No Free Lunches

Well, sometimes one writes a piece knowing that it does nothing for one's popularity...

Contrary to most who have written about the Hobby Lobby decision, on all sides of the political spectrum, I don't think it's a big deal. As most Supreme Court decisions have been in the past decade or so, it's a narrowly-written piece, applying to "closely held" corporations, involving a piece of the Affordable Care Act for which there is a readily-available substitute. Indeed, the majority decision suggested (though it fell short of endorsing this view) that one possible less-restrictive alternative available was to have Hobby Lobby's insurer provide the specific forms of birth control for "free" - meaning that the cost is rolled into Hobby Lobby's premiums every year. Going forward, Hobby Lobby's employees still won't have to pay for their Plan B, and the company will still pay for the 16 forms of contraception that it's always paid for.

Despite this, so many people are in hysterics over the decision that even smart people have taken leave of their senses. Glenn Fleishman tweeted: "Corporations are people with religions who can provide men with Viagra and block women’s contraception." As that made no sense to me, I replied that this was an "absurd characterization of the case and decision." Fleishman responded with: "SCOTUS rules that women are the only gender that has sex. Men were nowhere near there at the time and have no responsibility. Hobby Lobby covers erectile dysfuntion. It does not cover (nor allow its insurers to provide) any reproductive medical help, whether for pleasure (like Viagra) or for medical necessity (cysts, etc.)." I was really confused at that point. "The only gender that has sex"? How can you construe that from what the Supremes wrote? Men have "no responsibility"? Ditto. Hobby Lobby covers "erectile dysfunction" - so what, by the way, as this has nothing to do with the religious conscious argument - but does not cover Viagra - isn't the latter a form of treatment for the former? I recommend this piece, by Charles C.W. Cooke, for a discussion of what the case was about, and why blaming the Supreme Court for the failings - intentional or unintentional - of Congress is wrong.

However, in all the nonsense written about the Hobby Lobby case, one point that I rarely see made is that the "no free lunch" dictum still applies to health care products, and no amount of mandating on the part of the government can change economic fundamentals of employers. An employee's compensation is salary plus benefits and her cost to the employer is compansation plus other costs (training, a desk and computer, cost of office space). In a competitive market, firms must pay the market rate of compensation to induce employees to come to work, and the value of that work must exceed the cost to the employer before the job is created. Even before the ACA, salary and benefits were substitutes: a firm that offers, say, health insurance benefits needn't pay as high a salary. If it weren't for the tax benefits to employers of firm-provided health insurance (which, at the corporate tax rate of 35%, allows firms to pay 65 cents for every dollar of insurance they provide employees), no rational firm would provide health insurance. Instead, firms would offer higher salaries and let employees purchase their own amount of insurance.

The ACA changes things only in as much as firms that provide health insurance are now obligated to include in the policies coverage over things, such as contraception, that were not previously an obligation. But there's no free lunch: if the average employee uses $100 per year of insurer-provided contraception, that's $100 that's comes out of the employee's salary; see the previous paragraph. Some employees are better off under the ACA - those who use more than the average amount of health care - while some are worse off. But the idea that the ACA causes firms to provide free contraception is nonsense. All it does is shift hide the cost from employees, and to create some weird cross-subsidies (men and post-menopausal women subsidize contraception, while women and, er, functioning men subsidize Viagra). The ACA doesn’t - because it can’t - create something out of nothing.