Closely held corporations with religious objections cannot be required to provide contraception coverage under health care reform regulations because that would violate the owners’ rights under the Religious Freedom Restoration Act, the U.S. Supreme Court today ruled in Burwell v. Hobby Lobby, No. 13-354 (Sup. Ct., June 30, 2014).
The ruling could force the Obama administration to expand an already-existing exemption to the mandate that applies to religious employers and religious non-profits organizations. Seemingly, the exemption now could be used by closely held for-profit companies whose owners object to covering contraceptives on religious grounds. The ruling seems to preclude publicly traded companies from objecting to the mandate, for now.
Supporting the decision were conclusions that: (1) closely held corporations are “persons” for RFRA purposes; (2) the ACA’s contraceptive mandate burdens their exercise of religion in violation of the RFRA; and (3) the mandate is not saved, because the government failed to show that the mandate was the least restrictive means of furthering a compelling public interest.
The Question for the Court: Whether the Religious Freedom Restoration Act, which provides that the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest, allows a for-profit corporation to deny its employees the health coverage of contraceptives to which the employees are otherwise entitled by federal law, based on the religious objections of the corporation’s owners.
Background
The legal dispute arose after the U.S. Department of Health and Human Services issued regulations implementing the Affordable Care Act’s mandate to provide preventive care services. The ACA did not define the term “preventive care,” so the rules spelled out specific criteria — to include contraceptive coverage. Legal challenges were filed by entities arguing that being forced to cover certain contraceptives would violate their religious beliefs.
The Supreme Court ruling that helped resolve conflicting lower court decisions was split 5-to-4, on an ideological basis. The majority opinion was written by Justice Samuel Alito joined by Justices John Roberts, Antonin Scalia and Clarence Thomas. Justice Anthony Kennedy wrote a concurring opinion. Justice Ruth Bader Ginsburg wrote a dissenting opinion joined by Justice Sonia Sotomayor. Justices Stephen Breyer and Elena Kagan filed a separate dissent.
The majority opinion first concluded that the RFRA applies to owners of for-profit corporations, rejecting HHS’ argument that a corporation was not a person by essentially noting that protecting the free-exercise rights of closely held corporations “protects the religious liberty of the humans who own and control them.”
[W]e reject [the U.S. Department of Health and Human Service’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 next issue was whether the corporations could exercise religion under the RFRA by raising religious objections to the way the government regulates their businesses. HHS had said no without expounding on its view; the Court theorized that the profit-making goal of the corporation was the reason. “Any suggestion that for-profit corporations are incapable of exercising religion because their purpose is simply to make money flies in the face of modern corporate law,” according to the Court. “States, including those in which the plaintiff corporations were incorporated, authorize corporations to pursue any lawful purpose or business, including the pursuit of profit in conformity with the owners’ religious principles,” the opinion said.
Then the Court concluded that the government failed to prove that the mandate fell into RFRA safe harbors because it: (1) promoted a compelling governmental interest; and (2) was the least restrictive means of furthering that interest. The government failed to show that the mandate is the least restrictive means of advancing its interest in guaranteeing cost-free access to birth control. Specifically, the Court noted:
There are other ways in which Congress or HHS could equally ensure that every woman has cost-free access to the particular contraceptives at issue here[.]
Already, government carved out a safe harbor for nonprofit organizations with religious objections. (See 78 Fed. Reg. 39874.) Under that accommodation, companies would certify that they have sincere objections to providing contraceptives as required by the ACA. Then a third-party administrator or health insurer would provide the drugs to members of objecting plans. Today’s Supreme Court ruling said that existing mechanism could be broadened to create an accommodation for for-profit companies like plaintiffs Hobby Lobby (and its affiliate Mardel) and Conestoga Wood Specialties, without crippling financial consequences being levied on organizations.
This system constitutes an alternative that achieves all of the Government’s aims while providing greater respect for religious liberty.
In describing the financial consequences of the mandate on such businesses, the Court noted that if the “companies refuse to provide contraceptive coverage, they face severe economic consequences: about $475 million per year for Hobby Lobby, $33 million per year for Conestoga, and $15 million per year for Mardel. And if they drop coverage altogether, they could face penalties of roughly $26 million for Hobby Lobby, $1.8 million for Conestoga, and $800,000 for Mardel.”
The Court also rejected HHS’ “novel” and “intensely empirical” argument that the companies could readily eliminate any substantial burden by forcing their employees unto health insurance exchanges. The Court noted the argument ignored the fact that the companies have religious reasons for providing health coverage for their employees, health insurance is a benefit that employees value and has employee recruitment and retention value, and various wage and tax costs could result from not providing insurance.
In a concurring opinion, Justice Kennedy said that the government could pay for the coverage itself, so that women receive contraceptive coverage without cost-sharing.
Also, undermining the concept that an essential government interest is at stake, the court noted that grandfathered health plans and plans sponsored by companies with 50 or fewer employees, are all exempt from the coverage mandate. Exempting those two groups puts 50 million people outside of the contraceptive mandate, the majority opinion said.
Limits of the Ruling
The majority opinion said the decision concerns only the contraceptive mandate and should not be understood to authorize plaintiffs to use religious objections to avoid health care reform’s mandate to cover preventive services without cost-sharing (for more information see Section 370 of The New Health Care Reform Law: What Employers Need to Know); that is, for blood transfusions or vaccinations.
In a further qualification, the majority opinion rejected government arguments that its stance gives a shield to employers trying to portray illegal discrimination as a religious practice. Backing its conclusion here, it stated that the government has a compelling interest in fighting racial discrimination, for example.
The court then rejected HHS arguments that under the plaintiffs’ logic that the RFRA could be made a basis for getting out of paying income or social security taxes.
Publicly Traded Companies
Publicly traded corporations are not being held in this ruling to have religious beliefs (and as such they will have to cover contraceptives for the time being) Limiting the ruling to closely held corps means that the RFRA will not be invoked to avoid the mandate if the company is publicly traded.
The High Court’s opinion upholds the 10th Circuit’s position in Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013), in which the 10th Circuit Court of Appeals backed the employer in avoiding the mandate. It consolidated the case to reverse a contrasting ruling in Conestoga Wood Specialties Corp. et al. v. HHS, 2013 WL 3845365 (3rd Cir., July 26, 2013) on which the 3rd Circuit had ruled.
Dissenting Opinion
A dissent penned by Ginsburg said the contraceptive coverage mandate was important because it sought to redress male-female inequities in health care costs and delivery. She said the ruling could encourage companies to try to deny other kinds of health coverage, such as vaccines, and that it could allow companies to opt out of discrimination laws.