A better approach to religious employers and contraception

The Obama administration released the final details Friday of the exemption it will provide religious-affiliated employers from the requirement to include free birth control in employees’ insurance policies. Not surprisingly, the announcement didn’t seem to mollify any of the critics who’d been arguing that the exemption was inadequate.

That’s true in part because the critics don’t believe the exemption will function the way the administration has said it will. I think they’re wrong, but I also think the administration should have taken a much different tack to resolve the dispute.

Hoping to slow the increase in healthcare costs, the 2010 Patient Protection and Affordable Care Act -- better known as Obamacare -- required insurers to provide preventive services with no copays or out-of-pocket costs. One of the preventive services specified later by the Department of Health and Human Services was contraception for women, including morning-after pills, which some religious groups consider abortifacients. The department added an exemption later for churches and other religious employers, and when that didn’t end the outcry, the administration said it would adjust the rule further to try to please both sides: Employers affiliated with religious groups wouldn’t have to pay for contraceptive coverage, but their employees could still obtain it for free.

Some religious-affiliated employers have sued, arguing that they’re still being forced to subsidize behavior that’s contrary to their beliefs. Secular employers have sued as well, saying that the mandate violates their religious principles.

The proposed rules issued this week take pains to isolate religious-affiliated employers from any involvement in an employee’s decision to obtain contraceptive coverage. Such coverage would not be through the employer’s group plan; the employer’s insurer would provide it through specialized individual plans, which it would have to provide at no charge to the employer or the beneficiary. The only thing the employer would have to do is certify to the insurer that it was exempt from the contraception mandate.

Given the immutable law that there is no such thing as a free lunch, it’s easy to argue that insurers will pass the cost of providing contraceptive coverage back to their customer base through higher premiums. Maybe so. The administration argues, though, that covering contraceptives is at worst a break-even proposition for insurers because of the costs averted in other areas, such as pregnancies and abortions.

So if you’re going to argue that religious employers would somehow pay for the contraceptives prescribed, you’d also have to acknowledge that they’d benefit from the savings associated with using birth control. The entanglement goes both ways.

Some critics of the mandate sought a much more definitive separation from contraception. “These commenters generally argued that, in order to provide adequate relief, the departments would need to rescind the contraceptive coverage requirement in its entirety, provide an exemption for the group health plan of any organization with a religious or moral objection to contraceptive coverage, or provide government funding for provision of contraceptive services,” the department’s rule proposal states.

As I noted in a previous post, it’s an accounting fiction that employers pay anything for their workers’ healthcare coverage. Employees effectively pay the employer’s share of the cost by sacrificing some wages they would otherwise receive.

With that in mind, I think there’s a more elegant way to work around the dispute over the contraception mandate: Let religious-affiliated employers pass the entire cost of their healthcare benefits explicitly onto their workers.

Here’s how it would work. Let’s say a Catholic university pays a professor $60,000 and provides health benefits worth $3,000 before taxes. To avoid the contraception mandate, the university would increase the professor’s pay by $3,000, which the professor would use to buy into a new version of the group policy that the university used to offer. To maintain the financial status quo, the professor would have to be allowed to exclude the $3,000 from her taxable income, and the university could not be penalized under Obamacare for not providing health insurance to its employees.

Such an approach could also provide a template for a much broader shift away from employer-provided coverage. I think that would be a step in the right direction, provided that workers were able to recapture the money their employers spent on health benefits and to form large risk pools to reduce their premiums. The state insurance exchanges should help considerably on the latter front. But my solution would require Congress to revisit Obamacare, which isn’t likely to happen anytime soon.

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