Tim ReidyApril 09, 2012

This guest blog comes courtesy of Charles O. Kroncke and William L. Holahan. Kroncke is professor in the department of finance at the University of South Florida. Holahan is professor in the department of economics at the University of Wisconcis-Milwaukee:

Providing health insurance coverage as part of an employee’s compensation package has been common since World War II. With wage freezes in effect during the war, employers relied on “perks” to lure workers to their firms. To continue with this practice makes little economic sense, but an enormous industry has grown up to provide this insurance through employers, and the profits make it unlikely to end any time soon. The Affordable Care Act retains this private sector approach to providing employee health insurance benefits, but it adds some new regulations for the insurance companies. One such regulation is a federal requirement that birth control drugs and devices be included as fully covered without patient co-pay.

The U.S. bishops assert a conscientious objection to this mandate. Birth control runs counter to their teachings, and so they oppose having to “buy” health insurance that includes it. Cardinal Dolan of New York has taken the lead in objecting to what he sees as an infringement of religious freedom for church-affiliated hospitals and universities. Cardinal George of Chicago predicts that implementing this provision will force the closing of many hospitals and organizations.

Driven by a desire to cover some 49 million currently uninsured citizens, the Obama administration quickly moved to accommodate these objections by introducing an amendment that omits this coverage for those employers opposed to it. Instead, their employees can apply directly to the insurance company for a rider that covers such purchases at no cost to them. The church sees this as a ruse—a simple rider on an employee health benefit that the church buys for the employee.

Basic economic “supply and demand” analysis shows that the church does not buy the insurance in the employee/employer exchange. The employees buy the insurance with their work just as surely as they buy their wages with their work. No one forces the employee to spend their wages on the offending contraceptives, nor does anyone force the employee to spend their insurance coverage on them. If the employee does not want to use contraception, the Affordable Care Act does not force them to change that decision. If the bishops are worried that church-affiliated hospitals, universities and other employers are “buying” offending products and services when they “buy” health insurance that covers their employees, they can rest easier: the employee buys the fringe benefit, not the employer.

A job is an exchange of work for compensation. This exchange is mutually beneficial: the employer will never knowingly pay more than the value of the work received; the employee will not accept less than the value of the best available alternative employment. Whether the compensation is cash only or a package of cash or benefits, the employee earned the compensation by work. What the employee does with the money earned is separate from and subsequent to the exchange of work for pay. The same holds for the way the health insurance benefit is spent.

Suppose, on payday, the employee decides to spend some of the wages on dinner at a restaurant. It is clear that the employee and not the employer bought the dinner. The same conclusion follows when compensation includes fringe benefits. The benefits are neither a gift nor some form of excessive compensation. They are part of the employee’s earnings just as are wages. Having contracted to exchange work for a compensation package that includes health insurance, employees are entitled to spend their earnings as they see fit.

The decision to buy contraceptives financed by their health insurance is separate from and subsequent to the exchange of work for compensation. The decision to use their benefits for birth control is a matter of the employee’s conscience. The bishops may preach that as a matter of faith they should not engage in the religiously prohibited act, but the contraceptive coverage requirement in the Affordable Care Act, with or without President Obama’s “accommodation," does not change the basic economics: the employee, not the employer, pays for the insurance.  


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Winifred Holloway
9 years 1 month ago
The conclusions of the Kroncke and Holahan analysis have been made several times on this very blog.  If memory serves, it may have been Ann Oliver and others as well who made this very same claim.  And it makes sense.  The bishops have put themselves in a  position where they have no get out of jail card to play.  It's gone way too far for them to back down now.  Someone in the administration has to find a way to let them save face gracefully.  However, it they are determined to sabotage the Affordable Health Care Act, and I do believe that the loudest of these bishop-protestors want to do just that, then nothing will stop them.  I suspect that their real concern is what they might consider to be civic authorities meddling in internal church affairs.  And that takes us back to the sexual abuse issue and the loss of credibility and prestige that the bishops lost and continue to lose, not to mention the loss of millions (billions?).  Not the bishops money,btw, but the faithful's. 
JR Cosgrove
9 years 1 month ago
I believe that the conclusions of these economists are nonsense.  Two things:

