Supreme Court Strikes Contraceptives Mandate as Applied to For-Profits with Religious Beliefs | Practical Law

Supreme Court Strikes Contraceptives Mandate as Applied to For-Profits with Religious Beliefs | Practical Law

The US Supreme Court has ruled that the Affordable Care Act's (ACA's) contraceptives coverage mandate, part of the law's preventive services rules, violates the Religious Freedom Restoration Act as applied to for-profit closely held corporations with religious objections to the contraceptives mandate.

Supreme Court Strikes Contraceptives Mandate as Applied to For-Profits with Religious Beliefs

by Practical Law Employee Benefits & Executive Compensation
The US Supreme Court has ruled that the Affordable Care Act's (ACA's) contraceptives coverage mandate, part of the law's preventive services rules, violates the Religious Freedom Restoration Act as applied to for-profit closely held corporations with religious objections to the contraceptives mandate.
On June 30, 2014, the US Supreme Court ruled that the Affordable Care Act's (ACA's) contraceptives coverage mandate, as applied to for-profit closely-held corporations with religious objections to the mandate, violates the Religious Freedom Restoration Act (RFRA) and is therefore unlawful (Burwell v. Hobby Lobby Stores, Inc., (U.S. 2014)). Under the contraceptives mandate, which is part of the ACA's preventive services rules, non-grandfathered group health plans were required to provide contraceptive coverage without cost-sharing, effective for plan years beginning on or after August 1, 2012 (see Practice Note, Coverage of Preventive Services under the ACA). The mandate was addressed in implementing regulations and related guidance issued by the Departments of Labor, Health and Human Services (HHS) and Treasury (collectively, the Departments). This guidance included:
  • An exemption for religious employers.
  • Accommodations for certain nonprofit entities.
The mandate has been the subject of numerous court challenges, including cases brought by for-profit corporations that were ineligible for the Departments' religious employer exemption and accommodations for nonprofits. In November 2013, the Supreme Court agreed to review two consolidated appeals brought by for-profit corporations and their owners (Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013) and Conestoga Wood Specialties Corp. v. Sebelius, 724 F.3d 377 (3d Cir. 2013)), after the circuit courts disagreed regarding the corporations' ability to raise claims involving their exercise of religion (see Legal Updates, Tenth Circuit Permits Injunction in Contraceptives Coverage Challenge, Third Circuit Turns Back For-profit Corporation's Religious Challenge to Contraceptives Mandate and Supreme Court Grants Certiorari in Cases Challenging the ACA's Contraceptives Mandate).
Both cases involve four FDA-approved contraceptive methods, each of which may operate after fertilization of an egg, for which coverage was required under the mandate.

Circuit Court Split on Contraceptives Mandate

In Hobby Lobby, two for-profit corporations and their individual owners challenged the contraceptives mandate under the RFRA. Enacted in 1993, the RFRA prohibits the federal government from taking action that substantially burdens a person's exercise of religion, unless the action serves a compelling governmental interest and is the least restrictive means of furthering that interest. The district court in that case denied the corporations a preliminary injunction, but the Tenth Circuit reversed, holding that:
  • The corporate plaintiffs were persons under the RFRA.
  • Compliance with the contraceptives mandate would substantially burden the corporations' religious exercise.
  • The mandate was not narrowly tailored to achieve a compelling interest.
In contrast, in Conestoga Wood, the Third Circuit:
  • Held that a for-profit corporation could not engage in religious exercise and therefore could not assert claims under either the RFRA or the Free Exercise clause.
  • Rejected a "pass through" theory under which the corporation would be permitted to assert its owners' free exercise claims.

