The U.S. Supreme Court has ruled in favor of three for-profit corporations that claimed that the Affordable Care Act (ACA) mandate to provide preventive care coverage for certain types of contraception violated the protections afforded to them under the federal Religious Freedom Restoration Act of 1993 (RFRA). This ruling is expected to apply primarily to private, closely held corporations, where the owner or a small group of owners may assert a religious conviction contrary to the law. A publicly held or a privately held corporation with institutional investors would be unlikely to adopt a commonly held religious conviction.
In Burwell v. Hobby Lobby Stores, Inc. (decided together with Conestoga Wood Specialties Corp. et al. v. Burwell on June 30, 2014), the parties objected to the ACA's requirement that their employer group health plans include coverage for four FDA-approved contraceptives because of their potential effect on a fertilized egg. The parties sued the Department of Health and Human Services (HHS) under RFRA, which prohibits the federal government from substantially burdening a person's exercise of religion, unless the government demonstrates that its regulation is justified by a “compelling interest” and the rule is the least restrictive means of furthering this interest.
In its analysis, the Court held that the corporations were "persons" within the meaning given to that term by RFRA and were subject to its protections. It also found that the penalties the litigants faced for failing to comply with the ACA coverage mandate were significant enough to meet the substantial burden on the exercise-of-religion test. The Court assumed there was a compelling governmental interest in requiring employer health plans to offer contraceptive coverage under the ACA, but concluded that HHS had less restrictive means of addressing this need. Examples of such methods would include the government paying the cost of the disputed contraceptive coverage or affording for-profit corporations and other legal entities the exemption that HHS has provided to religious nonprofit corporations
This decision will require further action from HHS, but it is uncertain how the agency will respond to the need for a less restrictive alternative for for-profit corporations. Direct payment for these contraceptive methods by the government is not likely, and the exemption given to religious nonprofit corporations is the subject of lawsuits brought by some of the entities exempted from the rules.
Prompt guidance from HHS would be helpful on this matter. Health plan sponsors seeking an RFRA exemption from an ACA requirement—and perhaps more significantly, the insurers and administrators of their health plans—need this guidance to determine how to proceed.
As the federal health care reform effort gained steam, Ballard Spahr attorneys established the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. They also have launched the Health Care Reform Dashboard, an online resource center for news and analysis on developments under the ACA. The initiative includes attorneys in the firm’s Employee Benefits and Executive Compensation Group.