First, We have just witnessed in a nationally publicized process where the Democrats brought forth a Georgetown student who claimed that contraceptive costs were onerous.  I believe the costs were about $1000 a year over a three year period.  So the Democratic party and Georgetown university both admit that the costs for contraception are not trivial and represent a significant cost.  So any attempt by anyone to say they are not, seems to be at odds with official Democratic party thought and Georgetown university.  By  the logic here, those students at universities providing contraception benefits should demand a $1000 refund for each year they are there if they are males or if they are females that plan to remain chaste during their educational experience.  That is the logic of the argument.  That is an argument I can understand.

Second, One of the main bases for choosing one employer over the other is always the salary or compensation received.  If one employer pays more than the next, I have never seen one say that the employer who offered less was taking money from the employee as if there was some mystical value of the person and anyone who paid less than that amount was cheating the employee.  No, everyone recognizes that the total cost of the employee is paid by the employer and it is one of the main factors affecting how many employees a company can afford to hire.  Anything that raises the cost of the employee will end up costing the employer especially if the additional cost is not related to employee effectiveness.  It will even affect the total number of employees hired as these additional costs per employee will affect the profitability of the company and its ability to survive in a competitive world.

This is part of the supply and demand curves of employment.  So both the job seeker and the employer are aware of the costs of these benefits and are considered part of the salary that the employer pays to purchase the commodity.  Thus, the statement

''the employee, not the employer, pays for the insurance. '' 

does not make sense except in the world of left wing politics.  

The employee does not have a choice to accept an alternative payment because the cost is borne by the employer legally and is part of the supply/demand process.  These economists above contradict themselves when they recognize the origin of health insurance was in the second World War as a stealth means of paying higher wages to desirable eployees.  Thus, they recognize the health payment has costs attached to it and so does the contraceptive costs as established by both the Democratic party and Georgetown University and is a cost to the employer that they would prefer not to pay.  By this logic, the authors will be saying that the employees are paying for every expense the company endures such as property taxes, licenses and their legal costs, liability insurance of the company and other legally mandated costs as well as landscaping costs, cafeteria subsidies, company gyms, child care provisions etc which employees working in their homes are not experiencing. Pretty soon they may be claiming that the only cost a company has is labor costs.

Which leads me to how such an article got published here and how it is defended by certain people.  It seems that  what drives a lot of people is not their religion but their politics.
Amy Ho-Ohn
9 years 1 month ago
JR says: (#11) "By  the logic here, those students at universities providing contraception benefits should demand a $1000 refund for each year they are there if they are males or if they are females that plan to remain chaste during their educational experience."

The Democratic Party's contention is that contraception costs $1000 in some cases, although on average it is much less. Most women can use cheap contraceptives; some can't.

Juan Lino says (#3) "I can't understand why every American is not fighting to stop the redefinition of the relationship between and individual and the government."

State governments already have the right to impose mandates like the ones in the ACA. The Supreme Court argument is just about whether the national government should be able to do so as well. Many Americans think health care is inevitably a national market, so it makes sense for the national government to regulate it.

David says (#8) "The left side of the political tree ... will accept pretty much anything the Obama people say, because he's of their party, pushing their program."

This is arrant nonsense. The left often disagrees with Obama (e.g., about the Guantanamo prison camp.) They accept what the Obama people say about the ACA because they sincerely believe it is inhumane for people not to get health care.

JR says " It seems that what drives a lot of people is not their religion but their politics."

