On June 30, 2014, the U.S. Supreme Court held, in Burwell v. Hobby Lobby Stores, Inc., that a for-profit corporation is a “person” that has religious rights under the Religious Freedom Restoration Act of 1993 (“RFRA”).  Therefore, guidance under the Affordable Care Act (“ACA”) that requires all 20 FDA-approved contraceptive measures to be covered with no employee cost sharing as a part of women’s “preventive services” does not apply to closely-held businesses where this mandate interferes with the ability to conduct business in accordance with their religious beliefs.  The Court determined that the $100 per day, per person, penalty that applies under the ACA for failure to satisfy the contraceptive mandate was a “substantial burden” on those corporations.  That burden could not be relieved by dropping health coverage and paying the (also substantial) $2,000 per employee annual penalty that would apply if even one employee got subsidized coverage on a state or federal exchange, according to the Court.

The Court had difficulty reconciling ACA regulations that provide employees of nonprofit religious corporations access to contraceptives by requiring that insurers provide a contraceptive rider at no cost to the employer or employees.  This, the Court noted, provides a path to satisfying the government’s compelling interest in guaranteeing cost-free access to the challenged contraceptive methods.  However, the economies of this measure (saving the insurance companies the cost of undesired pregnancies) does not translate to self-funded health plans where the third-party administrator obtains no cost savings.  Third party administrators have no economic interest in the performance of self-funded plans, because all claims are paid from the general assets of employers, or from trusts.

In New York, the Hobby Lobby decision would apply only to self-funded plans.  New York Insurance Law Sections 3221(l)(16) and 4330(cc)(1) require health insurance contracts to include a rider covering all FDA-approved contraceptive drugs and devices.  The exception for “religious employers” is both narrow and specific, requiring that all of the following conditions be met:

  • The inculcation of religious values is the purpose of the entity;
  • The entity primarily employs persons who share the religious tenets of the entity;
  • The entity primarily serves persons who share the religious tenets of the entity; and
  • The entity is a nonprofit organization.

One day after issuing its decision in Hobby Lobby, the Supreme Court issued orders in six other cases that were decided by various federal appellate courts relating to religious objections to covering contraceptive measures in employee health plans.  Those orders signify that the Court’s reasoning in Hobby Lobby may not necessarily be limited to the four methods of contraception that were challenged in that case (two “morning-after” type drugs and two intrauterine devices), and may extend to all 20 FDA-approved contraceptive methods.

It remains to be seen how employees in a self-funded health plan maintained by a religious employer can obtain contraceptive coverage without cost, as the Supreme Court suggests.  Undoubtedly, the Obama Administration and the Department of Health and Human Services are puzzling over changes to the ACA guidance to achieve this goal without violating the RFRA.