This post was contributed by Eric N. Athey, a Member in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Lancaster, Pennsylvania.
On June 30, 2014, the U.S. Supreme Court held in Burwell v. Hobby Lobby Stores, Inc. et al., that the Affordable Care Act’s "contraceptive mandate", as applied to "closely held corporations", violates the Religious Freedom Restoration Act (RFRA). Much has been written about the decision authored by Justice Alito and its impact on the rights of corporations. However, most employers are still seeking clarity in terms of how the decision impacts their group health plans.
May any company now choose not to provide free contraceptive coverage as part of their health plan? No. At this point, the contraceptive mandate remains in effect for all employer health plans, except those that are grandfathered or non-grandfathered plans offered by (a) religious employers (e.g. churches); (b) certain religious nonprofit organizations; or (c) in light of the Hobby Lobby decision, for-profit "closely held" corporations that object to the mandate on religious grounds. In his opinion, Justice Alito did not preclude the possibility that publicly traded corporations could also voice valid religious objections to the mandate; however, given the diverse interests among shareholders in public companies, he observed that such religious objections are unlikely.
What is a closely held corporation? A broadly used IRS definition of "closely held corporation" is one in which more than 50% of all outstanding shares are held directly or indirectly by five or fewer individuals. However, Justice Alito never references any particular definition of the term in his opinion. It is possible that he intended his decision to apply only to closely held corporations within the IRS definition; however, it is more likely that Justice Alito used the term in a broader sense to include corporations with more than five shareholders who are of like mind from a religious standpoint (e.g. family businesses in which more than five family members are shareholders). The agencies charged with enforcing the ACA will likely be tasked with discerning which companies are closely held as contemplated in the Hobby Lobby decision and which are not.
May a closely held corporation be exempted from providing any form of contraception in its health plan? The owners in the Hobby Lobby decision objected to only four of the twenty means of contraception that are covered under the mandate. The four drugs, known as abortifacients or "morning after pills", were objectionable to the employers because they may prevent an already fertilized egg from developing any further. Although the owners in Hobby Lobby limited their objections to abortifacients, Justice Alito’s opinion clearly anticipates that other employers will have broader religious objections to contraception; his holding is directed at the "contraceptive mandate" in general and not limited to abortifacient drugs. For this reason, it is likely that some closely held corporations with sincere religious objections to contraceptives may be exempt from covering most or even all of the methods of contraception covered by the mandate.
How will the exemption for certain closely held corporations be administered? The ball is in HHS’s court on this question. Justice Alito alluded to several ways that HHS might accommodate the religious beliefs of closely held corporations while maintaining access to free contraceptive coverage for affected employees. These include a government-paid benefit or an arrangement through which employees obtain the benefit directly through the employer’s insurer (not through the employer’s plan). It is likely that HHS will create a process through which closely held corporations will file an exemption application in which they disclose the basis and scope of their religious objection. Such processes already exist for certain employers with respect to other health care mandates such as mental health parity requirements.
Are there other liability risks associated with excluding contraceptive coverage? An often overlooked aspect of the debate over the contraception mandate is that the Equal Employment Opportunity Commission (EEOC) has, in the past, taken the position that an employer’s exclusion of contraception from a group health plan may constitute unlawful discrimination under Title VII and the Pregnancy Discrimination Act. In a 2000 agency decision, the EEOC reasoned that any plan which covers preventive prescription drugs such as vaccinations and blood pressure medication must also cover the "full range of contraceptive choices" for women other than abortion. It will be interesting to see whether this analysis holds up in court in light of the Hobby Lobby decision. Until that question is resolved, employers who may be exempt from the contraception mandate under ACA may nevertheless face EEO challenges if they exclude coverage for contraception.