This is a two-edged sword. If your religion is driving you and if your religion includes the Gospel of Christ, you would probably allow your employees' insurance company to provide them with contraception, if the alternative were that their children would gasp themselves into unconsciousness because they couldn't afford asthma medication.
Joshua DeCuir
9 years 1 month ago
I follow the logic of the argument (with one exception below), but it doesn't make much economic sense to me.  Sure, compensation is earned by the labor of the employee.  But the payment of the compensation in the form of health insurance is a three-way transaction, it seems to me, and this analysis narrows the analysis to only one side.  Therefore, by focusing only on the transaction between the worker and employer, it cuts out the crucial third party: the payor of the health benefit.  The authors state that such payor is the employee; yet I'm not sure I follow that.  After all, the Obama administration has consistently said that the employees can request the benefit "cost free" to them; so how can someone pay for something that is being provided to them cost free?  Certainly someone is paying for the cost of the benefit requested by the employee.  Seems to me the cost is covered in one of two ways: either the insurance companies will pool available funds and cover the costs of the benefit they are providing out of their own pockets (HA), or (and what some feel is more likely) they will pass on the cost to their customers, i.e. the employers purchasing the plans.  The analysis ought to be on the employer-insurer side of the transaction rather than on the employee-employer side.  The Bishops are certainly not saying (a) that the health benefits they compensate their employees with are not earned by the employee or (b) that employees are not free to use their compensation as they see fit. 

It should be noted that one way around this whole mess is to adopt a simple proposal made by John McCain and consistently supported by Republcians: get rid of the tax deduction for employer-provided health insurance all together, a deduction which most economists feel is highly inefficient and driver of high health care costs.   http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_6Gw7RTJefXPg0o4

I'd be interested in the authors' (economic) views on that propsal.
Amy Ho-Ohn
9 years 1 month ago
David says: "The left has given Obama a pass on the Cuban prison camp.  And, after an initial knee-jerk reaction against the mandate, they quickly fell in line.  Careful, please, with terms like 'arrant nonsense'."

More arrant nonsense. The left has not stopped screaming about the Guantanamo prison camp in three years. They are still furious about the extension of the Bush tax cuts and the lack of a "public option" in the ACA. They have never stopped demanding even-more-gigantic "stimulus" bills. And now they are pressuring Obama to run against the Roberts Court. A lot of them will probably stay home in 2012. Or they'll run Nader again.

Probably you just don't know any real leftists.

And we both know I'm only saying "nonsense" to get through the spam filter.
9 years 1 month ago
It's about time somebody else pointed this out! Thank you. No employer should ever have the right to usurp the workers right to make their own decisions about such an important service.

For the bishops to take the position they've taken is to render the worker a serf subject of his or her employers. The bishops are dragging us back to the time before Rerum Novarum. Time for their theological retread!

Thank you!
Thomas Farrell
9 years 1 month ago
Bravo! Bravo! Bravo!

Alas, a clearly thought-out statement about the Obama administration's contraception-coverage mandate at a publication associated with the Roman Catholic Church.

However, despite the lucidity of thought in this statement, I expect that the Roman Catholic bishops in the United States are going to continue their quixotic fight against the contraception-coverage mandate, because they can find nothing better to do with their time and energy than to grandstand about this mandate on the grounds of freedom of religion.

Of course it is entirely possible that the Supreme Court may through out the entire health-care law. We'll have to wait until the end of June to find out what the Supreme Court will rule.
Martin Gallagher
9 years 1 month ago
What about the self insured (e.g. EWTN, many dioceses & universities)?  They provide both the health benefits and the insurance coverage.  Should they be forced to provide a service against their consciences?  What about other 3rd party insurers whose conscience also prevents coverage of contraceptives and abortafacients?

Obama must allow conscientious objection to this unconstitutional mandate.  It's really not that hard.

Ala Keya
9 years 1 month ago
It's a little hard for me to comprehend the whole passages, but I support the change in the issue.
Juan Lino
9 years 1 month ago
Just watched an interesting video on the Business Insider website – the post is titled: STUDY: How Obamacare Will Explode The Deficit By $527 Billion Over The Next Decade

Read more: http://www.businessinsider.com/study-obamacare-will-explode-the-deficit-by-527-billion-over-the-next-decade-2012-4#ixzz1reWFjkfl

I am curious to know what the economists who were cited in this post will say about this.

