On June 30, 2014, in Burwell v. Hobby Lobby Stores, Inc., the United States Supreme Court held that a closely held corporation cannot be required to provide contraceptive coverage under its group health plan if doing so would conflict with the sincerely held religious beliefs of the corporation’s owners. The so called “contraceptive mandate” is part of regulations issued under the Affordable Care Act, and generally requires health plans to cover contraceptives without cost sharing, as a type of preventive health service. The Supreme Court held that the mandate could not be applied if doing so would violate the rights of corporate owners under a Federal law called the Religious Freedom Restoration Act (RFRA) and, in so holding, ruled for the first time that a for-profit corporation can assert rights under RFRA.

It is not clear how (or if) the Obama administration can ensure contraceptive coverage for female employees of closely held corporations that opt out of the mandate on religious grounds. The majority opinion suggests that the administration could provide for-profit corporations the same “accommodation” it already provides to religious nonprofits. Under that accommodation, the insurer or third party administrator (TPA) of a religious nonprofit’s health plan must arrange for contraceptive coverage and seek reimbursement for any resulting costs from the Federal government.

This important decision has greatly expanded RFRA rights and may spur RFRA-based challenges to other health care mandates, such as vaccinations. 

Because the New York Insurance Law has its own contraceptive mandate, which is not subject to challenge under RFRA, New York employers with insured health plans cannot use the Hobby Lobby decision to avoid providing contraceptive coverage under their insured plans.


The Contraceptive Mandate

The Affordable Care Act requires all non-grandfathered health plans to cover specific preventive services, such as vaccinations and tests, without cost sharing. Regulations issued in 2011 require that the required preventive services include all FDA-approved forms of contraception and patient education and counseling for all women with reproductive capacity.

The Exemption for Churches and the Religious Nonprofit “Accommodation”

From the start, the Federal agencies that administer the Affordable Care Act – the Health and  Human Services Department (HHS), the Department of Labor and the Internal Revenue Service  – exempted churches, integrated auxiliaries and conventions of churches, and the exclusively  religious activities of religious orders from the contraceptive mandate. After widespread  objections  from non-exempted  religious nonprofit organizations,  the agencies  established a  special accommodation for such organizations in 2012. Under the special accommodation,  a  nonprofit organization  that  holds itself out as a religious organization, and opposes providing  contraceptive coverage on religious grounds, is excused from directly arranging for the provision  of such services through its health plan. Instead, if the plan is insured, the group health insurer  must provide the required contraceptive coverage; and if the plan is self-insured, the third party  administrator  (TPA)  must arrange with an insurer to provide coverage.  Agency  regulations  prescribe ways by which the insurer or TPA can recoup any resulting costs from the Federal  government. In order to qualify for the special accommodation, a religious nonprofit must certify  in  writing that it meets these  eligibility requirements, and the insurer or  TPA  must cover or  arrange for coverage of the requisite services as long as  it is given a copy of  the nonprofit organization’s written certification.

Resulting Litigation

Many  for-profit employers who  objected to the contraceptive mandate  initiated  lawsuits  challenging the mandate as a violation of their  rights under the  First Amendment  to the  Constitution rights or RFRA.1 Some Federal courts sided with the government, and some with  the objecting employers. The Supreme Court has now resolved the for-profit cases in favor of  the objecting employers.

In addition, many religious nonprofit organizations also sued (see footnote 1), alleging that the  contraceptive mandate violated their First Amendment and RFRA rights even if they qualified for  the special accommodation. The Supreme Court has yet to resolve these claims, although on  July 3, 2014, the Court  enjoined  the administration  from enforcing the mandate against any  nonprofit corporation that certifies to HHS that it holds itself out as a religious organization and  objects to the mandate on religious grounds, even if the organization refuses to provide a copy  of the written certification to the insurer or TPA, as required by the special accommodation.2

The Hobby Lobby Decision

Burwell v. Hobby Lobby Stores, Inc. was decided together with  Conestoga Wood Specialties  Corp. v. Burwell. Both companies are family owned corporations, the owners of which objected  on religious grounds to the contraceptive mandate, and specifically to  four of the twenty  contraceptive methods covered by the mandate.3 In the consolidated decision, the majority of  the Court – consisting of the five justices appointed by Republican Presidents – ruled that:

  • Closely held for-profit corporations, like Hobby Lobby and Conestoga Wood, can assert  rights under the  Religious Freedom Restoration Act (RFRA) based on the religious beliefs of their owners.
  • The contraceptive mandate “substantially burdens” the corporations’ exercise of religion  within the meaning of RFRA4 , given the owners’ presumptively sincere belief that use of  any of the four contraceptive methods would destroy a human life.
  • Since the mandate imposes a substantial burden on religious exercise, it would comply with RFRA only if it represents the “least restrictive means” of achieving a compelling  government interest. The mandate fails the “least restrictive means”  test  because  making the nonprofit  accommodation  available  to for-profit companies  is a less  restrictive alternative. 

Four justices  – those  appointed by Democratic Presidents  – dissented.  In  her  dissenting  opinion,  Justice Ginsburg sharply disagreed with  the majority’s rulings on each of the issues  summarized above, and warned that the Court had “ventured into a minefield” by interpreting  RFRA too broadly.

What Comes Next

The Contraceptive Mandate

The Hobby Lobby decision creates numerous practical difficulties for the Obama administration  with respect to the contraceptive mandate.  The immediate consequence is that closely held  corporations, the owners of which object to the mandate on  religious  grounds, cannot be  compelled to provide any contraceptive coverage to their employees. 

It is possible that  the administration  will follow the Court’s suggestion and simply make the  religious nonprofit accommodation  (see “The Exemption for Churches and the  Religious  Nonprofit Accommodation”, above)  available to closely held  for-profit  corporations. New  regulations would be required in order to accomplish this.

As noted earlier (see footnote 2), however, this accommodation has itself been enjoined by the  Supreme Court, at least as it would apply to  religious  nonprofit  organizations. Furthermore,  experts have questioned whether this accommodation – which requires the insurer or third party  administrator (TPA)  to  provide  or arrange for  the requisite  contraceptive coverage and then  seek reimbursement from the Federal government  for its resulting costs  – is even workable,  especially for self-insured plans with  independent  TPAs  (those  not owned by an insurance  company).  The  President  of  the Self-Insured Institute of America  recently stated that  “no  independent TPA -- there are more than 300 in the U.S. -- has found an insurer willing to join  with it” to provide contraceptive coverage pursuant to the nonprofit accommodation.5

Note: Employers in New York State who sponsor insured health plans probably cannot opt out  of the contraceptive mandate based on the  Hobby Lobby decision. The New York Insurance  Law has its own contraceptive mandate, which applies to  all  group health insurance policies  (other than those sponsored by churches and religious orders) in the state, and RFRA does not  provide a defense to enforcement of state laws.

Other Health Plan Mandates

Though the majority opinion insists that the holding applies only to the contraceptive mandate,  the Court’s reasoning  apparently  would permit  RFRA-based challenges to  the  mandated  provision of  other health care  services, such as vaccinations,  blood transfusions and  antidepressants. We will have to wait to see whether nonprofit or for-profit employers will assert  these kinds of challenges in the future.