The Hobby Lobby Decision’s Effect on Nebraska and Iowa Employers
Given the extensive national news coverage and political hot button issues involved, it is a fair bet that many of our readers are aware of the U.S. Supreme Court’s recent decision in Burwell v. Hobby Lobby Stores, Inc. ("Hobby Lobby"). What does this ruling mean for Nebraska and Iowa employers? In reality, probably not much. The Hobby Lobby case addressed whether closely held, for-profit corporations (commonly known as family-owned businesses) can be required to provide contraceptive coverage for their employees pursuant to the Patient Protection and Affordable Care Act (the "ACA"), if the owners of the family-owned business have religious objections to doing so. The Supreme Court said they cannot be so obligated. However, though controversial, the Court’s decision actually affects a relatively small number of employers. In addition, indications from Congress and the Obama administration seem clear that the Supreme Court’s decision will not be the final word on this issue.
The Hobby Lobby case was a consolidation of lawsuits brought under the Religious Freedom Restoration Act (the "RFRA") by three closely held, for-profit corporations challenging the ACA’s contraceptive mandate. The ACA requires certain employers to provide no-cost preventive care coverage to employees (the "Mandate"), which includes coverage for twenty methods of contraception approved by the Food and Drug Administration ("FDA"). The ACA exempts religious employers from the Mandate and makes an accommodation for eligible nonprofit corporations under certain conditions. The plaintiffs in Hobby Lobby were neither exempt nor eligible for accommodation under the ACA, but each objected to covering 4 out of the 20 FDA approved contraceptives on religious grounds.
The plaintiffs sued the government to avoid millions of dollars in penalties they would have incurred for non-compliance with the Mandate. Challenges to government action (such as the Mandate) under RFRA are subject to strict scrutiny, meaning that where a person’s sincerely held religious beliefs would be substantially burdened by government action (such as with significant monetary penalties), the action will only be allowed if it is the least restrictive means of achieving a compelling government interest. After finding that for-profit corporations may be considered "persons" under the RFRA, the Court, applying the strict scrutiny test, held that the Mandate substantially burdened the sincerely held religious beliefs of the Hobby Lobby plaintiffs and was not the least restrictive means for pursuing the government’s interest in providing contraceptive coverage. Thus, the Court held that the Hobby Lobby plaintiffs were not subject to the Mandate.
To understand the scope of the Hobby Lobby decision for employers, it is important to look at exemptions vs. accommodations under the ACA, as well as state law requirements for contraceptive coverage.
Contraceptive Coverage: Exemption vs. Accommodation
Under the ACA, employers with fifty or more employees that offer health insurance benefits through a self-insured or group health plan are required to offer no-cost coverage for all twenty forms of contraception approved by the FDA unless: 1) the employer has a "grandfathered" health insurance plan; 2) the employer is a "religious employer"; or 3) the employer is an eligible nonprofit organization. A "grandfathered" plan is one that was in place prior to enactment of the ACA and remains exempt from the contraceptive mandate so as long as the employer refrains from making certain changes to the plan. Religious employers include churches and other houses of worship, while eligible nonprofit organizations are entities that hold themselves out as religious organizations and "self-certify" that they oppose covering contraceptive services by making a filing with the Department of Labor ("DOL").
Religious employers are truly exempt from the Mandate, which means they are not required to include any contraceptive coverage in their health insurance plans. Eligible nonprofit organizations, on the other hand, are only offered an accommodation under the ACA. If an eligible nonprofit files with the DOL and notifies its insurance company of the election not to participate in the Mandate, its employees will still receive no-cost coverage of all required contraceptives; the cost of such coverage will just be paid by the nonprofit’s insurer. In other words, an employee of a religious employer cannot get any coverage for contraceptive services from his/her employer unless the employer chooses to offer it. Employees of eligible nonprofit organizations, on the other hand, are guaranteed no-cost coverage of contraceptive services under the ACA (such services are just paid for by the employer’s insurer instead of by the employer or employee).¹
The Hobby Lobby decision did not change either the religious employer exemption or the eligible nonprofit organization accommodation. Closely held, for-profit corporations, however, were not addressed by the ACA. The Hobby Lobby decision clarified that such corporations are also not required to provide contraceptive coverage, but did not specify whether such corporations are exempt or merely able to get an accommodation from the Mandate. In an attempt to limit the reach of Hobby Lobby, the Obama administration issued a proposed rule on August 22, 2014, which would extend the existing accommodation from the Mandate to companies like Hobby Lobby by amending the definition of "eligible organization" to include closely held for-profit entities.
Under this proposed rule, closely held businesses with a religious objection to providing contraceptive coverage would notify the government of their objection and the government would then contact the insurers of such businesses and require the insurers to facilitate the applicable contraceptive coverage. Although the rule is not yet final, it is clear guidance from the Obama administration regarding its intent to clarify or modify the Supreme Court’s decision. Unfortunately, the Obama administration has not elected to propose an exemption from the Mandate for closely held for-profit entities. Instead, as with eligible nonprofits, the insurance carrier would still have to provide the coverage regardless of the employer’s objection.
The Hobby Lobby Decision and State Law
State law is an additional consideration for employers trying to understand the impact of the Hobby Lobby decision. Over 50% of states have so called "contraception equity" laws on the books that require contraceptive coverage for certain health insurance plans subject to state law. Some state plans offer exceptions or accommodations for religious employers, but others do not. Moreover, the level of coverage for contraceptive services varies, as do the type of plans subject to the contraception equity statutes. Because Hobby Lobby does not apply to such state laws, it is possible for an employer to avoid coverage for contraceptives under the ACA, while remaining subject to the contraceptive mandate of its home state. Thus, closely-held employers that operate in multiple states should exercise care before deciding to change or drop contraceptive coverage based on Hobby Lobby.
Nebraska. As of July 2014, Nebraska does not require employers to provide coverage of contraceptive devices. As a result, a Nebraska employer with more than 50 employees is required to provide no-cost contraceptive coverage for its employees per the Mandate unless it: (1) has a grandfathered plan; (2) is a religious employer; (3) qualifies as an eligible nonprofit organization; or (4) is a closely held, for-profit corporation within the meaning of the Hobby Lobby decision.
Iowa. Iowa’s contraceptive mandate generally requires all group or individual state-regulated plans to include prescription contraceptive drugs or devices if such plans cover other outpatient prescription drugs or devices. Likewise, a group plan may not exclude or restrict benefits for outpatient contraceptive services if it provides benefits for other outpatient services. Thus, even if an Iowa employer meets one of the four exceptions to the Mandate outlined above, the employer would still have to offer any contraceptive coverage mandated by Iowa law if the employer’s health insurance plan is regulated by the state.
In the end, for many Nebraska and Iowa employers, the Hobby Lobby decision will be much ado about nothing. For those employers that may be affected, careful consideration should still be given to state law concerns before implementing major changes based on Hobby Lobby. Employers with questions about the impact of the Hobby Lobby decision and what it could mean for their business may contact Koley Jessen’s Employment, Labor, and Benefits Practice Group for more information. Special thanks to Nicholas F. Lesiak, Law Clerk, in the preparation of this article.
by Richard D. Vroman and Nathan T. Burkman
¹Of course, there is a lot of discussion about who really ends up paying for this coverage. The insurance carrier is likely to pass the additional costs on to its customers through increased premiums for other items.