Benefits Byte

June 30, 2014

Supreme Court Exempts "Closely Held" Companies from Contraceptive Coverage Mandate

In a narrowly worded, five-to-four decision issued on June 30, the U.S. Supreme Court ruled that the preventive care regulatory provisions promulgated to implement the Patient Protection and Affordable Care Act (PPACA) do not require comprehensive coverage of contraceptive services where a “closely-held” employer holds religious objections to such coverage.

The plaintiffs in Burwell v. Hobby Lobby Stores and Conestoga Wood Specialties Corp. v. Sebeliuschallenged the PPACA regulations that mandate contraceptive coverage as violating statutory and constitutional protections of religious liberty. As we reported in the March 25 Benefits Byte, in both cases the for-profit company owners, as health plan sponsors, hold religious objections to providing coverage for some forms of birth control. (Religious institution employers and religiously-affiliated plan sponsors may claim an exemption under PPACA’s implementing regulations.)

Specifically, the companies maintained that for-profit corporations are protected by the constitutional right to religious freedom and the Religious Freedom Restoration Act of 1993 (RFRA) and should be able to refuse to provide contraceptive coverage based on the religious beliefs of the corporations' owners. The government, however, argued such claims have not been historically recognized and are limited to individuals and non-profit religious groups.

The majority opinion, authored by Justice Samuel Alito, held that the contraceptive coverage mandate violates the RFRA, as it applies to “closely held corporations” by imposing a “substantial burden” on religion. Under the RFRA, the government may not impose a substantial burden on religion unless the government does not have a less restrictive means of achieving a compelling interest. (According to the IRS, a “closely held corporation” (1) has more than 50 percent of the value of its outstanding stock owned (directly or indirectly) by five or fewer individuals at any time during the last half of the tax year, and (2) is not a personal service corporation.)

The majority opinions cited the Obama Administration’s accommodation of non-profit religious organizations, spelled out in final regulations issued in July 2013, as an approach that is less restrictive than requiring employers to fund contraceptive methods that violate their religious beliefs. Under these regulations, as we reported in a previous Benefits Byte:

  • With respect to insured plans, including student health plans, affected religious organizations (such as schools or hospitals) would provide notice to their insurer. The insurer would then notify enrollees that it is providing them with no-cost contraceptive coverage through separate individual health insurance policies.
  • With respect to self-insured plans, as well as student health plans, these religious organizations would provide notice to their third party administrator. In turn, the third party administrator would work with an insurer to arrange no-cost contraceptive coverage through separate individual health insurance policies.

The assertion that the contraceptive coverage is “no-cost” assumes that the actual cost of those individual policies covering contraception is not reflected elsewhere in an employer’s overall health care costs or in the portion of the costs that employees are called upon to share. Nonetheless, that “solution” was acceptable for some, but not all, religious institutions that had raised objections to being required to pay for contraceptive coverage for employees.

Despite the way it is repeatedly described in the media, PPACA itself does not require coverage for contraception services. When enacted, the law required all new health plans to provide first-dollar coverage of preventive services that fall into certain categories. With respect to women’s health, it identified “preventive care” as provided for in comprehensive guidelines to be supported by the Health Resources and Services Administration – an agency of the U.S. Department of Health and Human Services (HHS).

To inform the implementation of that requirement, HHS commissioned the Institute of Medicine (IOM) to publish a report recommending the guidelines to be supported. In August 2011, very shortly after the release of IOM’s Clinical Preventive Services for Women: Closing the Gaps, HHS adopted the IOM’s recommendations, including coverage of contraception methods without imposing any cost sharing. While it may be a distinction without a real difference, Congress never mandated health plan coverage for contraceptive services. Rather, it was the HHS implementation of the preventive care section of the law which requires that coverage.

Importantly, Alito noted in his opinion that the ruling was “very specific” and should not be construed as permitting for-profit corporations or commercial enterprises to “opt out of any law they judge incompatible with their sincerely held religious beliefs.”

Congressional Democrats have largely criticized the ruling, although it is not certain whether the matter will be addressed legislatively. For more information, contact Kathryn Wilber, senior counsel, health policy, or Katy Spangler, senior vice president, health policy, at 202-289-6700.