When Is a Mandate Not a Mandate? Ask the Supreme Court

Supreme Court
Supreme Court arguments over contraception and religious freedom may hinge on whether the “employer mandate” exists Gary Cameron/Reuters

In a famous scene from the classic sci-fi film The Matrix, in which the perceived world turns out to be a simulation instead of reality, the character played by Keanu Reeves encounters a young boy bending a spoon with the power of his mind.

The boy, dressed like a tiny, bald monk, then wows the bewildered Reeves with one of the film's most memorable lines: "There is no spoon."

Fifteen years later, those four words seem applicable in a very different context: the debate over Obamacare's employer mandate. Let me explain.

Next week the Supreme Court will hear oral arguments in two challenges to President Barack Obama's signature health care law. The owners of two companies allege that the law violates their religious liberty by requiring the insurance they offer to include coverage of some contraceptives that they object to on religious grounds.

The two cases, Sebelius v. Hobby Lobby Stores Inc. and Conestoga Wood Specialties Corp. v. Sebelius, are multifaceted and complex, but they revolve around the central premise that these two companies must provide insurance as mandated by the Affordable Care Act.

"The mandate compels [Hobby Lobby] to do precisely what their religion prohibits or face draconian consequences," Hobby Lobby's legal team writes in its brief to the Supreme Court. This do-it-or-else framework, it argues, creates a "substantial burden" under the Religious Freedom Restoration Act (RFRA).

Except, as the boy in the The Matrix might say, "there is no employer mandate."

The term "employer mandate" is used constantly today—in the lawsuits over Obamacare, by lawmakers and in the media (including in this article). Likewise, the cost of not providing insurance is usually referred to as a penalty or fine. It certainly appears as if employers are required to provide health insurance.

But in reality, there is no such mandate. This fact could alter how the justices might determine the burden the law places on the free exercise of religion.

Former Justice Department lawyer Marty Lederman has raised this point in recent months in a series of blog posts on Balkinization, a left-leaning legal blog. In its simplest form, the argument goes like this: There is no employer mandate; therefore these companies are not necessarily being forced to violate their religious beliefs.

"One of the most obvious deficiencies in the arguments being made by Hobby Lobby and Conestoga is that there is no employer mandate," says Sara Rosenbaum, a health policy expert at George Washington University. "I don't know what they are talking about. Nobody knows what they are talking about. Employers don't have to offer insurance at all."

"I think Lederman's argument is a very powerful one," says Adam Winkler, a constitutional law expert at the UCLA School of Law. "I think he's on to something."

Rather than a mandate, the Affordable Care Act offers employers a choice. Companies with at least 50 full-time employees (small companies are not covered by the law) can either provide health insurance to their full-time employees, which must meet various minimum standards, including the full range of contraception options, or make a payment to the Internal Revenue Service. In other words, Lederman argues, it's a tax.

You may be experiencing déjà vu right now. That's because nearly two years ago, the Supreme Court upheld the constitutionality of the individual mandate by finding that it was, in fact, a tax. Though the constitutional and statutory issues in this case are different, the similarity in public perception is remarkable. In both of the health care cases, the prevalence of the phrase "individual mandate" or "employer mandate" obscures what the law really does.

For employers, this tax—referred to variously in the law as an "assessable payment," "assessable penalties" and a "tax"—is not a coercive exaction meant to force employers to provide coverage. A company paying the tax would pay far less than the cost of insuring its employees. (The law requires the company to pay just under $2,000 per employee receiving a federal subsidy, whereas the cost of covering that employee costs on average about $4,000.)

These employees would be free to purchase a health insurance plan through their state's exchange, and if they make less than 400 percent of the federal poverty level amount, they can receive a tax credit from the government to help them afford coverage. For employees of modest means, this means the government would now be helping them get insurance. The government in turn exacts a fee from the company to help pay for that coverage. That's why the employer tax kicks in only when one of its employees gets a federal subsidy for purchasing insurance.

The government's brief to the Supreme Court does not make this point at length, but it does say as much in passing. "An objecting employer retains the option of choosing not to offer a group health plan at all (thus allowing its employees to obtain individual coverage on the insurance exchanges, where many will qualify for subsidies) and potentially being subject to a tax instead," Solicitor General Donald Verrilli wrote.