Amy – I was alluding to the Supreme Court hearings when I cited the “redefinition”.  Well, if the Federal Government wants to create a National Healthcare System (similar to what they have in Canada or Europe) then why don’t they just be honest and attempt to that?  What happened to the “transparency” we were promised?

And yes, it seems that the political left often gives a pass to Mr. Change.
Bud Martinez
9 years 1 month ago
I find this article to be totally not consistent with real life. To imply that there is a rider with no cost for contraceptives is a ridiculous statement; it may not be a direct cost if you don't get the rider but all taxpayers pay since nothing is free.
I have managed a Catholic self insured health plan for 10 years and am well aware of how benefits are costed and how costs are shared. 
Unfortunately, the CHA and Jesuits have wrapped themselves in social justice at the expense of family and individual Christian community commitments.
Carlos Orozco
9 years 1 month ago
So there is such a thing as a free lunch? That's harder to take seriously than Change you can believe in.
Amy Ho-Ohn
9 years 1 month ago
Hi Juan Lino,

I don't think the left makes any secret that their preferred solution would have been to nationalize the health care system. But they knew they couldn't get it through Congress. I don't think the right is making any secret that their preferred system is that poor people should simply suffer and die. At the moment, they can't quite get that through Congress.

The ACA is a compromise. On the one hand, it's a political compromise, with all that implies; you're right, the process was not very edifying. But it's also (IMHO) a wise way of proceeding, because it's more or less reversible. Once it's implemented (if it is) and the problems become obvious, it can be gradually modified in either direction; toward more market-based mechanisms or toward more government dominance. It's a way of getting a lot more people the health care they need without running the risk of an irreversible catastrophe.

It works here in Massachusetts. It's not great, but it's a lot better than nothing. Most people get most of the health care they need most of the time.

Like they say in show business, anybody can be a critic, criticizing is easy. Performing is hard.
Tom Maher
9 years 1 month ago
The Massachusetts health care mandates and "reforms" is another big social experiement that has failed.  Don't let anyone tell you that that the Massachusetts health care reforms are a success without asking what the observer means by success which will always lack any objective economic measurement and are full of "feeling good" illusions. 

There is areason that the people of Massachusetts elected Scott Brown to the U.S. Senate in 2010 to oppose the federal Health Care reform which is based on the Massachusetts universal mandate - Massachusett citizens oppose this massive social  experiment becasue it does not work by making health care extremely expensive.

Mandates are a blank check for insuracne companies to raise premiums and they have.  

Mandates also fundementally alters the relationsship of the citizen to the government.  The intrest of the state becomes paramont and the citizen becomes accountable to the government rather than the government accountable to the citizen.  Hopefully the Supreme Court will rule to strick down the federal mandate as Constitution and prevent the nation from being harmed by the universal mandate power grab of citizens' freedom to make their own economic choices regarding health care.
Juan Lino
9 years 1 month ago
The writer states: "Instead, their employees can apply directly to the insurance company for a rider that covers such purchases at no cost to them." (Emphasis mine).

So if the employee is not paying for a medication who is paying for it? 

In my company, I pay and my employer pays for the health insurance. 

What am I missing?
Juan Lino
9 years 1 month ago
After listening to the audio files and reading the documents regarding the events that transpired during the Supreme Court hearings on the Affordable Care Act, it's clear that the primary issue is government overreach and not just intrusion on religion. 

