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HHS Loses Contraceptive Coverage Case
 

By Allen Smith  6/30/2014

The U.S. Department of Health and Human Services (HHS) could not enforce the contraceptive coverage requirement in its Patient Protection and Affordable Care Act (PPACA) regulations against corporations whose owners believe that four of the contraceptives are abortifacients and that making them available violated their religious beliefs, the U.S. Supreme Court ruled June 30, 2014 (Burwell v. Hobby Lobby Stores Inc., No. 13-354).

As applied to closely held corporations—such as the ones in this case, where each were owned by one family and not publicly traded—the HHS regulations imposing the contraceptive mandate violated the Religious Freedom Restoration Act (RFRA), the court decided.

In holding that the HHS mandate is unlawful, the court rejected HHS’s argument that the owners of the companies forfeited all RFRA protection when they decided to organize their businesses as corporations rather than sole proprietorships or general partnerships.

The court ruled that regulations substantially burden the exercise of religion. And if the companies did not comply with the regulations, the costs would be high—for Hobby Lobby, the bill could be $1.3 million per day or about $475 million per year; for Conestoga, the tax assessment could be $90,000 per day or about $33 million per year; for Mardel, $40,000 per day or about $15 million per year. Hobby Lobby, Conestoga and Mardel are the three companies that challenged the contraceptive mandate as violating the RFRA.

All three companies are run consistent with their owner’s religious beliefs. And the owners of all three companies believe that life begins at conception, and that it would violate their religion to facilitate access to contraceptive drugs or devices that operate after that point.

HHS’s Arguments Rejected

HHS argued the companies could not sue under the RFRA because they were for-profit. And the HHS maintained the owners cannot be heard because the regulations apply only to the companies, and not to the owners as individuals.

In a 5-4 majority opinion written by Justice Samuel Alito Jr., the Supreme Court rejected these arguments, saying that the RFRA "was designed to provide very broad protection for religious liberty.” The law applies to a person’s exercise of religion, and “person” includes corporations.

HHS also maintained that the corporations aren’t protected by the RFRA because they can’t exercise religion. Alito noted that some lower courts have ruled that the RFRA does not protect for-profit corporations because the purpose of the businesses is simply to make money. “While it is certainly true that a central objective of for-profit corporations is to make money, modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not do so,” the court said. And the court rejected out of hand HHS’s distinction between for-profit and nonprofit corporations.

HHS contended that Congress could not have meant for the RFRA to apply to for-profit corporations because it is difficult to tell the sincere beliefs of a corporation. Publicly traded companies aren’t likely to often assert RFRA claims, though, the court decided.

In arguing that the regulations wouldn’t impose a substantial burden on the businesses, HHS asserted that providing the coverage would not itself result in the destruction of an embryo; that would occur only if an employee used the coverage and one of the four challenged methods.

“This argument dodges the question that RFRA presents (whether the HHS mandate imposes a substantial burden on the ability of the objecting parties to conduct business in accordance with their religious beliefs) and instead addresses a very different question that the federal courts have no business addressing (whether the religious belief asserted in a RFRA case is reasonable),” the court said.

The Supreme Court assumed there was a compelling government interest—guaranteeing cost-free access to all contraceptives—but decided that the regulation was not the least restrictive means of furthering that interest. The government could pay for the four challenged contraceptives itself, the court said.

Already, HHS has established an accommodation for nonprofit organizations with religious objections. As Justice Anthony Kennedy notes in his concurrence, “the accommodation works by requiring insurance companies to cover, without cost sharing, contraception coverage for female employees who wish it.”

Limited Scope?

Alito disagreed with HHS’s and Justice Ruth Bader Ginsburg’s assertion that “a ruling in favor of the objecting parties in these cases will lead to a flood of religious objections regarding a wide variety of medical procedures and drugs, such as vaccinations and blood transfusions,” saying that “HHS has made no effort to substantiate this prediction.”

He added, “Nor has HHS provided evidence that any significant number of employers sought exemption, on religious grounds, from any of [PPACA’s] coverage requirements other than the contraceptive mandate.”

Alito went out of his way to note that “our decision in these cases is concerned solely with the contraceptive mandate. Our decision should not be understood to hold that an insurance-coverage mandate must necessarily fall if it conflicts with an employer’s religious beliefs. Other coverage requirements, such as immunizations, may be supported by different interests (for example, the need to combat the spread of infectious diseases) and may involve different arguments about the least restrictive means of providing them.”

Decision of ‘Startling Breadth’

Ginsburg wasn’t persuaded, describing the majority’s decision as one of “startling breadth.”

She had a host of questions about the decision’s ramifications.

Would this exemption, she asked, “extend to employers with religiously grounded objections to blood transfusions (Jehovah’s witnesses); antidepressants (Scientologists); medications derived from pigs, including anesthesia, intravenous fluids and pills coated with gelatin (certain Muslims, Jews and Hindus); and vaccinations (Christian Scientists)? According to counsel for Hobby Lobby, ‘each one of these cases … would have to be evaluated on its own … applying the compelling interest-least restrictive alternative test.’ Not much help there for the lower courts bound by today’s decision.”

Steven Friedman, an attorney with Littler in New York City, agreed that “this decision has long-lasting implications.”

He thought the implications might extend beyond the PPACA to religious, privately held companies that want to challenge whether they have to provide benefits to those in same-sex marriages in states where same-sex spousal coverages are mandated.

Not a ‘Religious Citizens United

But Steven Witt, an attorney with Fisher & Phillips in Irvine, Calif., didn’t think the decision was so sweeping. He noted that the court said its decision was limited to closely held corporations and the contraceptive mandate. Plus, there might be other interests and different arguments about the least restrictive means of providing other coverage requirements, such as immunizations.

Also, the decision noted that it couldn’t be used as a cloak for unlawful discrimination.

“Some were worried this would be a religious Citizens United,” Witt said. “But that didn’t come to pass.”

He said HHS might revise its regulations in light of Hobby Lobby though.

Peter Marathas, an attorney with Proskauer in Boston, said that whether HHS does that is an interesting question. “A little flexiblity by the government on this one would have saved everyone” a great deal of time and expense, Marathas noted.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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