We All Love Taxes–Hobby Lobby As A Tax Case 2

Every morning the great people over at ThomsonReuters’s Checkpoint inundate my RSS feed with tax related court cases and newly passed tax regulation. Reading them all is usually about as exciting as taking an elementary school standardized comprehension tests, with unhelpful headlines followed by rambling gibberish (like today’s disbarred lawyer who claimed the IRS owed him hundreds of billions of dollars for his disbarment, doctoral studies, and radioactive waste storage. Whatever that even means.)

Then, every now and then, a Supreme Court case that people have actually heard of sneaks into the mix. In today’s feed, it was Burwell, Secretary of Health and Human Services, et al. v. Hobby Lobby Stores, Inc., et al.

“But,” my first thought was as I read the summary, “this isn’t a tax case.”

Apparently I wasn’t the only one who thought that. Right there in the minority opinion, we have Justice Ginsberg complain that the majority opinion will allow “that commercial enterprises, including corporations, along with partnership and sole proprietorships, can opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.” Surely this can’t be a tax issue if one of the top nine judges in the land explicitly states it isn’t.

What does Checkpoint know that the two of us don’t?

It wasn’t until I got to the bottom of the (multipage) summary did I figure it out. Excise taxes. Hobby Lobby would have faced about $475 million per year in non-deductible excise taxes if they provided insurance that didn’t cover emergency contraceptives (i.e. the day after bill). Alternatively, if they dropped insurance coverage altogether, their penalties would have dropped to roughly $26 million.

Plan B Over the Counter

If that seems like a lot to throw at Plan B, just keep reading.

There you go–this Hobby Lobby case you’ve been so interested in is actually a tax issue. Now that we’ve determined that you actually like taxes, remember to subscribe to my RSS feed or follow me on Twitter.

I should just leave it at that, but I do have to make a comment on the ridiculousness of the economics at work here.

First of all, the drugs in question, according Princeton’s emergency contraceptive website, cost between $35 – $60 without insurance. Plan B is about $50 at Walgreens over the counter, and, therefore, wouldn’t be covered by insurance anyway. That means, best case scenario, a Hobby Lobby employee that gets coverage for these pills would save $40 ($20 co-pay for the doctor’s appointment to get the prescription, $0 for the most expensive pill). Since Hobby Lobby probably doesn’t have top notch insurance, it’s more likely that an employee would pay something like $100 for a same-day (ER or Urgent Care) doctor’s appointment and zero for the pill, thus making it more economical to just go out and buy the over the counter stuff, which, once again, is not covered by any insurance.

Prior to the Supreme Court ruling, Hobby Lobby could have provided insurance to their employees that covers everything required by the law except four abortifacients (and whatever new ones come along. Remember, despite what many politicians are saying, Hobby Lobby apparently had no problem with birth control, just emergency contraceptives), and been hit with $475 million in penalties per year. That’s enough to buy about 376 doses of emergency contraceptives for each of their 21,000 employees every year.

If, however, Hobby Lobby were to drop coverage, all these employees would fall under some (likely even worse) government run insurance, and Hobby Lobby would only have to pay $26 million per year, which would only cover 20 doses of emergency contraceptive per employee every year. The $1,238 per employee that the government received in excise taxes couldn’t possibly be enough to insure them all without tapping into unrelated tax sources.

I’m scratching my head here. When Hobby Lobby approached the HHS stating they didn’t want to cover a drug that most employees would be economically better off buying over the counter (the OTC drug came out a year before the HHS mandate, so it was around at the time), it would have been politically and economically more expedient to give them an exemption and gone on their way. Instead they decided to hash it out, and have ended up with a political black eye.

I guess I don’t understand politics. Time to get back to taxes.

 

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Picture by Cory Doctorow

  • Alex Ball

    Hobby Lobby is just trying to protect their religious beliefs, in this case their religion is “corporate tax evasion.”

    • We accountants call it “tax avoidance” when the Supreme Court rules on your side.