July 1, 2014 Supreme Court’s Hobby Lobby Decision: Little Immediate Impact on Employers

The Supreme Court this week issued its opinion in Burwell v. Hobby Lobby Stores, which, despite significant media attention, has virtually no current impact on most employers’ obligations under the Affordable Care Act (ACA).  In its decision, the Court held that the federal government cannot require certain corporations – closely-held corporations whose owners hold strong religious beliefs – to provide employer-sponsored health plans, which include certain types of contraceptives that the employer objects to on religious grounds.  The opinion overall does not affect the ACA’s requirement that large employers offer health plans to their full-time employees or impact other provisions of the ACA. 

Discussion

The ACA requires that large employers (50 or more full-time equivalent employees) provide ACA-compliant health insurance to their full-time employees.  Implementing regulations require most employer-sponsored plans to include cost-free coverage for various FDA-approved contraceptive methods. 

Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp. are closely-held corporations (a corporation owned by five or fewer individuals) and qualify as large employers under the ACA.  Each sued the federal government under the Religious Freedom Restoration Act of 1993 (RFRA), claiming that four of the ACA-mandated contraceptive methods interfered with the deeply-held religious beliefs of the companies and their owners.  The RFRA prohibits the government from substantially burdening a person’s ability to practice their religion unless that burden is in “furtherance of a compelling government interest” and is the “least restrictive means” of furthering that interest.

The Court found that closely-held for-profit corporations were “persons” entitled to protection under the RFRA and that the ACA’s contraceptive mandate substantially burdened the corporations’ exercise of religion.  The Court presumed that the government had a compelling interest in requiring contraception coverage, but found that requiring these companies to purchase health insurance was not the least restrictive means of furthering that interest.  Rather, the Court noted, the government could require insurance companies or the government itself to pay for the objectionable contraception coverage.

What This Means

In the short term, the Hobby Lobby decision will have a very narrow application.  The two companies no longer have to provide health insurance that includes four of the multiple FDA-approved methods of contraception currently required under the ACA. The Court specifically limited its ruling to the contraceptive mandate and only ruled on the applicability of the RFRA to closely-held corporations.  Other closely-held corporations with similar religious beliefs may soon obtain the similar exemptions (there are several pending cases involving employer objections to contraceptive methods and pregnancy preventative services provided under the ACA). 

The majority opinion emphasized that its ruling does not allow employers to avoid all or part of the ACA requirement to provide insurance coverage just because the company has religious objections.  The Court also emphasized that employers could not rely on religious beliefs to discriminate based on race or, presumably, any other protected category.

It remains to be seen whether Hobby Lobby will have any significant impact.  The government may require insurance companies to pay for the coverage that closely-held corporations find objectionable, or the government itself may incur the cost – thus the specific limited impact of the decision may be obviated entirely.  However, a vigorous dissenting opinion in the case warned that the logic of the decision could be applied to other private entities (not just to closely-held corporations) and to other laws (not just to contraceptive devices or methods under the ACA).  It is too soon to tell whether corporate rights to religious accommodation under the RFRA will one day impact how employers do business.

For the moment, large employers should continue to comply with the requirements of the ACA, including the requirement to offer qualifying health coverage to all full-time employees or pay a penalty.  As a reminder, employers with 100 or more full-time equivalent employees must offer coverage starting in 2015, and employers with 50 or more full-time equivalent employees may submit certification to delay offering coverage until 2016. 

This E-Update was authored by Matthew J. Schenck and Jennifer L. Berry.  For more information, please contact Mr. Schenck, Ms. Berry, or any other Paul, Plevin attorney by calling (619) 237-5200.