On the HHS Mandate’s “Sieve” of Exceptions

On the Balkinization blog, law professor Marty Lederman has been writing a series of long posts defending the HHS mandate against the religious-liberty challenges brought by Hobby Lobby, Conestoga Wood, and others.

(Lederman provides a compendium of his posts at the end of his most recent post. I’ve previously explained—here and in a twopart reply to Lederman’s response—why I think that Lederman is wrong to contend that the absence of a legal duty on large employers to provide health insurance means that the HHS mandate doesn’t impose a substantial burden.)

As part of their argument that the burden that the HHS mandate imposes on them isn’t “in furtherance of a compelling governmental interest,” Hobby Lobby and Conestoga Wood cite the mandate’s “sieve” of exceptions—for example, for “grandfathered” plans (which are not subject to the HHS mandate at all) and for small employers (who face no penalty for failing to provide employee health coverage). (See Hobby Lobby brief at 49-52; Conestoga Wood brief at 58-60.) As Hobby Lobby puts it, “These numerous exceptions belie the government’s claim that the mandate is strictly necessary to further compelling interests in public health, gender equality, or anything else.” (Hobby Lobby brief at 51.)

In a post titled “The Myth of Underinclusiveness,” Lederman argues that “the statute here is not nearly as full of ‘holes’ as the plaintiffs would have it.” I will outline here why I think Lederman is wrong:

1. Let’s start with the “small employer” exception. Lederman observes (correctly) that employees of small employers who decline to provide qualifying health coverage “will be eligible for coverage on a government-subsidized exchange.” That means, he contends, that such employees “will be entitled to the full range of required, cost-free preventive services coverage.” (The term “cost-free” means without requiring insured persons to make copayments or pay deductibles.)

What Lederman is overlooking (or glossing over) is that such employees will be “entitled” to the “cost-free” contraceptive coverage that the HHS mandate requires of large-employer plans only if those employees actually make the decision to purchase coverage on an exchange. Under the saving construction of the individual mandate that the Supreme Court majority adopted in NFIB v. Sebelius, no one is under a legal duty to purchase such coverage. Further, it’s clear from the early experience with the exchanges that lots of individuals have decided to go without insurance rather than to purchase coverage on an exchange.

In short, the “small employer” exception from the employer-mandate penalty gives small employers a disincentive (vis-à-vis large employers) to provide health coverage for their employees. The predictable result is that many of those employees will not obtain coverage on the exchanges and thus will not obtain the cost-free contraceptive coverage that the Obama administration contends it has a compelling interest in requiring Hobby Lobby and Conestoga Wood to provide.

2. As for “grandfathered” plans: Lederman thinks it significant that the “percentage of employees in grandfathered plans is declining rapidly” and was down to “36% in 2013.” Looking into his crystal ball, he contends that at some undefined point “[i]n the not-so-distant future, the number of remaining grandfathered plans should be vanishingly small.”

I fail to see how a blanket exception that, as of the most recent data, covers a full 36% of all employees can be disregarded on the basis that it is supposedly transitional. (Never mind, as Conestoga Wood points out, that “grandfathered” status can continue indefinitely.) If the federal government doesn’t have a compelling interest in requiring that the tens of millions of employees (and their dependents) under grandfathered plans obtain cost-free contraceptive coverage, why does it have a compelling interest in requiring Hobby Lobby and Conestoga Wood to provide it to its employees?

3. Consider also the “accommodation” that the Obama administration has provided for objecting religious nonprofits. Lederman argues that the “government’s interests are not compromised in such cases,” since the accommodation ensures that employees of the religious nonprofits obtain the cost-free contraception coverage. But RFRA requires that the government demonstrate that “application of the burden to the person … is in furtherance of a compelling governmental interest.” If, as the Obama administration maintains, the accommodation respects the religious-liberty interests of the religious nonprofits, the question arises why the Obama administration does not provide that same accommodation to objecting for-profit employers.

4. Lederman fails to recognize that the arguments that he (wrongly) thinks so central to the substantial-burden inquiry—that large employers don’t actually have a legal duty to provide employee health insurance at all and that “most employers” would (supposedly) benefit economically by dropping their health plans and instead paying the tax—undercut his position on exceptions. To the extent that Lederman is right on the latter proposition, the employees of large employers will lose their employer-provided insurance and will be stuck with the choice of obtaining insurance on the exchanges or of going without insurance. Again (as with the small-employer exception), it’s predictable that some significant number of employees will choose the latter option and thus won’t obtain cost-free contraceptive coverage. So how is it that there is a compelling interest in requiring Hobby Lobby and Conestoga Wood to provide such coverage?

5. The Obama administration (acting with no legal basis) has already waived the employer-mandate penalty for large employers for 2014 and for a newly invented category of mid-sized employers through 2015. (The waiver doesn’t help Hobby Lobby and Conestoga Wood, as they remain subject to steeper penalties for providing non-compliant coverage.) Again, these waivers provide a disincentive to employers to provide coverage to their employees and thus operate to increase the number of individuals who will decide between obtaining insurance on the exchanges or going without insurance.

6. Lederman makes this blanket assertion:

If the [Hobby Lobby and Conestoga Wood] plaintiffs were to receive the relief they seek, it would mean that their female employees would have to pay for such contraception themselves—and thus they would not enjoy a virtually universal new health care benefit that will be available to more than 99% of other women in the United States.

As ought to be clear by now, his assertion that the benefit “will be available to more than 99% of other women” obscures two key limitations. First, by using the future tense (“will be available”), Lederman is referring to some time in the future when there will be few if any grandfathered plans. That is not the context in which the HHS mandate was imposed, and it is not the context now. Second, the proposition that the benefit “will be available” is very different from the proposition that most or all women who are deprived of employer-provided insurance will actually choose to avail themselves of insurance on the exchanges that includes the benefit. (Also, contrary to what Lederman implies, the employees of Hobby Lobby and Conestoga Wood could also obtain coverage on the exchanges, though I readily acknowledge that for them (as for many others) the economic case to do so might well be irrational.)

Further, the government could develop alternative means of providing cost-free contraception or contraceptive coverage to the employees of employers who have religious objections to some or all of the drugs and devices covered by the HHS mandate. (See Hobby Lobby brief at 58.)

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