Random Thoughts on the Hobby Lobby Decision

As Scotus blog posted that Justice Alito would be announcing the decision, I could only think "are we still fighting that?" But my personal issues cannot interest readers of this publication, so I thought I would comment on several aspects of the decision which might be of interest to ERISA lawyers--how does "reasonable accommodation" play out and what might the decision lead to in the future? What issues arise with new fiduciary duties on third party administrators ("TPAs")?

Background of Contraceptive Coverage and Exemption

The ACA requires group health plans and insurers to provide:

• [W]ith respect to women, such additional preventive care . . . as provided for in comprehensive guidelines supported by the Health Resources and Services Administration. . . ."¹

The Health Resources and Services Administration ("HRSA"), a federal agency within the Department of Health and Human Services ("HHS",) served as the primary Federal agency "for improving access to health care by strengthening the health care workforce, building healthy communities and achieving health equity."² The HRSA delegated the development of coverage guidelines to the Institute of Medicine ("IOM"). "[T]he IOM is the health arm of the National Academy of Sciences, . . ."³

The original interim regulations required contraceptive coverage, specifically:

• Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling, as prescribed by a health care provider for women with reproductive capacity (not including abortifacient drugs).⁴

Although the original interim regulations, published in July 2010, exempted houses of worship with doctrinal objections to the coverage mandate, the regulations included no exemption for religious non-profit organizations with similar beliefs, such as Catholic hospitals or universities. The regulations created a firestorm. In February, 2012, when the Departments (Labor, HHS and Treasury) issued final regulations they simultaneously created a "safe harbor" for certain religiously affiliated non-profits (like Catholic hospitals and universities) so that they could develop an accommodation for those organizations. The Departments authorized HRSA to exempt certain religious employers from the contraception requirement.⁵ After considering over 400,000 comments, the Departments issued final regulations in July 2013. The final regulations did not extend the exemption to for-profit corporations, privately or publically held, whose shareholders might have religious objections to the contraceptive mandate. The expanded regulations required the non-profits (the religious hospitals and educational institutions) to self-certify that they objected to the contraceptive mandate, and to name their insurer or third party administrator. Those entities would then be required to provide the workforce contraceptive coverage with no charge to the employer.

The Hobby Lobby case ensued.⁶ While Hobby Lobby stores raised objections both under the Religious Freedom Restoration Act ("RFRA") and the Free Exercise clause, the Supreme Court ruled only on the RFRA claim.

In an opinion joined by Justices Scalia, Thomas and Roberts, Justice Alito held that RFRA protected corporations. The Court then went on to determine whether or not HHS' contraceptive mandate was in "furtherance of a compelling governmental interest; and . . . is the least restrictive means of furthering that compelling governmental interest."⁷ The Court assumed that the interest which the contraceptive mandate protected, women's health, was "compelling within the meaning of RFRA . . . ."⁸ However, it then held that "HHS has not shown that it lacks other means of achieving its desired goal without imposing a substantial burden on the [objectors'] exercise of religion . . . ."⁹ Justice Alito mused that the government could simply provide the coverage at its own cost--which likely would be "minor when compared with the overall cost of ACA."¹⁰ The plurality then went on to hold that the exemption provided to religious non-profits should be extended to other religious objectors. Justice Alito wrote: "[w]e do not decide today whether an approach of this type complies with RFRA for purposes of all religious claims."¹¹ Addressing the dissent, Justice Alito asserted that the "decision is solely concerned with the contraceptive mandate."¹² He claimed that it would not shield religious arguments in favor of hiring discrimination, nor religious claims that might affect other public health (immunizations).¹³ In his short concurrence, Justice Kennedy rested his support of the plurality's decision largely on the fact that "an accommodation may be made to the employers without imposition of a whole new program or burden on the Government."¹⁴

In her heated dissent, Justice Ginsburg pointed out that the majority "barely pauses to inquire whether any burden imposed by the contraceptive coverage requirement is substantial."¹⁵ She then continued "[the] decision elides entirely the distinction between the sincerity of a challenger's religious belief and the substantiality of the burden placed on the challenger."¹⁶ She responded to Justice Alito's suggestion of letting the government pay by asking "where is the stopping point . . . ?"¹⁷ She further argued that the "accommodation" does not give women the "comprehensive preventive care . . . [which would] serve the compelling interests to which Congress responded."¹⁸

