The Illogic of Employer

Imagine yourself in a bar where a pickpocket takes money out of your wallet and with it buys you a glass of chardonnay. Although you would have preferred a pinot noir, you decide not to look that gift horse in the mouth and thank the stranger profusely for the kindness, assuming he paid for it. You might feel differently, of course, if you knew that you actually had paid for it yourself.

Persuaded by both theory and empirical research, most economists believe that employed-based health insurance is an analogue of this bar scene.

The argument is that the premiums ostensibly paid by employers to buy health insurance coverage for their employees are actually part of the employee's total pay package - the price of labor, in economic parlance - and that the cost of that fringe benefit is recovered from employees through commensurate reductions in take-home pay.

Evidently the majority of Supreme Court justices who just ruled on Sibelius v. Hobby Lobby do not buy the economists' theory. These justices seem to believe that the owners of 'closely held' business firms buy health insurance for their employees out of the kindness of their hearts and with the owners' money. On that belief, they accord these owners the right to impose some of their personal preferences - in this case their religious beliefs - on their employee's health insurance.

Score it 1-0 in 'Supremes v. Economists.'

In the ruling, the owner of Hobby Lobby, a chain of craft stores, gained the right not to include certain contraceptive goods and services in the insurance bought for employees, because use of these services conflicts with the owner's Christian beliefs. Although the justices argue that their ruling is narrowly confined to contraceptive services, one must wonder what other items other business owners in the future may seek to jettison from benefit packages on the basis of this or that professed religious belief.

The ruling raises the question of why, uniquely in the industrialized world, Americans have for so long favored an arrangement in health insurance that endows their employers with the quasi-parental power to choose the options that employees may be granted in the market for health insurance. For many smaller firms, that choice is narrowed to one or two alternatives - not much more choice than that afforded citizens under a single-payer health insurance system.

Furthermore, the arrangement induces employers to intervene in many other ways in their employees' personal life - for example, in wellness programs that can range from the benign to annoyingly intrusive, depending upon the employers' wishes.

And what kind of health 'insurance' have Americans gotten under this strange arrangement? Once again, uniquely in the industrialized world, it has been ephemeral coverage that is lost with the job or changed at the employer's whim. Citizens in any other industrialized country have permanent, portable insurance not tied to a particular job in a particular country.

Nor has this coverage been cheap by international standards. American employers can be said to have played a major role in driving up health spending per capita in the United States measured in internationally comparable purchasing power parity dollars, to roughly twice the level found in other industrialized populations. As a recent article in the health policy journal Health Affairs reported, a decade of health care cost growth wiped out real income gains for the average American family during the period from 1999 to 2009.

The Supreme Court's ruling may prompt Americans to re-examine whether the traditional, employment-based health insurance that they have become accustomed to is really the ideal platform for health insurance coverage in the 21st century. The public health insurance exchanges established under the Affordable Care Act are likely to nibble away at this system for small and medium-size business firms, especially those with a mainly low-wage work force.

In the meantime, the case should help puncture the illusion that employer-provided health insurance is an unearned gift bestowed on them by the owners and paid with the owners' money, giving those owners the moral right to dictate the nature of that gift.