To the extent that a mandate exists, it is a mandate to provide the full range of contraceptive services if the employer chooses to provide a plan at all. If a company provides health insurance that does not meet the contraception coverage requirements (or any of the other minimum standards required by the law), it will face a very steep financial penalty of, in Hobby Lobby's case, nearly $500 million per year. If Hobby Lobby decided to pay the tax, it would pay about $26 million per year, or less than the cost of providing insurance to its 13,000 full-time employees.

If the mandate is, for all intents and purposes, a reasonable tax, the next question is whether that has an impact on the companies' religious liberty claims. If the court decides corporations, or the owner through the corporation, do indeed have religious rights under the RFRA, then the question becomes: Is the tax option a "substantial burden" under the RFRA, such that religious employers still face substantial pressure to forgo their religious beliefs?

"It's not substantially burdening religion to give employers a choice as to whether to provide an employer plan or pay a fee," says Rosenbaum.

But Hobby Lobby contends otherwise, arguing in its brief that it would not only pay a fine but also lose the competitive advantage of providing health insurance, which could hurt its ability to keep or recruit employees.

According to Timothy Jost, a health law expert at the Washington and Lee University School of Law, it's not entirely clear whether paying the fee is a substantial burden or not. The dollar amount spent on care is significantly less, but depending on the industry, it might hurt the company not to offer insurance. "Health insurance is basically the No. 1 fringe benefit that employees want," he says. "It's not an insignificant consideration."

Ed Whelan, a conservative legal scholar and former colleague of Lederman's at the Justice Department, has similarly pushed back against Lederman's argument. In a series of posts on the National Review Online's Bench Memos blog, Whelan argues that even a choice, rather than a mandate, is a substantial burden on free exercise. Whelan uses a hypothetical to illustrate his point.

"A newly enacted federal law requires that any store that sells beef to the public must also sell comparable pork products," he posits. "The owner of a kosher deli charges that the law violates his rights under RFRA. In determining whether the law imposes a substantial burden on the owner's exercise of religion, would a court really find it significant that federal law does not require the deli owner to sell beef?"

Winkler says Whelan's hypothetical is a "very sympathetic one," but not one he finds convincing. Imagine a butcher believes in slaughtering animals in a way that violates occupational safety and hazard laws, he posited. "Could that person just slaughter them however they wanted for religious freedom purposes? No."

Winkler also noted the two scenarios are different because not selling beef products would cripple a deli's business, whereas Hobby Lobby would be unlikely to see its business go under if it stopped providing insurance.

If Lederman's argument is a strong one, why isn't the government making it? After all, Verrilli, the solicitor general, won the first major Obamacare case with his argument that the individual mandate was a tax. And yet, the argument is only faintly apparent in Verrilli's latest brief.

"It seems like this is a pretty powerful argument that the government should be making," Winkler says. "I wouldn't be surprised if the government paid some attention to it in their oral argument."

The government has limited space it its briefs, and it focused on stronger arguments, Rosenbaum says. "They devote so little space in their brief to the ultimate merits of the case because their strongest arguments are around the scope of the Religious Freedom Restoration Act itself," she says, referring to the question of whether corporations or their owners can bring claims under the RFRA.

It's also possible that the omission has more to do with politics than the law. From a public relations standpoint, the Obama administration may not want to advertise the fact that the health care law could lead to employers dumping their health insurance offerings. After all, the president is already in hot water for his promise that "if you like your plan, you can keep your plan."

But Obamacare will lead some employers to drop their health care coverage. According to the Congressional Budget Office, there is a "tremendous amount of uncertainty about how employers and employees will respond to the set of opportunities and incentives under that legislation." The CBO estimates that between 3 million and 5 million individuals will lose their employer-sponsored health coverage over the next several years.

Whatever course the government takes next week before the nine justices, the fact that neither the government nor many legal scholars have pointed to the employer mandate myth has created a conventional wisdom about the law that does not comport with reality.

"The whole case has this Alice in Wonderland quality to it," says Rosenbaum. "They face no mandate whatsoever."