On June 30, 2014, the Supreme Court ruled that under the Religious Freedom Restoration Act, closely-held for-profit corporations are not required to pay for contraceptives if doing so would violate the corporation’s sincerely held religious beliefs. Below, we discuss the major parts of the decision and describe some of its impact on employers.

Background

Patient Protection and Affordable Care Act (the ACA). The ACA is more commonly known as Obamacare or simply the health care reform law. Under the ACA, non-grandfathered group health plans must cover 100% of the cost of certain preventive services. Department of Health and Human Services (HHS) regulations define these preventive services to include, among other things, all FDA-approved methods of contraception. However, HHS granted an exception to religious employers (such as churches, synagogues, and mosques). HHS also granted an accommodation, though not an outright exception, to a limited group of non-profit religious corporations.

Religious Freedom Restoration Act (RFRA). Under RFRA, the federal government is generally prohibited from imposing a substantial burden on the exercise of religion by a person, even if the burden results from a rule of general applicability. If the government does impose such a burden, the person is entitled to an exemption unless the government can demonstrate that the burden is the least restrictive means of furthering a compelling governmental interest. Each of the highlighted terms in this paragraph was significant in the Supreme Court’s analysis.

Plaintiffs’ Allegations. Plaintiffs in these cases are three for-profit corporations (Hobby Lobby, Mardel, and Conestoga Woods) and their owners. Plaintiffs assert that it violates their religious beliefs to provide health benefits that could result in an abortion. Of the twenty ACA-required forms of contraception, Plaintiffs object to only four (the “contraceptive mandate”), all of which Plaintiffs believe to be abortifacients. Plaintiffs sued HHS, claiming that the contraceptive mandate violated their rights under RFRA and requesting that the mandate be declared unenforceable as against them.

The Decision

The Supreme Court’s decision addressed five issues, each tied to the language of RFRA.

1. Is a for-profit corporation a “person” for purposes of RFRA? Yes. The Court explained that the term “person” generally includes corporations and that RFRA did not provide any basis for distinguishing between non-profit and for-profit corporations.
2. Can a for-profit corporation “exercise” its “religious beliefs”? Yes. The Court found that being organized as a corporation did not prevent the exercise of religion. (HHS had conceded that non-profit corporations could exercise religion.) The Court also found that the profit motive did not prevent the exercise of religion, because for-profit corporations are not required to maximize profits and may further religious objectives in any number of ways.
3. Does the contraceptive mandate impose a “substantial burden” on the Plaintiffs’ exercise of their religious beliefs? Yes. Under the ACA, if an employer offers health coverage that does not comply with the contraceptive mandate, the employer is subject to a tax of $100 per day per affected individual. Alternatively, if a large employer does not provide health coverage to its full-time employees and even one such employee purchases subsidized coverage on the exchange, the employer is subject to a tax of $2,000 per year per full-time employee. The Court found that the potential penalties for the three employers, which ranged from $800,000 to $475 million per year, constituted a substantial burden.
4. Does the contraceptive mandate further a “compelling governmental interest”? The Court did not decide the issue. Instead, the Court assumed, for the sake of argument, that there was a compelling interest in ensuring cost-free access to the four disputed contraceptive methods.
5. Is the contraceptive mandate the “least restrictive means” for furthering the government’s interest? No. The Court held that at least two means would further the government’s interest and would be less restrictive: having the government pay for the cost of the benefit or allowing Plaintiffs the same accommodation available to non-profit religious corporations.

The Supreme Court was careful to limit its opinion in several respects. First, in response to the argument that it would be difficult to determine the religious beliefs of large, publicly-traded corporations, the Court limited its holding to closely-held corporations (corporations where over 50% of the stock is owned by 5 or fewer individuals), noting that the corporations at issue were all controlled by members of a single family, the sincerity of whose religious beliefs had never been questioned by any party to the litigation. Second, the Court limited its opinion to the contraceptive mandate, stating that other insurance mandates (such as those requiring immunization) would not necessarily fail simply because they conflict with an employer’s religious beliefs. Third, the Court stated that its decision did not allow discrimination to be “cloaked as religious practice” in order to avoid legal sanctions.

Impact on Employers

At one end of the spectrum are companies that have never expressed or operated with a specific religious orientation or belief and have no religious objection to the ACA or its mandates. We expect these companies to be unaffected by the Supreme Court’s decision.

At the other end of the spectrum are closely-held businesses that, like Hobby Lobby, can demonstrate a sincere religious belief and a religious objection to the contraceptive mandate. In light of the Supreme Court’s decision, we expect HHS to offer some form of accommodation to employers with religious objections to contraceptives. These employers will have to decide whether to wait for the accommodation to be presented or drop contraceptive coverage in advance of the accommodation. We advise these companies to consult with legal counsel concerning the risks and benefits of each course of action.

In between these two extremes lies a middle group of companies that may have a religious concern with another federally mandated health benefit. (RFRA does not protect against state mandates, though some states have adopted RFRA-like statutes.) The Supreme Court’s decision gives these companies a potential basis for refusing to comply with the mandate. Is a company’s religious concern sufficient under RFRA? Should the company stop offering a benefit and use RFRA as a defense to an enforcement action? Should the company seek a RFRA ruling before eliminating a particular benefit? We advise these companies to ask legal counsel for assistance in answering these and similar strategic questions.

Additional Information

If you have any questions regarding the ACA, please contact your Kutak Rock LLP attorney or a member of our Employee Benefits Practice Group.