Jun 30, 2014

U.S. Supreme Court Limits the Contraceptive Mandate for Certain Companies

Today, in a 5-4 decision, the U.S. Supreme Court announced its last and potentially most controversial decision of this term, Burwell v. Hobby Lobby Stores, Inc.  In this case, which was consolidated with Conestoga Wood Specialties Corp. v. Burwell, the Court held that the religious freedom of individuals does extend to the closely held companies owned by them. Specifically, Justice Samuel Alito, writing for the majority, stated that private companies,such as Hobby Lobby, cannot be forced to provide contraceptive health services that violate their owners’ religious beliefs, and that the contraceptive mandate substantially burdens their exercise of religion.  Therefore, Hobby Lobby and Conestoga Wood Specialties do not have to cover certain contraceptives mandated by the Affordable Care Act (ACA) to which they object.


As background, under the ACA, most insurance plans sponsored by for-profit companies for their employees are required to provide preventive care services without out-of-pocket costs, including all FDA-approved contraceptives (the so-called “contraceptive mandate”).  Churches and other religious employers, who predominantly employ others of the same faith and whose primary purpose is religious, are exempt from this requirement, and certain nonprofit organizations affiliated with religious organizations, such as hospitals and charities, do not have to provide the contraceptives directly to participants, but must make them available to participants through a third party provider. However, for-profit companies cannot take advantage of either of these special exceptions and must provide the contraceptive coverage through their group health plans or be subject to potential ACA penalties of $100 per day per participant in their group health plans.


The owners of Hobby Lobby and Conestoga Wood Specialties, evangelical Christians and Mennonites, respectively, refused to cover certain contraceptives based on their religious beliefs.  At issue is a 1993 law called the Religious Freedom Restoration Act (RFRA) that provides that the government may not impose a “substantial burden” on the free exercise of religion unless that burden is the least restrictive means to further a compelling governmental interest.


In this case, the federal government argued that only individuals can exercise religious rights under the RFRA, and that for-profit companies are not persons entitled to exercise religious freedom. The Court disagreed, holding that the requirement to provide certain contraceptives through the group health plans to which the owners object on religious grounds was a violation of their religious freedom. The Court held that the federal government has not proved that there is not a less restrictive means of providing the contraceptive coverage, and thus Hobby Lobby and Conestoga Woods Specialties do not have to provide contraceptives to which they have religious objections. This decision will not likely open the door for other closely held for-profit companies to refuse to comply with other federal laws based on this newly-expanded right of religious freedom. In fact, the decision specifically states that it is not to be read as allowing employers to refuse to provide other insurance coverage mandates.  Instead, it states that there are other, less restrictive means (such as allowing the third-party provider accommodation listed above). The only certain result is that the owners of other closely held, that is, not publicly traded, for-profit companies that have sincerely-held religious beliefs that they should not have to provide certain contraceptives will not be required to provide such contraceptives through their companies’ group health plans.

For a copy of the Court’s opinion, click here.

For more information about the opinion, or the impact on your group health plans, contact your  SGR Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell.

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