Benefits

Self-funded Plans and TPAs Affected by Top Court’s Hobby Lobby Ruling

The U.S. Supreme Court ruling that “closely held” for-profit companies can — on religious grounds — opt out of a federal requirement to provide certain contraception coverage is rife with implications for self-insured and other employer-sponsored health plans.

The ruling is unlikely to lead to a wide variety of religiously inspired opt-outs, benefits attorneys held, because the majority opinion limited the ruling’s scope to a narrow category of companies, most of which are likely large employers with self-funded plans.

That said, the self-insurance industry is expressing major concerns that an accommodation for objecting organizations suggested by the Supreme Court as an alternative to the present enforcement regime on contraceptive coverage would likely spawn business headaches for third-party administrators.

Unhelpful for TPAs

The ruling in Burwell v. Hobby Lobby, 2014 WL 2921709 (U.S., June 30, 2014), could multiply administrative burdens on TPAs, a source in the self-funding industry said, because the judges writing the majority opinion suggested that the government’s current accommodation offered to nonprofit religiously affiliated organizations should be expanded to closely held for-profit companies.

The justices mentioned the accommodation because it concluded that the government’s imposition of massive excise taxes for not complying with the contraceptive coverage mandate was not the “least restrictive method” of “achieving [the] public interest.” The justices observed that the accommodation already existed for nonprofit religious organizations, and that it was a “less restrictive alternative.”

This raises the possibility that the U.S. Department of Health and Human Services may provide for such an expansion in the form of a separate proposed rule; or the expansion may be incorporated in the existing proposed rule when it becomes final, sources tell the Guide.

The Supreme Court ruling stressed that existing HHS rules stipulate that to qualify for an exemption, the employer has to express genuine objections under the Religious Freedom Restoration Act, and also have to demonstrate this is not just another way to avoid an expensive coverage mandate.

Note: The High Court did not rule on whether the accommodation through HHS’s final contraceptive coverage mandate regulations violated religious freedoms or not. In fact, the accommodation itself is under attack in several courts, from religious organizations that argue that signing the EBSA Form 700 and naming a TPA (or insurer) to administer the contraceptive benefit on their place, in itself, is facilitating an action they view as sinful. Cases include those brought by Eternal Word Television and the Little Sisters of the Poor.

The Self-Insurance Institute of America, which represents self-insured employers and their service providers, objected to this accommodation even before the High Court suggested its expansion. This is because it requires TPAs to make payments for contraceptive coverage on behalf of their self-insured employer clients, and imposes additional fiduciary liability on them. If the accommodation is expanded, burden and risk on TPAs will increase, SIIA states.

Responding to the Court ruling, SIIA on July 1 again requested that HHS directly reimburse TPAs that reimbursed contraceptives on behalf of all companies taking the accommodation, including the newly eligible for-profit employers that fit the Hobby Lobby business model.

Just What Is ‘Closely Held’?

While the opinion limited the scope of the ruling, some questions are left unanswered. One problem appears to be the lack of a definition for the term: “closely held.” Attorneys are probably working now to find valid definitions of that term, says attorney Caroline Berdzik, with Goldberg Segalla in Princeton, N.J.

“One thing is clear from the ruling: if a company is publicly traded, it is pretty clear that it will not be closely held or be able to invoke the same religious protections the plaintiff did in Hobby Lobby,” says attorney Keith McMurdy, with Fox Rothschild in New York.

As noted above, publicly traded large employers cannot get out of compliance; small employers with fewer than 50 workers are not covered by the coverage mandate at all; and insured group health plans will be providing the coverage because of mandates on the insurance companies.

More Uncertainty for Plans

The ruling highlights the confusion employers must deal with on the shifting sands of compliance with the Affordable Care Act.

The ruling underscored the fact that all the changes made to the ACA add uncertainty for business owners and plan managers regarding benefits, hiring and investment decisions. Benefit processes and procedures have to be amended; employee handbooks and bargaining agreements have to be revised to comply with a law that’s changing quite frequently, says attorney Dan Kuperstein with Fox Rothschild in Roseland, N.J.

More Erosion of Government Credibility

“More and more parts of the law are being called in the question; and the government is retreating on issue after issue,” Berdzik adds. “The government is on the defensive now, because [it failed to predict] the business implications of the ACA’s rules and mandates, and it is having to change many rules on many fronts.”

The fact that resistance comes from such a wide variety of sectors — unions and large employer plans, and organizations across all sectors of the economy — shows that it clashes with so many different groups’ vested interests, Berdzik says. It is an indicator that the government underestimated the implications of what it was trying to do, she says.

Challengers Emboldened

Even though the majority opinion clearly limited the ruling to specific circumstances, it won’t stop many organizations from seeking their own religious exemption, according to Kuperstein.

One result of the ruling could be different outcomes from different state-level courts on the question of the scope of a valid religious objection, Berdzik says. Certain states may have their own religious-freedom statutes, and the Hobby Lobby ruling could influence some state courts to interpret those generously.

What’s the Limit on Religious Objections?

The ruling may embolden faith-based groups to seek exemptions from other federal laws based on religious grounds, such as objections to hiring homosexuals or refusing to recognize same-gender spouses. Those groups will not find support in the ruling, says Kuperstein.

The opinion was worded to limit situations in which objections under the RFRA can be used, and it will not allow them in the broader employment field; for example, to keep females out of the workforce; or to exclude transplants, blood transfusions and vaccines from coverage, the legal experts said. Although plaintiffs may be emboldened, such attempts would probably not find much support in the Hobby Lobby ruling, the attorneys agreed.

Many entities may seek relief based on this decision, but it’s unlikely many of them will succeed unless they are the same kind of entity and have the same kind complaint as was seen in the Hobby Lobby ruling, Kuperstein says.

For more information on the preventive-care coverage mandate, see Section 370 of The New Health Care Reform Law: What Employers Need to Know.