Practical Effects

The regulations setting forth the contraceptive mandate and its exemptions appear to impose serious administrative cost and logistical issues for insurers and TPAs. The accommodation requires insurers to provide contraceptive coverage without charge to employees of the objecting organization. The regulations assume that insurers' costs will be offset by the fewer pregnancies for which they will ultimately have to pay. The agencies base their assumption on the experience of the Federal Employees Health Plan.¹⁹ While the introduction to the regulations cited several papers, in my view, the regulations' assumption does not appear to consider the actual actuarial application to private insurance programs. Different workplaces employ a different number of women of different ages and economic circumstances. While provision of contraceptives may yield lower medical costs over a long time period, that does not mean that the costs of particular employers will reflect the savings. It does not address the question of whether women would purchase contraceptives on their own or receive them from a different source. Further, it does not address who receives the benefit of lower costs and how they will be calculated. Does the insurer reap all benefits? HHS issued rules on adjustments to "medical loss ratio and risk corridor program calculations" to compensate for incurred claims.²⁰

TPAs enjoy an even more complicated situation. TPAs have traditionally avoided becoming fiduciaries under ERISA. However, the new regulations appear to make them fiduciaries by fiat with respect to contraceptive coverage. They must procure appropriate insurance without charging the objecting employer. Presumably, as a result of their new duties, TPAs will monitor the provision of contraceptive coverage and be subject to benefit claim and fiduciary breach lawsuits. TPAs are supposed to recover costs associated with their new duties by an offset of the Exchange user fee.²¹ The government relies on the EBSA Form 700, which objecting entities must complete to identify their religious objection. The form identifies the TPA with responsibility for obtaining alternate contraceptive coverage. The government considers that form an "instrument under which the plan is operated" and a "designation of the [TPA] as the plan administrator" for contraceptive services.²² Granted that entities in control of benefits become fiduciaries, it begs the question of the executive branch's authority to expand the definition of plan instruments and compel TPAs to become fiduciaries. Is it simply Chevron deference?²³ According to the industry trade group, at this time, TPAs have not received reimbursement for this service.²⁴ The Self-Insurance Institute of America ("SIIA") stated that TPAs had difficulty finding insurance to cover contraceptives.²⁵ In light of the difficulties of alternate reimbursement paradigms, Justice Alito's suggestion that the government pay certainly seems to support a single payer system. Indeed, the government effectively pays for the cost of services for TPAs forced to provide contraceptive services.

Justice Ginsburg also protested the decision's expansive possibilities. She mentioned the religious restrictions on certain aspects of medical care that are part of the belief systems of Jehovah's Witnesses, Scientologists and others.²⁶ The Jehovah Witnesses' prohibition on blood transfusions applies not only to believers, but to non-believers as well.²⁷ Similarly, Scientologists eschew antidepressant and other medical psychiatric drugs for themselves and others.²⁸ It appears that both of these groups would object to the payment of those costs on religious grounds if permitted.²⁹ In perhaps an absurd result, a group of Satanists requested an exemption to anti-abortion laws because of deeply held religious beliefs. Thankfully, RFRA does not apply to state laws.³⁰

While the plurality claims that the decision applies only to the situation presented, the legal reasoning used--the alleged "minimal" cost to the government--would logically apply to many other objections. In United States v. Windsor,⁴¹ Justice Kennedy attempted to limit the decision's scope, stating that "[t]his opinion and its holding are confined to those lawful marriages." In dissent, Justice Scalia argued that the majority's contention that "[b]y seeking to displace this protection and treating those persons as living in marriages less respected than others, the federal statute is in violation of the Fifth Amendment" results in:

• formally declaring anyone opposed to same-sex marriage an enemy of human decency, the majority arms well every challenger to a state law restricting marriage to its traditional definition. Henceforth, those challengers will lead with this Court's declaration that there is "no legitimate purpose" served by such a law, and will claim that the traditional definition has "the purpose and effect to disparage and to injure" the "personhood and dignity" of same-sex couples, see ante, at 25, 26. The majority's limiting assurance will be meaningless in the face of language like that, as the majority well knows. That is why the language is there.³²

Justice Scalia proved prescient. In the short time since the Windsor decision, courts, relying on Justice Kennedy's condemnation of the animus reflected in DOMA, have struck down state law prohibitions against same sex marriage throughout the country.

