July 1, 2014

Supreme Court Rejects Contraceptive Coverage Mandate for Certain Employers

by Charlene Bigelow, Willis

On June 30, the US Supreme Court, in Burwell v. Hobby Lobby Stores, Inc., et. al., found that the Department of Health & Human Services’ (HHS’) regulations implementing certain no cost sharing women’s preventive health services included in the Patient Protection and Affordable Care Act of 2010 (PPACA) violated the Religious Freedom Restoration Act of 1993 (RFRA) with regard to closely-held, for profit corporations who assert that such mandates violate the owners’ sincere religious beliefs.

Background – Supreme Court Decision:

HHS regulations confirm that nonexempt employers who provide health coverage are generally required to provide coverage for the 20 contraceptive methods approved by the Food and Drug Administration, including the 4 that Hobby Lobby objected to (scripts/services that may have the effect of preventing an already fertilized egg from developing any further). Religious employers such as churches are exempt. HHS has also effectively exempted nonprofit organizations with religious objections through an accommodation – where, upon certification by the employer, the issuer of coverage must exclude contraceptive coverage from the employer’s plan and provide participants and beneficiaries with separate contraceptive services without cost sharing – ensuring neither the employer, the plan nor the participants/beneficiaries incur any cost. Hobby Lobby, as a for-profit, closely held corporation, objected to these provisions and filed suit.

The majority opinion of the court noted that: “… The Religious Freedom Restoration Act of 1993 (RFRA) prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion” … unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.” The court cited a subsequent law, the Religious Land Use and Institutionalized Persons Act of 2000, which amended RFRA to confirm that the term “exercise of religion” need not be restricted to those actions that are “… compelled by, or central to, a system of religious belief…”

The majority opinion of the court found that:

  • “… As applied to closely held corporations, the HHS regulations im¬posing the contraceptive mandate violate RFRA. …”
  • The court noted that HHS’ concession that a nonprofit corporation can be a “person” under RFRA “… effectively dispatches any argument that the term does not reach for-profit corporations…” and specifically rejected HHS’ position that would limit RFRA to religious organizations and not-for-profit corporations.
  • They found that HHS’s contraceptive mandate substantially burdens the exer¬cise of religion, and:
    • They rejected “friend of the court” arguments that Hobby Lobby could have dropped health coverage in favor of the less expensive $2,000 per full time employee employer shared responsibility penalty tax. Instead, the court noted that HHS never asserted this alternative nor was it evaluated by the lower courts, and the Supreme Court concluded that: “… it is far from clear that the net cost to the companies of providing insur¬ance is more than the cost of dropping their insurance plans and pay¬ing the ACA penalty. …”
    • They did not find that cost-free-access to the four challenged contraceptive methods was a “compelling governmental interest” – noting the exemptions affecting “tens of millions” of people, those of religious employers, the statutory exemption of grandfathered plans, and, indirectly, employers with less than 50 full time employee equivalents, etc. However, they reasoned that even assuming those four methods did serve a compelling government interest, they held that HHS did not select the least restrictive means to further that interest. They found that other, less burdensome options were available – such as having the government provide the coverage directly or extending the same accommodation that HHS already provided for religious, non-profit organizations.

What does it mean?

Closely held, for profit corporations (presumably the same would apply to other forms of ownership such as LLCs, partnerships, sole proprietorships and the like as the same reasoning would apply to those entities) with comparable religious objections cannot be compelled to include the four specific items in their coverage. The court specifically confirmed that the decision concerns only the contraceptive mandate “… and should not be understood to hold that all insurance-coverage mandates … must necessarily fall if they conflict with an employer’s religious beliefs. Nor does it provide a shield for employers who might cloak illegal discrimination as a religious practice. … ”

Therefore, if the contraceptive mandate would violate a religious belief of the owners of a non-public entity, the employer would not be required to provide those services in its group medical plans and could carve them out. It would likely take a plan amendment in many cases to make those distinctions and presumably an insured plan might still make an offering for those services similar to that of a religious employer. But this does provide employers with those religious beliefs an option to avoid paying for such services. Presumably HHS will provide some clarifying regulations to follow up on the court’s holding.

What’s next?

Many expect the federal government will soon announce an expansion of the existing accommodation already in place for non-profits that certify religious objections to contraceptives.

It is not clear how this decision may affect corporations that are not “closely held”. And, it is not clear how this decision may affect other entities with related claims – such as the claim by the Little Sisters of the Poor, the University of Notre Dame, and hundreds of others who object to the self-certification accommodation as an endorsement, an action that “compel[s] affirmation of a repugnant belief”. That is, it is not clear whether it will be sufficient to extend the existing accommodation.

Simply, we haven’t seen the end of the litigation over PPACA.

This information is not intended to represent legal or tax advice and has been prepared solely for informational purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.