|July 8, 2014|
Previously published on June 30, 2014
Executive Summary: In Burwell v. Hobby Lobby, the Supreme Court ruled 5-4 that closely-held, for-profit corporations have standing under the Religious Freedom Restoration Act of 1993 (RFRA). In addition, the Court held that while the government may have a compelling interest in providing contraceptive coverage to participants at no charge, there are less burdensome ways to provide such coverage other than the Affordable Care Act (ACA)'s Contraceptive Mandate.
The Court's decision applies to closely-held, for-profit entities that are owned by individuals whose "sincere" religious beliefs are in opposition to contraception, or certain forms of contraception. Further governmental regulations based on the Court's decision are expected.
The "Contraceptive Mandate" under the Affordable Care Act requires non-grandfathered employer-sponsored health insurance to provide cost-free coverage for all FDA approved contraceptive methods, sterilization procedures, and patient education and counseling. Employers sponsoring coverage that does not meet these requirements are subject to a penalty of $100 per employee per day.
The plaintiffs in this case, three closely-held corporations, objected to providing health insurance coverage that included certain drugs that prevent an already fertilized egg from developing into a viable pregnancy; the companies did not object to providing coverage for any other form of contraception. The companies contend that providing coverage that meets the HHS mandate would violate their religious belief that life starts at conception.
The Supreme Court's Ruling
Corporations Have Standing Under the RFRA
The Court held that a for-profit corporation has standing under the RFRA. The RFRA generally prohibits the federal government from substantially burdening a person's exercise of religion unless that action constitutes the least restrictive means of furthering a compelling governmental interest. Previously, it was not clear whether a corporation could be considered a "person" for purposes of asserting a claim that the government violated its freedom to exercise religion.
The Court's decision applies to closely-held, for-profit companies.
The Court noted that there are numerous practical restraints that may prevent a publicly traded company from obtaining similar treatment, including the idea that unrelated shareholders - including institutional investors with their own set of stakeholders - would agree to run a corporation under the same religious beliefs. However, the Court did not consider the RFRA's applicability to such companies.
As the Court noted, "The companies in the cases before us are closely held corporations, each owned and controlled by members of a single family, and no one has disputed the sincerity of their religious beliefs."
The ACA's Contraceptive Mandate Violates the RFRA
In addition, the Court held that the Contraceptive Mandate violates Hobby Lobby's (and two other corporations') owners' religious beliefs about the use of certain contraceptives.
Failure to comply with the Mandate would cost Hobby Lobby up to $1.3 million a day ($100 per employee per day). The majority found this economic penalty to be a substantial burden and not the least restrictive means of providing employees with contraceptive coverage.
The Court found that the least restrictive means of providing plan participants access to all FDA approved contraceptives at no cost was not to compel a company to cut benefits or impose significant financial penalties, but to provide closely-held for-profit companies with a similar accommodation that is currently offered to electing religious-based non-profit entities.
Specifically, in September 2013, the Department of Health and Human Services (HHS) issued regulations for certain religious-based non-profits to opt out of the Contraceptive Mandate. Under these regulations, religious-based non-profit entities offering group health insurance can opt out of the Contraceptive Mandate by providing a certification to their third party service provider, who would then provide separate payments for contraceptive services for plan participants without cost-sharing with the eligible non-profit organization, its insurance plan, or the plan beneficiaries. Similar treatment is afforded to self-insured plans. In effect, electing religious-based non-profit organizations' employees would still receive contraceptive coverage, but payment for such services would not be made by the employer.
Employers' Bottom Line
The Court's decision is not a one-size-fits-all exemption from the ACA's minimum essential coverage, or other insurance requirements. The Court's decision applies solely to closely-held for-profit corporations that can demonstrate sincere religious objections to providing mandated contraceptive services under the RFRA.
Further regulations are expected to provide a procedure for for-profit corporations to use to obtain an exemption from providing contraceptive coverage, which will likely be similar to the non-profit entity exemptions allowed under current law.