But here are a couple of preliminary thoughts.  First, entanglement.  The federal government and Hobby Lobby are working together to provide insurance—carefully regulated and subsidized—to Hobby Lobby employees.  A number of different federal agencies are directly involved in this effort.  If Hobby Lobby wins a robust religious exception, all of those federal agencies will then become deeply entangled in implementing it—whether by developing workarounds (as HHS has for churches, which could perhaps be extended to Hobby Lobby) or simply in the course of recalibrating the regulations to respond, with as little damage to public health as possible, to the specific, possibly-idiosyncratic tenets of the religious views of Hobby Lobby’s owners, which will now shape the insurance the federal government subsidizes.

On a fundamental level, the problem here is that if Hobby Lobby wins, the federal government then will not provide any Hobby Lobby employees with the full federal benefits to which they are entitled.  I understand completely why Hobby Lobby would prefer that the baseline were different, that they were still just an employer going about their own business, rather than being enlisted in a comprehensive federal scheme.  But that ship has sailed; we are entering a new world.  In this new world, Hobby Lobby’s actions implicate the federal government in ways that they did not before.  This situation demands analysis under both of the First Amendment’s clauses—Establishment as well as Free Exercise—and in terms of all three points of the triangle: employees as well as employers and the government.

* Correction: The “employer mandate” is perhaps a bit of a misnomer: like the individual mandate after NFIB v. Sebelius, the employer mandate is really just a tax penalty that businesses must pay if they choose not to offer the required insurance (at which point, their employees can get subsidies through the individual market).  So for employers, it's a choice.  Thanks to Marty Lederman for pointing this out to me.

** The analysis above excludes grandfathered plans.  Those plans are legal but may not cover all the preventive care new employer plans must cover, including contraception.  I do not know how long it will take for all the grandfathered plans to be phased out and replaced with plans that comply with the requirements for new plans.  I assume this will happen eventually.