Hobby Lobby ruling raises more questions than it answers
When Congress enacted the Affordable Care Act, one of the goals was to ensure that preventive care services were available to all health plan participants without any co-payments or deductible expenses. The requirement that preventive care services were provided free of charge included the requirement for covering all FDA-approved contraceptives. The requirement to provide such preventive coverage, including contraceptive coverage, was intended to ensure that all health insurance plans met certain minimum standards.
In Burwell v. Hobby Lobby Stores, Inc., the Supreme Court concluded that the contraceptive coverage requirement violated the Religious Freedom Restoration Act as it related to Hobby Lobby, which was a privately held corporation that is owned by a single family. Further, it was undisputed that the family that owned Hobby Lobby unquestionably held sincere religious beliefs that some, but not all of the FDA-approved contraceptives, including the “morning after” pill (which has the effect of preventing an already fertilized egg from developing following conception), were contrary to their religious beliefs that life began at conception. However, Hobby Lobby did not object to including other forms of contraception, such as the “pill,” which typically prevent fertilization of an egg.
The Religious Freedom Restoration Act prohibits the federal government from taking any action that substantially burdens a “person’s” exercise of religion unless (1) the action serves a compelling governmental interest and (2) is the least restrictive means of serving that compelling government interest. In Hobby Lobby, the court initially concluded that a corporation was a “person” within the statutory meaning of the Religious Freedom Restoration Act.
Next, the court assumed for discussion that the interest served by the contraceptive coverage requirements served a compelling interest. However, the failure to permit a closely held for-profit corporation a similar exemption that was provided to a religious organization established that the contraceptive coverage requirement was not the least restrictive means of advancing and achieving this compelling interest.
While concluding a for-profit corporation may assert rights under the Religious Freedom Restoration Act, it is important to reiterate that the court did not address or rule that that Hobby Lobby had any religious rights under the First Amendment to the Constitution to refuse to provide such contraceptive coverage. Nevertheless, the court concluded that there was a substantial infringement on Hobby Lobby’s religious beliefs because the failure to provide contraceptive coverage would expose it to an excise tax of $100 a day for each individual it employed.
The accommodation provided to religious organizations by the Department of Health and Human Services permitted such organizations to exclude contraceptive coverage under the health plans provided by it to its employees so long as it certified it was a religious organization and that the insurance company, in the case of an insured plan, or the third party administrator in the case of a self-insured plan, separately provided the contraceptive coverage to the plan participants without any cost or expense to either the religious organization or the employee of such organizations. In light of Hobby Lobby, DHS will likely revise its regulations to permit closely held companies this same exception.
While the court in Hobby Lobby observed that this accommodation illustrated that there was a less restrictive means to accommodate the religious beliefs of the owners of Hobby Lobby, it is important to note it did not specifically conclude that this accommodation is consistent with The Religious Freedom Restoration Act. Legal challenges by religious organizations to the permissibility of the accommodation itself are still being raised in courts and will likely reach the Supreme Court in the near term.
What does this mean for employers today? First, the contraceptive coverage requirement does not apply to any health plan that qualifies as a “grandfathered” plan under the ACA. Second, only those employers, which have more than 50 employers are covered by the contraceptive coverage requirements. Third, other than noting that Hobby Lobby was owned and controlled by a single family, the court did not provide any other guidance concerning when a for-profit company ceases to be “closely held.”
To the extent an employer currently provides coverage for contraceptive services, and now seeks to exclude such coverage in the future in light of Hobby Lobby, it will be required to amend its plan to exclude such coverage. Further, it will have to amend its summary plan description to expressly inform all plan participants of the limitation or exclusion of coverage for contraceptives and provide such notice to all plan participants. To the extent an employer makes this change in the middle of a plan year, it will be required to provide a supplemental disclosure to all plan participants no later than 60 days after the modification is implemented.
Further confounding the uncertainty going forward, the Equal Employment Opportunity Commission recently issued in July revised guidance interpreting Title VII which, in part, prohibits gender discrimination. According to the EEOC, an employer will violate the Title VII prohibition against gender discrimination if it does not treat contraceptives services in the same manner as it treats other prescription benefits under a health plan. As such, if a health plan generally provides prescription drug coverage, then the EEOC may view any exclusion of contraceptive services as violating Title VII. Courts will have to reconcile any such conflict between RFRA and Title VII as those cases are litigated.
In the end, Hobby Lobby was a very specific and limited ruling. In part, the court emphasized that this was not a case where the religious beliefs were raised as a pretextual reason to avoid complying with the ACA. Second, the court rejected any notion that closely held companies can now avoid complying with other laws or regulations, such as the law prohibiting hiring discrimination, based on alleged religious beliefs. Hobby Lobby “provides no such shield.”
Thomas E. Berry Jr. is a shareholder in the law firm of Sandberg Phoenix & von Gontard and is the chair of its labor and employment team.