On June 30, the U.S. Supreme Court ruled that Hobby Lobby and two other closely held for-profit corporations do not have to offer employees contraceptive coverage as required under the Affordable Care Act (also known as health care reform or Obamacare). The court reinforced this decision July 1 when it left in place other lower court rulings in favor of businesses owned by Catholics who oppose covering all methods of contraception. As soon as the decision was issued, pundits from both sides of the aisle expressed opinions regarding the implications of this decision for the future of health plan coverage. While the decision is significant, it remains uncertain how the court’s ruling will be applied outside of the contraception mandate.
Specifically, the court held the Affordable Care Act’s contraception mandate violates the Religious Freedom Restoration Act of 1993 (RFRA), which prohibits the federal government from taking any action that substantially burdens the exercise of religion unless that action constitutes the least restrictive means of serving a compelling government interest. According to the court, there were less restrictive means of ensuring no-cost contraceptive coverage for the employees of closely held for-profit corporations with religious objections to the contraceptive mandate. For example, an existing exemption for nonprofit religious organizations with religious objections permits the nonprofit religious organization to not offer contraceptive coverage, but ensures contraceptive coverage for employees is offered from other sources. Generally, the Affordable Care Act requires an employer’s health plan to provide coverage of certain preventive services without cost-sharing (i.e., deductible, copay or coinsurance). These preventive services include all FDA-approved contraceptive methods prescribed by a health provider; abortifacient drugs are not required to be covered.
Religious employers (generally, churches and religious orders) and nonprofit religious organizations with religious objections to providing contraceptive coverage are exempt from the requirement to provide contraceptive coverage. Employees of these organizations are still offered contraceptive coverage, but not through the employer’s health plan. Instead, the coverage is offered by the insurance company or third party administrator of the employer’s health plan directly to the employee. Employees receive a notice of the availability of the separate contraceptive coverage from the insurance company or third party administrator. The exempt employers do not pay for this separate contraceptive coverage. Instead, the cost is absorbed by the insurance company (on the theory that contraception is cheaper than a pregnancy), or the third party administrator, which is reimbursed through offset of federal fees. Hobby Lobby is a closely held, for-profit corporation and was not exempt from the contraceptive mandate. Its owners argued that they believed that life begins at conception and that it would violate their religion to facilitate access to contraceptive drugs or devices that operate after that point. They specifically objected to four FDA-approved contraceptives that operate after fertilization of an egg, two forms of emergency contraception and two types of intrauterine devices, and believe that such contraceptive methods are abortifacients. The owners and Hobby Lobby sued the U.S. Department of Health and Human Services (HHS) and other federal agencies and officials to challenge the contraceptive mandate under RFRA.
The court found that RFRA applies to regulations that govern the activities of closely held for-profit corporations like Hobby Lobby, which can “exercise religion” because business practices can be compelled or limited by the tenets of a religious doctrine. The court found that the contraceptive mandate substantially burdens the exercise of religion because it demands a choice between conduct that seriously violates religious beliefs or payment of enormous monetary penalties. The court assumed that guaranteeing cost-free access to the four challenged contraceptive methods was a compelling government interest, but found the federal government failed to show that the contraceptive mandate was the least restrictive means of furthering that interest. The court said the federal government could simply fund such coverage itself, or extend the existing exemption for nonprofit religious organizations with religious objections to closely held for-profit corporations with religious objections. The court concluded that this exemption constitutes an alternative that achieves all the federal government’s aims, because employees of exempted entities are provided contraceptive coverage outside of the employer’s health plan, while providing greater respect for religious liberty than mandating coverage. Although it is significant that the court found a for-profit corporation could be protected by RFRA, it is not clear how broadly this case will be interpreted. In this case, an alternative means of achieving the government’s interest was already in existence. The court stated that this decision is concerned solely with the contraceptive mandate and should not be understood to hold that an insurance coverage mandate must necessarily fall if it conflicts with an employer’s beliefs. The court also did not address arguments that requiring an exempt organization to notify the insurance company or third party administrator that it considered itself exempt was also in violation of RFRA because such notification triggered the offer of contraceptive coverage by the insurance company or third party administrator to the exempt organization’s employees. This is the subject of numerous existing lawsuits by nonprofit religious organizations.
Kirsten Garcia is an attorney in the Employee Benefits and Executive Compensation Practice Group at Haynes and Boone LLP with extensive experience providing practical advice on complying with Patient Protection and Affordable Care Act’s penalty, reporting, disclosure, plan design and fee requirements, as well as other compliance issues in the health and welfare area. She can be contacted at firstname.lastname@example.org.