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.