Don Jones

Tech | Career | Musings

In light of the recent “Hobby Lobby” decision regarding healthcare, I thought I’d offer some facts. I’m trying to stick purely with the “fact” side of the situation; the “rightness” or “wrongness” of it is very much subject to your personal opinion on the matter. Both sides have arguments which they feel are legitimate.

The essence of the decision is that Hobby Lobby, a privately held corporation having a small number of owners, does not have to offer certain health coverage items that are mandated by the Affordable Healthcare Act (ACA, or popularly, “Obamacare”). Hobby Lobby’s owners specifically objected to coverage related to certain birth-control medications. The owners felt that being forced to pay for such coverage violated their First Amendment right to freedom of religion, in that they were being forced to pay for something that they objected to on religious grounds. The opposition’s primary argument was that the business, not the owners, had to pay for the coverage, and that businesses do not enjoy religious freedom. The Court held that, for closely held companies, the owners were indistinguishable from the business, and held in favor of Hobby Lobby. Other companies with similar lawsuits, including Conestoga Wood Specialties, were also covered by the decision.

There’s no question that “a business is indistinguishable from its owners” is a difficult piece of legal logic, because for the most part, the whole point of having a corporation is to separate it from oneself, usually for liability and tax reasons. The business is legally distinct in most ways, including paying taxes, owning property, and taking liability for its actions. Allowing some of the owners’ religious freedoms to convey to what is essentially a soulless entity strikes some observers as illogical. This is, in fact, what the entire case boiled down to.

One common comment has been that, “well, the employees can always opt out of the employer’s health plan, if it doesn’t cover things they want. They can buy their own plan.” Can they?

First, healthcare is expensive. The ACA defines “affordable” as any plan which consumes no more than 9.5% of someone’s annual income for self-only coverage (family coverage can cost more). For a full-time minimum wage employee, that means monthly health costs in excess of about $150 a month would be “unaffordable.” It is difficult to find plans, in most areas, that provide ACA-mandated coverage at that rate, especially once you factor in deductibles. For example, plans can be had at that rate, but they often feature cripplingly high deductibles of $5,000 or more. That’s not to say employer-provided plans are any better; it depends on the employer. And employers can, and often do, pass along some or all of the premium expense to employees, so the insurance isn’t necessarily “free.”

Second is the question of whether someone could qualify for subsidies to help with insurance costs. The rule here is different: someone earning up to 4x the Federal poverty level could qualify for a subsidy if the cost of insuring the entire family exceeds 9.5% of income. In some cases, then, employees would do better to strike out on their own for insurance. Taxpayers do not necessarily suffer on opt-out employee subsidies, as we shall see. The employer, in fact, usually pays at least a chunk of them.

Third is tax law. For the most part, employees who decline employer health plans cannot receive any additional compensation from the employer. That’s longstanding law; benefits are not “in lieu of wages,” and therefore you can’t pay someone money in lieu of benefits. So you can’t opt out of an employer plan and get any money to make up for it. However, there’s a trick:

Fourth is the ACA, and this is the tricky bit. Employers are required to automatically enroll employees, whether those employees want the coverage or not – but employees can opt-out of that coverage. But, if that employee then goes to their state marketplace and buys a subsidized policy, the employer is fined $2000-$3000. In essence, that fine pays for the subsidy. Employers are prohibited from discriminating against such employees, although we’ve yet to see how those prohibitions hold up.

So in some cases, particularly with low-wage workers, it may make more sense to opt out of the employer plan, go buy your own plan with a subsidy, and let your employer pay the fine to help pay the subsidy. You can get a plan that meets your needs, possibly pay lower (or zero) premiums (depending on your situation), and your employer is likely going to pay the same amount that they would have paid for your insurance – just paying it to the government in the form of a fine, which offsets the subsidy you received.

Applied specifically to Hobby Lobby, which has more than 50 employees and is therefore subject to the terms I’ve written about: The average employee makes $20,000 to $30,000 a year. Following the 9.5% rule, premiums could be in the $190/mo range and be “affordable.” For a household of three (assuming two adults and one child), the Federal poverty level is $19,790. If both parents works in a $25,000 job, their combined $50,000 income would fall well under the 4x poverty guideline, earning them some form of subsidy for their own policy – which would no longer be dependent on their employer’s decisions on coverage.

Under the subsidy rules, any premium in excess of $342/mo for family coverage would be eligible for coverage. Compare that with the $380/mo that the two parents would potentially have to pay for individual coverage apiece, and it’s a bargain – although the employer could choose to cover a larger portion of that premium, of course, making the employer plan cheaper. The calculator here was helpful in determining this. Of that ~$4,000 annual premium, the employer would be on the hook for $2000-$3000 of it, in the form of a government fine. So you could argue that Hobby Lobby would be buying (most of) the insurance regardless.

Note that ACA originally included a provision whereby lower-income workers could be goven a voucher from their employers, so that they could buy their own plan instead of being on the employer’s plan. Congress nixed that in 2011.

So the real question, “could a Hobby Lobby employee afford to opt out of their employer’s plan and buy one that offered coverages they wanted?” The answer: possibly. If Hobby Lobby is passing along the entire premium cost to employees, then definitely yes. If not, then it depends how much the company was covering. The company cannot offer additional compensation to employees who opt-out, so it’s kind of an all-or-nothing deal.

Again, whether you think the court decision was right or wrong is certainly your opinion – I’ve tried to lay out the financial details with as many specifics as possible.

Figures and law largely from http://www.aldoi.gov/PDF/Consumers/ACAFAQs.pdf.

 

 

 

3 thoughts on “SCOTUS and Hobby Lobby: The Financial Facts

  1. Annette Ciotola says:

    Don, if it’s mandatory that the employer cover every employee by law and yet that employee opts out, I certainly hope that employee is not being charged the premium. It’s not compensation that the employer is offering, it’s simply refunding the premium.

    1. Don Jones says:

      If you opt out you don’t pay premiums under the employer plan; you’d pay for whatever plan you buy on your own.

  2. Awesome breakout, thanks Don.

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