Kagan: “The Dumbest Thing I Ever Heard”

by Ed Whelan

That’s how Elena Kagan, at her 2009 confirmation hearing for the position of Solicitor General, characterized, and thereby distanced herself from, her much younger self’s bizarre understanding of how the Establishment Clause ought to operate. But if Justice Kagan was listening to herself at last week’s oral argument in Hobby Lobby, she has some serious new contenders for “the dumbest thing [she] ever heard.”

In trying to argue that the annual $2000 per employee tax that Hobby Lobby would incur if it chose to drop its insurance coverage for employees meant that the HHS mandate did not impose a substantial burden on Hobby Lobby, Kagan asserted: “But this is not the kind of thing that’s going to drive a person out of business. It’s not prohibitive.” (Transcript, 24:19-21.) Earth to Kagan: There is nothing in free-exercise jurisprudence to support the notion that a burden meets the minimum threshold of “substantial” only if it “is going to drive a person out of business” or is “prohibitive.”

Similarly, Kagan nakedly asserted that the overall cost to Hobby Lobby would be substantially the same if it dropped insurance coverage for employees, paid the penalty, and increased wages for employees to compensate them for the dropped coverage: “we are talking about pretty equivalent numbers,” “Maybe it’s a little bit less; maybe it’s a little bit more.” (Transcript, 24:17-19). In his thorough blog post last Friday, law professor Michael McConnell (elaborating the response that Paul Clement provided at oral argument) demolished Kagan’s assertion:

If employers were better off dropping insurance coverage and paying the “tax,” we would expect many large employers to do so. That has not happened—which confirms the common-sense conclusion that dropping insurance coverage is bad for employees and bad for business.

In any event, the speculation that Hobby Lobby could save money by dropping its employees’ health insurance plan, paying the tax, and making it up to them in increased salary disregards three important facts: (1) employer-provided health insurance is tax-exempt to the employee, but the compensatory increase in salary would not be; (2) the provision of insurance is tax-deductible to the employer, but payment of the tax is not; and (3) employer-based group coverage is cheaper and usually better than individual plans on the exchanges. It is almost certainly cheaper for Hobby Lobby to provide health insurance than to pay for its employees to purchase equivalent coverage on the exchanges.

True, some of Hobby Lobby’s employees might be eligible for subsidies, which in theory might lower its costs. But those subsidies depend on information an employer does not have – family size and income – and employers cannot pay different amounts to workers based on these factors. To make all of its employees whole, Hobby Lobby would have to assume none will receive subsidies.

In short, if Hobby Lobby drops insurance, it would not simply pay a $2,000 “tax.” Requiring it to cease providing insurance would cause massive disruption to Hobby Lobby’s employees, major uncertainty for its business, and cost millions of dollars in taxes and salaries beyond what it was previously paying just for insurance. It is easy to see how imposing such a choice constitutes a substantial burden—which is likely why the government never raised the issue, and the courts of appeals never considered it.

In fairness to Kagan, I will note that it’s conceivable that she was just posing “devil’s advocate” questions and that she didn’t actually embrace the propositions that she set forth. That’s certainly not how her remarks came across, though.

On the other hand, I will give Kagan credit for seeming to recognize the lack of merit in the Obama administration’s “threshold claim” that for-profit corporations operated in accordance with the religious beliefs of their owners have no religious-liberty rights at all. (See transcript at 51:9-13.)