Hobby Lobby

This strikes close to home, as many of my colleagues struggle to reverse the recent decision of our employer, Santa Clara University, to drop abortion coverage from our health insurance plans. The impact of Hobby Lobby on our situation, however, is probably at most indirect, because our own legal context involves state regulators rather than the provisions of Obamacare.

One of the arguments we have used in favor of retaining the coverage is that in the labor market, employees actually pay for most of their nonpecuniary benefits (such as health insurance) in the form of lower cash salaries than they would otherwise earn, so benefits should be treated as spending from compensation over which the employees should have choices. The fact that the employer acts as our agent in the health insurance market is an oddity of U.S. labor markets and a historical "accident." Uwe Reinhardt elaborates on the economics a little here. And this excellent post by Brad DeLong places the matter in the historical perspective of welfare capitalism, a topic I studied many long years ago in my Ph.D. dissertation.

What is your health insurance premium?

Dean Baker makes a crucial point about the affordability of health-insurance premiums, referring to a NY Times article today. People who have insurance policies through their employer usually share the cost of the premium, with the employer often "paying" a greater share. "Paying" in quotes here, because who really pays for the insurance depends on what the wage or salary would have been in the absence of the insurance benefit. This is a question of incidence, as economists put it, and as Baker points out, most economists believe that most of the incidence of a tax or charge on labor, or a benefit, falls on the worker side. In other words, a worker whose employer "pays" most of her insurance premium is actually paying most of that herself, because her take-home pay is less than it would have been without the insurance benefit.

Consequently, as Baker shows, a couple with the U.S. median two-earner income would in effect pay nearly 20 percent of their income for the average family policy provided by American employers. This may be small comfort to the couple in the Times story, who would have to pay about 12 percent of their annual income for a policy from the individual marketplace under Obamacare. But it places the affordability of Obamacare in a rather different and less alarming light.