Just as Windsor, at least so far, has led to an expansion of gay and lesbian rights not addressed in the decision, so Hobby Lobby might lead to a constriction of women's rights. In an action provoking outrage from many, the day after the decision the Court granted an injunction to Wheaton College, absolving it from filling out EBSA form 700.³³ Justice Sotomayor, joined by Justices Ginsburg and Kagan, filed a stinging 14-page dissent from the action. The Wheaton College injunction significantly undermines the Court's argument, detailed above, that the Court limited the Hobby Lobby accommodation to that already provided to religious non-profits.

The legal reasoning in the Hobby Lobby decision could lead to other consequences that the Supreme Court may not have foreseen. For example, when President Obama planned to issue an executive order prohibiting federal contractors from discriminating against LBGT employees and applicants, Hobby Lobby inspired faith-based groups lobbied for an exemption. Although the Administration refused to grant it, the groups contemplate litigation.³⁴

In response to Hobby Lobby, the Departments issued a Notice of Proposed Rulemaking concerning rules addressing the religious exemption as well as Proposed Regulations.³⁵ The Notice asked for comments to help the Departments define "closely held" for-profit corporations. They will develop an amendment to the definition of "eligible organization." The proposed regulations amend EBSA Form 700 to permit notice to the Secretary of HHS, instead of completion of the EBSA Form, and designate that notice as "an instrument under which the plan is operated." At least one religious organization has objected to this requirement.³⁶

Conclusion

There are four obvious conclusions that can be drawn from the Hobby Lobby decision. First, the decision will have a significant impact on ACA-related litigation. Second, more religious objections will continue to arise. Third, ACA-related litigation will continue for the foreseeable future. Lastly, and perhaps most important, ongoing controversies about the roles, responsibilities, costs and benefits to individuals and entities impacted by both Hobby Lobby and the ACA is still very much an open question.

¹Public Health Services Act, 42 U.S.C. & 30099-13(a)(4) (2014).

²http://www.hrsa.gov/about/index.html.

³http://www.iom.edu/About-IOM.aspx.

⁴Interim Final Rules for Group Health Plans and Health Insurance Issuers, 75 Fed. Reg. 41726 (July 19, 2010).

⁵45 C.F.R. 147.131(a).

⁶Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014). The decision addressed two cases: Burwell v. Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp v. Burwell.

⁷Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751, 2779 (2014) (citing 42 U.S.C. 2000bb-1(b)).

⁸Id. at 2780.

⁹Id.

¹⁰Id. at 2781.

¹¹Id. at 2782.

¹² Id. at 2783.

¹³Id.

¹⁴Id. at 2787.

¹⁵Id. at 2798.

¹⁶Id. at 2799.

¹⁷Id. at 2802.

¹⁸Id. at 2803.

¹⁹Coverage of Certain Preventative Services under the Affordable Care Act, 78 Fed. Reg. 39870, 39872 (July 2, 2013).

²⁰Id. at 39878.

²¹45 C.F.R. 156.50(d) (2014).

²²29 C.F.R. 2510.3-16(b).

²³Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

²⁴Letter from Michael W. Ferguson, President and CEO of Self-Insurance Institute of America, Inc. to Secretaries Burwell, Perez, and Lew (July 7, 2014) [www.siia.org/files/siia-HHSJuly7,2014.pdf.]

²⁵Id.

²⁶Hobby Lobby, 134 S. Ct. at 2805.

²⁷Brief for Watchtower and Tract Society as Amici Curiae supporting Maria Icab Duran, In Re Duran, 769 A.2d 497 (Pa. Super. Ct. Feb. 21, 2001).

²⁸Hobby Lobby, 134 S. Ct. at 2805.

²⁹Id.

³⁰See http://thesatanictemple.com/satanists-leverage-hobby-lobby-ruling-in-support-of-pro-choice-initiative/.

³¹133 S. Ct. 2675 (2013).

³²Id. at 2710.

³³Wheaton College v. Burwell, 134 S. Ct. 2806, 2807 (2014).

³⁴http://www.whitehouse.gov/the-press-office/2014/07/21/executive-order-further-amendments-executive-order-11478-equal-employment. Id. at 2807-17.

³⁵79 Fed. Reg. 166, 51118 (Aug. 27, 2014).

³⁶Brief for Petitioner, Little Sisters of the Poor Home for the Aged v. Burwell, No. 13-1540, Brief on the Interim Final Regulations (10th Cir. Sept. 8, 2014).