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Some Closely Held For-Profits Exempt From ACA Contraceptive Mandate

[July 23, 2014]  On June 30, 2014, the Supreme Court held, 5-4, that closely held for-profit corporations whose owners have sincerely held religious beliefs opposing contraception need not comply with the contraception mandate of the Patient Protection and Affordable Care Act (“ACA”), which requires employers to provide coverage for all FDA-approved contraceptive methods.  Specifically, the Court ruled that the Religious Freedom Restoration Act of 1993 (“RFRA”) shields such for-profits from providing coverage for contraception methods they find objectionable.

The case was brought by family-owned Hobby Lobby Stores Inc. and another closely held corporation.  Hobby Lobby is controlled exclusively by a married couple and their adult children; each family member has signed a pledge to run the businesses in accordance with the family’s religious beliefs and to use the family assets to support Christian ministries.

Hobby Lobby filed suit under RFRA, which prohibits the federal government from taking any action that substantially burdens the exercise of religion unless that action constitutes the least restrictive means of serving a compelling government interest.  Hobby Lobby sought to enjoin application of the ACA’s contraceptive mandate with respect to four contraceptives:  two forms of “morning after” pills and two types of intrauterine devices.  (Hobby Lobby did not object to the other sixteen contraceptives required by the ACA’s contraceptive mandate, including birth control pills.)

The Supreme Court held that for-profit corporations are “persons” within the meaning of RFRA’s free exercise protections and that the challenged regulations substantially burden Hobby Lobby’s exercise of religion. (In support of finding substantial burden, the Court noted that the penalty on Hobby Lobby for providing a non-compliant health plan would equal about $475 million per year, and the penalty for failing to provide health coverage would equal about $26 million per year.)

The Court further concluded that the ACA contraceptive mandate was not the “least restrictive means” of furthering a compelling governmental interest.  The Court explained that the most straightforward way of ensuring coverage for all women “would be for the Government to assume the cost of providing the four contraceptives at issue to any women who are unable to obtain them under their health-insurance policies due to their employers’ religious objections.”  Concurring with the majority opinion, Justice Kennedy noted that the government is already doing this for nonprofit religious organizations.  (However, that system has also been challenged in a separate pending litigation.)

The Court indicated that its decision should be read narrowly:  the ruling only extends to closely held companies whose owners have sincerely held religious beliefs opposing contraception, and does not apply to vaccinations, blood transfusions, etc.  However, Justice Ginsburg, dissenting, argued that corporations will inevitably use the decision to opt out of other laws with which they disagree.

In light of this decision, closely-held employers may wish to consider whether to object to the ACA’s contraception mandate, if their owners have sincerely held religious beliefs opposing contraception.  Publicly-traded companies could seek to expand the Supreme Court’s decision.