HRB 97 - Preventive Services - Contraceptive Mandate
Released July 2, 2014 I Download as a PDF
July 2, 2014 -- On June 30, 2014, the Supreme Court in a 5-4 decision ruled that closely held corporations are not obligated to cover the contraceptive benefit mandated by the Affordable Care Act (ACA), if they object to doing so on religious grounds. In a nutshell, the Court ruled in Burwell v. Hobby Lobby et al. [No. 13-354 (U.S. June 30, 2014)] that a closely held corporation is protected by the Religious Freedom and Restoration Act (RFRA).
The RFRA, enacted in 1993, is a federal law intended to prevent laws that would substantially burden a person’s free exercise of their religion. According to the Opinion:
“RFRA prohibits the “Government [from] substantially burden[ing] a person’s exercise of religion even if the burden results from a rule of general applicability” unless the Government “demonstrates that application of the burden to the person—(1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest.” 42 U. S. C. §§2000bb–1(a), (b) (emphasis added).”
The ACA requires non-grandfathered plans to cover preventive services at no cost to the plan participant and included among these preventive services are certain women’s health services some of which relate to contraception. For purposes of determining applicability of the mandate, entities can be divided into three and possibly now, four classifications:
- Churches. Religious organizations, specifically churches and religious orders, are expressly exempt, i.e., plans sponsored by these entities are not obligated to cover contraceptive services.
- Eligible Organizations. Non-profit entities with a religious affiliation, known as “eligible organizations” are not entitled to the full exemption, but are entitled to certify their religious objection and thus be exempt from providing the coverage. In this instance, individuals obtain the services directly from an insurer or third party administrator. Several of these eligible organizations are objecting to having this degree of association with the contraceptive mandate, and it is expected that the Supreme Court will take this up next term.
- For-Profit Entities. The ACA does not provide an exemption from the contraceptive mandate for private sector entities, including for-profit entities. Upon review of this issue, the Supreme Court determined that “the contraceptive mandate, as applied to closely held corporations, violates RFRA.” This means that a closely held for-profit corporation is not obligated to cover the contraceptive products or services to which the entity objects.
A closely held corporation is defined in several ways. The term generally refers to a small privately held for-profit corporation consisting of few shareholders, typically family members or other close associates. For federal tax law purposes, the IRS refers to a closely held corporation as one in which over 50% of the value of its outstanding stock is owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year; and is not a personal service corporation. For corporation formation purposes, a state may have a similar definition.
This Opinion does not address corporations that are publicly traded, arguably making this group a fourth category which today, is obligated to comply fully with the mandate.
First and most important, the provisions of the ACA remain in full force and effect and all steps toward compliance should continue to be followed. This ruling relates only to the contraceptive mandate and it applies only to closely held corporations with a religious objection to some or all of the required services.
It is likely that matters will continue to evolve as it relates to the contraception requirement. Lawsuits challenging this same issue brought by eligible organizations will continue to wind their way through the courts.
It is likely that the Health and Human Services will issue additional regulations establishing a process by which a closely held corporation with a religious objection to forego some or all of the contraception requirements. The regulations are likely to provide a methodology whereby employees of objecting corporations can obtain these services. This process will likely mirror that which is available to eligible organizations described above.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
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