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Supreme Court limits contraceptive mandate for some businesses

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GavelThe Supreme Court ruled June 30 in Burwell v. Hobby Lobby Stores, Inc., 573 U.S. ___ (2014) that “closely held corporations” whose owners’ sincerely held religious beliefs are violated under the Religious Freedom Restoration Act (RFRA) cannot be required to offer contraceptive coverage as part of their health plans.

The decision held that the Department of Health and Human Services’ (HHS) regulations mandating that health insurance offered by certain entities cover 100% of the cost of contraceptives violate RFRA and are unlawful.

Under the Affordable Care Act, employers with 50 or more full-time and full-time equivalent employees must offer a group health plan or group insurance coverage that provides minimal essential coverage to its employees or else face penalties. The health coverage for nongrandfathered plans must include preventive care and screenings for women without any cost- sharing requirements. Regulations issued by HHS define preventive care as encompassing Food and Drug Administration-approved contraceptive methods.

The HHS regulations exempt “religious employers” such as churches and their “integrated auxiliaries,” like certain youth groups, seminaries and mission societies. Certain religious nonprofit organizations are also exempt from the contraceptive coverage mandate, as are employers with grandfathered health plans. Under these exemptions, the health plans offered by covered religious employers and other religious nonprofit organizations are not required to cover the cost of contraceptives. Instead, if the health plan is fully insured, the health insurance issuer is required to provide direct payment for contraceptives at no cost to the plan or participants. For self-insured plans, the third-party administrator must either provide or arrange for an issuer or other entity to pay for contraceptives at no cost to the plan or participants. Under these arrangements, the plan participants still receive the contraceptives at no cost, but the religious organization does not pay for the contraceptives.

In Hobby Lobby, three for-profit closely held corporations challenged the HHS regulations as violating RFRA and the First Amendment of the U.S. Constitution.  Owners of those corporations argued that the contraceptive mandate ran afoul of their sincerely held religious beliefs.

RFRA prohibits the government from “substantially burden[ing] a person’s exercise of religion,” subject to certain exceptions. The Supreme Court, in a 5–4 decision, looked to Congress’ intent in enacting RFRA and ruled that under the Dictionary Act, the definition of “person” includes corporations. The Court elaborated that RFRA was enacted to provide broad protection for religious liberty and that for-profit, closely held corporations are included as protected persons under the law.

Applicability
The Supreme Court’s decision, while intended to be narrow in scope, leaves some open questions. The Court generally limited its opinion to the contraceptive mandate and closely held corporations. “Our decision should not be understood to hold that an insurance-coverage mandate must necessarily fall if it conflicts with an employer’s religious beliefs,” the Court held. Nor does the Hobby Lobby decision provide any shield against an employer’s seeking to discriminate in hiring on the basis of religious practice, the Court held.

The Court’s ruling also specifically held that the “contraceptive mandate, as applied to closely held corporations, violates RFRA” (emphasis added). The three plaintiffs in the case — Hobby Lobby, Conestoga Wood Specialties and Mardel — are for-profit corporations under state law. Hobby Lobby and Mardel are controlled exclusively by a single family. The same is true for Conestoga Wood Specialties, although a different family has exclusive control. The Court treated the three specific companies as closely held corporations but did not state a definition of a closely held corporation.  

The government argued before the Court that it would be impractical to determine whether a corporation held sincere “beliefs” that could be construed as religious. The Supreme Court emphasized that in this case, the three plaintiffs were closely held and controlled by members of a single family, and that no one had doubted the sincerity of the families’ religious beliefs.

The Supreme Court also contrasted the Hobby Lobby plaintiffs with large, publicly traded corporations consisting of unrelated shareholders and institutional owners. The Court stopped short of ruling on whether those corporations would also be subject to the contraceptive mandate, holding that “we have no occasion in these cases to consider RFRA’s applicability to such companies.”

Guidance likely

In the near future, the IRS and HHS will likely issue updated regulations or some other type of guidance addressing the Supreme Court’s decision. It is possible that certain entities, likely those that are closely held by individuals with sincerely held religious beliefs that conflict with the contraceptive mandate, will be treated similarly to religious institutions that are already exempt from the mandate. It is also possible that future guidance will require insurance issuers or third-party administrators of newly exempt closely held corporations to pay for or arrange for payments for contraceptives for the plan participants. However, that is not yet certain.

Contacts
Eddie Adkins
202.521.1565
eddie.adkins@us.gt.com

Jeffrey Martin
202.521.1526
jeffrey.martin@us.gt.com

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