Hobby Lobby - When is $26 Million Really $43 Million?

Posted: Mar 29, 2014 12:01 AM
Hobby Lobby - When is $26 Million Really $43 Million?

There is a certain irony that Judge Roberts who determined, incorrectly in my opinion, that the Affordable Care Act penalties were a tax, never entered the Hobby Lobby discussion with respect to the real world cash implications of the ACA penalty being a tax. Obamacare Facts correctly reports: “Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.”

In terms of what earnings are required to pay a $2000 penalty for not providing health insurance to their employees as opposed to a $2000 business related health insurance expense, Hobby Lobby must first earn approximately $3333 per employee, next pay Federal and state taxes on the $3333 and finally pay the penalty of $2000.

In terms of continuing to provide health insurance to their employees but not adhering to the specifically mandated birth control (or abortion inducing) drugs required under Obamacare, Hobby Lobby is subject to an annual draconian penalty of $36,500 per employee for failure to follow the mandate of the Department of Health & Human Services. In this case, Hobby Lobby would need to earn $60,833 per employee to pay these per employee fines.

It is interesting to note that the penalties and fines under Obamacare provide that unusual situation where providing 98% of a loaf is more than 18.25 times more expensive for Hobby Lobby than providing none of the loaf. The decision not to provide the four specifically mandated drugs and continue to provide healthcare is 18.25 times more expensive for Hobby Lobby than cancelling their employees’ insurance totally. This is where one suspects that Lewis Carroll, the author of Alice in Wonderland, although deceased for almost one hundred and twenty years had a hand in writing the Affordable Healthcare Act.

As Ms. Pelosi famously said: “You have to pass the bill so you can see what’s in it.”

It is reported that Hobby Lobby has about 13,000 full time employees. It is also reported that Hobby Lobby pays the medical insurance for these full time employees. The total cost of their health insurance plans should therefore approximate about $136 million dollars a year. To maintain that insurance and not provide the four specific drugs mandated by Obamacare would cost an additional $791 million dollars a year (as they would need to pay taxes on earnings before paying the draconian $36,500 per employee fine.) To cancel their employee health insurance policies, Hobby Lobby would have to earn approximately $43 million per year to pay the $2000 Obamacare per employee penalty.

So, this is nuts! If Hobby Lobby loses their case at the Supreme Court, they are not going to be able to back down from their religious beliefs. If the owners truly believe that using these drugs is the equivalent of murder, they cannot back down. They will not be able to earn $791 million per year to pay the HHS fines and will have to cancel health insurance for 13,000 employees.

Undoubtedly, Hobby Lobby will ask their employees to pay a portion, let’s say one half of the $43 million penalty cost. So, rather than their employees self-funding a series of drugs that are readily available to the public, every employee will get additional compensation to pay for their health insurance. That payment would be about $1650 less than the cost of Obamacare and of course, the employees would need pay taxes on one hundred percent of this additional compensation before purchasing Obamacare policies. Perhaps needless to say, many of these employees will determine to keep the additional compensation and take the risk of being uninsured.

We must conclude that in a practical sense, if the Supreme Court forces Hobby Lobby to either provide these four specific drugs or cancel their health insurance plans, there will only be losers at Hobby Lobby. The owners will earn lower profits and therefore build their business more slowly which benefits no one. Their employees will be faced with the unacceptable choice of not having health insurance or paying much more for it and the winner will be, of course, no one.