Hobby Lobby Decision Limits PPACA’s Contraceptive Mandate

Supreme Court Hobby Lobby decision

Employers who have religious convictions that would prohibit them from paying for contraceptive services have gotten some help from the Supreme Court today in the long-awaited Hobby Lobby case.

The Supreme Court held, in yesterday’s Hobby-Lobby decision, that the mandate for employer plans to pay for certain contraceptive services violates the religious freedom of closely-held corporations.  Therefore, the mandate cannot be enforced relative to those employers and their plans.

Which Corporations it Applies to

The Court’s holding applies to closely held corporations as the Court specifically indicated as such.  It noted that publicly held corporations likely would not seek the protection of the Religious Freedom Restoration Act of 1993 (“RFRA”) so it specifically carved them out of the holding.

As the plaintiffs were closely-held corporations (Hobby Lobby, an affiliated firm, Mardel, and Conestoga Wood Specialties is each owned by a single family), the Court seemed content to limit its holding to such closely held companies rather than to issue a decision of wider applicability. (However, the ruling did seem to indicate that if this Court were asked, publicly held corporations might be entitled to the same protections.)

Defining “Preventive Services”

The Patient Protection and Affordable Care Act (“PPACA”) included a mandate that employer plans pay for preventive services with no cost sharing by the employees.  The specifics of what was meant by preventive services was left to the Secretary of Health and Human Services (“HHS”).  The Secretary determined that it included all FDA-approved contraceptive and sterilization methods.

The owners of Hobby Lobby and Conestoga sued indicating that their religious beliefs prohibited them from paying for all such services.  HHS did not back down, and the case finally made its way to the Supreme Court.

Who Has Religious Rights

The Court determined that corporations are persons under federal and Constitutional law since they can only act via people.  As such, the protections of the federal law apply to corporations, at least here where the corporations are closely held.  They cannot be distinguished from the rights of the shareholders, officers and employees who actually act on behalf of the corporations.  Those rights apply irrespective of the profit motive of the company.

That is, the government tried to make the case that the religious rights sought only applied to not-for profit corporations and the Court rejected that reasoning.  So it applies to any closely held corporation (or other form of company as well, with the likely exception of publicly held companies).

Other Ways to Achieve Health Care Objectives

The Court finally determined that the restriction burdened religious beliefs because:

  1. It is not in furtherance of a compelling governmental interest; and
  2. It is not the least restrictive means of further­ing that compelling governmental interest.

The Court did not find whether there is a compelling governmental interest because it did find that there are less restrictive means of furthering that interest, such as the one HHS made available for religious organizations (that is also being challenged in Court) that the insurance carrier or third-party administrator pay the cost without any additional costs to be borne by the insured company or employee.

While that ignores the fungible nature of money, apparently the Court is willing to accept the principle that as long as there is not a separate charge for these services then the individual is not actually paying for them.

Therefore, the Court determined that PPACA and the regulations promulgated by HHS could not force closely-held religious employers to pay for contraceptive services as part of its preventive care mandate.

Employers who wish to take advantage of the ruling may want to amend their plans in order to make them clear about what is and is not covered —  Other employers who do not have objections to the mandate are most likely able to continue with their plans without any changes merely because of this decision.   One additional note, however, is that many employers’ plans have yet to be amended to comply with the general mandates of PPACA.  Now might be a good time to review plan documents and SPDs and determine if they are up to date and if not, take steps to properly amend them.

For more detail about the decision, read our Willis Human Capital News Flash: Supreme Court Rejects Contraceptive Coverage Mandate for Certain Employers.


About Jay Kirschbaum

Jay spent 22 years as a tax attorney specializing in employee benefits before joining Willis in 2001. He is current…
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