That's why I can't understand why every American is not fighting to stop the redefinition of the relationship between and individual and the government. 
David Pasinski
9 years 1 month ago
This is a helpful analysis because it places the responsbility on the individual regarding the so called forbidden - but not illegal - action. There is not reason why an employer should be exempt from this practice which, as has been pointed out, is used in one of seven prescriptions for an non-contraceptive and morally legitmate health concern. The employer owes this to workers with whom the contract exists to obey the legitmate laws that allow them to choose the care that is appropriate- whether it is contraceptives or one of many other treatments that any given religious group may think legitimate or not.
Rick Fueyo
9 years 1 month ago
The point the authors make is the application of economics to moral reasoning. The Bishops have ejected to being compelled to "pay for" something may be morally objectionable, namely contraception. The authors contend that, as a function of economic reasoning, the employer does not actually “pay for" the insurance benefits received by the employee. Instead, the employee "pay for" any item of coverage, which is economically allocated as part of their total compensation.
 As a function of economics, this is a fairly unremarkable contention.  I'm not aware of any serious economist which debates the general proposition that the value the employer contributes to a group health plan is not allocated as part of compensation in determining the total compensation paid to that employee. Put another way, every dollar you receive health care coverage is one less dollar you will receive in direct pay or some other benefit. 
Consequently, the authors reason, the Bishops are not actually "paying for" contraception by including it as a mandatory benefit of a group health plan offered to their employees.    The employees are in fact “paying for" that benefit. Ergo, the authors contend that there should be no actual moral objection, as the Bishops are not being compelled to pay for anything they morally disagree with. They are merely the conduit.
 Of course, the counter that argument is that if the employee is paying for it, why provide it through an employee paid health care plan in the first place. Two responses. First, without negating the obvious conclusion that the employee pays for his/her health insurance, it still makes sense to provide for group coverage, according to the risk sharing principles of insurance generally. Second, our tax code favors employer provided insurance. So these two principles, both of which are morally neutral in terms of the question being considered, dictate the coverage is more efficiently provided to the employer, even though it is being "paid for” by the employee.
C Walter Mattingly
9 years 1 month ago
Winifred (#5): "The bishops have put themselves into a position where they have no get out of jail card to play."
I wonder. President Obama went against the advice of his liberal Catholic VP Biden, Kerry, and other advisors with his affront against the Church. To a church-going Catholic, it can appear as yet another move against the interests of the Church, including Obama's rear-guard, crumbling fight against the vouchers the inner city parents desire for their children afflicted with chronically failed public schools, his attempt to limit the deductibility of charitable donations to restrict its financial resources, and now this more visible move against the Church's own expression of its beliefs.
Last election candidate Obama received a slightly higher percentage of Catholic
votes, 54%, than he did from the general population. Whether this move enhances his standing with that group remains to be seen. If by such increasingly transparent moves against the interests of the Church he reverses that vote in November, he may have overplayed his hand, effectively producing his own get out of office card. 
We'll soon see. 
Juan Lino
9 years 1 month ago
Hi Amy,
Well I subscribe to what it says about health care in paragraph #182 in the Compendium of the Social Doctrine of the Church.  I presume you agree too.  In addition, I think that the health care system we have in America is really broken and needs to be fixed badly.  Is the ACA the solution?  It might have been if the government was trying to force everyone to participate - you know, that freedom issue. So, I don’t think so because I don’t trust the government will really look out for my interests!  Of course, the insurance companies don’t either because I have a “pre-existing” condition.
I’m in NY and we don’t have the system you have, perhaps I’ll send you an email because I’d like to know how it’s actually working in your sate with specific questions.  When I am having one of my dark days I imagine dying a typical NY deaths when I become and old man - presuming I make it, of course.  I won’t show up for work a few days, some friends will try to reach me on my cell, but no one will definitely know I am dead until my decomposing body starts to smell so badly that my super breaks down the door.  People made from of Sarah about the “death panels” but I am not so sure she was wrong!
Politics in the US is really sad.  Although I am a registered Democrat who actually votes, I don’t like either party and really always struggle when I have to vote.  I am  definitely not going to vote for our current President but I’m not too thrilled with Romney either - so here I am in the same square I’m always in!
Amy Ho-Ohn
9 years 1 month ago
Tom Maher says (#21) "Don't let anyone tell you that that the Massachusetts health care reforms are a success without asking what the observer means by success which will always lack any objective economic measurement and are full of "feeling good" illusions. "

Life expectancy in Massachusetts is 80.1 years:


If we were a country, we'd be seventh in the world:


Another objective metric: Governor Deval Patrick campaigned for re-election on the health insurance plan and won by more than five percentage points. It could work for Obama too. 

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