Restrictions on For-Profits Must Satisfy RFRA

In reviewing the appeals, the Supreme Court first rejected HHS' argument that for-profit corporations were not persons protected under the RFRA. Applying the definition of "person" under the Dictionary Act, the Court concluded that the term includes corporations, companies, associations and other entities, in addition to individuals. The Court noted that:
  • It had previously considered RFRA claims brought by a nonprofit corporation.
  • Even the government conceded that a nonprofit corporation could be a person for RFRA purposes.
The Court saw no meaningful basis to treat nonprofits as protected under the RFRA while for-profits were left unprotected (for example, because the purpose of for-profits is to make money). The Court also disagreed that the RFRA merely codified a body of cases under which the question of whether a for-profit could exercise religion was not squarely addressed. Among other reasons, the Court observed that Congress had failed to link the RFRA to a specific body of case law. As a result, the Court held that a federal regulation's restriction on a for-profit corporation's activities must satisfy the RFRA.

Regulations Imposed Substantial Burden on Exercise of Religion

The Court also had little trouble concluding that the contraceptives mandate substantially burdened the exercise of religion of the companies and their owners. The Court noted the potentially severe, multi-million dollar excise taxes to which the companies could be subject (under 26 U.S.C. Section 4980D) for not covering the required contraceptives. The Court rejected the argument that the substantial burden of covering contraceptives could be eliminated if an employer simply dropped insurance coverage and instead paid potential penalties under the ACA's employer mandate for failing to offer adequate coverage (see Employer Mandate Toolkit).
Although the Court assumed that the government's interest in guaranteeing cost-free access to the four contraceptive methods was compelling for RFRA purposes, it disagreed that the government had chosen the least restrictive means to achieve this interest. According to the Court, for example, the government could have opted for the less restrictive method of paying for the four contraceptives at issue for women who could not obtain them through their employers' plans. Moreover, the Court viewed HHS' existing regulatory accommodations for nonprofit organizations as less restrictive than requiring employers to pay for contraceptive methods that violate their religious beliefs. Under these accommodations:
  • An organization certifies its objections to providing contraceptive coverage.
  • The contraceptive coverage is excluded from the organization's plans.
  • The organization's insurer (regarding insured plans) or third party administrator (TPA) (regarding self-funded plans) makes separate payments for the coverage without imposing cost-sharing requirements on the organization, its plans, or any participants or beneficiaries.
On ruling that the contraceptive mandate, as applied to closely held corporations, violated the RFRA, the Court:
  • Affirmed the Tenth Circuit's decision in Hobby Lobby.
  • Reversed the Third Circuit's decision in Conestoga Wood, which was remanded for further proceedings.

Practical Impact: Accommodations to Contraceptives Mandate

In rejecting the contraceptive mandate as applied to closely-held corporations with religious objections to providing contraceptives (and regarding the four FDA-approved contraceptives at issue), the Court cited the government's accommodations for nonprofit organizations in concluding that a less restrictive means existed for achieving its interest in ensuring access to FDA-approved contraceptives without cost sharing. Importantly, however, the Court expressly declined to decide whether accommodations of this type would satisfy the RFRA's least-restrictive-means standard, which the Court characterized as "exceptionally demanding."
Whether those accommodations are satisfactory, as applied to for-profits and nonprofits alike, may now become the key disputed issue in the government's efforts to implement the contraceptives mandate. On Monday, in a decision that cites directly to the Supreme Court's Hobby Lobby opinion, the Eleventh Circuit granted a nonprofit corporation's motion for an injunction prohibiting HHS from enforcing the contraceptives mandate (including imposing fines) against the corporation, subject to appeal. In a concurring opinion, an Eleventh Circuit judge took the view that the nonprofit corporation was likely to prevail in its argument that the mandate violates the RFRA. The judge appeared receptive to the corporation's argument that a notice provision under the accommodation requiring the corporation to execute and deliver EBSA Form 700 to its TPA:
  • Improperly coerced the corporation to participate in activity prohibited by its religion (that is, by triggering payments for contraceptive coverage to the corporation's employees).
  • Thereby imposed a substantial burden on the corporation's exercise of religion in violation of the RFRA.
As a result, the Supreme Court's Hobby Lobby decision may not be the last word regarding implementation of the contraceptives mandate.