The effects of Hobby Lobby on the Affordable Care Act

The Court's decision is extremely narrow and applies only to closely-held companies

Hobby Lobby is a closely-held, Oklahoma-based corporation and is owned exclusively by a family. The wholly-owned, family corporation provided insurance to its employees which included 16 methods of birth control as part of its health care plan at no charge. The regulation in question, issued by the Department of Health and Human Services (HHS), requires ACA-covered employers to provide 20 types of birth control, including four which may prevent an already fertilized egg from developing further (abortifacients), certain intrauterine devices (IUDs) and what is commonly referred to as the “morning after” pill. For religious reasons, Hobby Lobby objected to paying for four types of contraception known as abortifacients.

Hobby Lobby filed a lawsuit in federal court seeking to restrain the enforcement of the HHS regulation against it only as it pertained to the four methods of contraception which it found to be objectionable because of its religious beliefs. Hobby Lobby's opposition was based upon the Religious Freedom Restoration Act of 1993 (RFRA). The 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.”

The Supreme Court, in a 5-4 decision, held that the contraceptive mandate constituted a substantial burden on the corporation’s exercise of religion. When explaining the rationale for treating a closely held, for-profit corporation as a “person” under RFRA, the majority opinion pointed to HHS’s concession that a nonprofit corporation can be a “person” under RFRA. In light of this definition and the HHS's concession that "person" included nonprofit corporations, the Court determined Hobby Lobby was a "person" entitled to protections under RFRA. The Court narrowly applied its ruling to closely held corporations and did not broaden its ruling to publicly traded corporations.

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The Court then had to decide whether the contraception regulation was in furtherance of a compelling governmental interest, and whether the regulation was the least restrictive means of furthering that compelling interest. The Court decided that mandating all ACA-covered employers provide all 20 forms of contraception was not the least burdensome means to accomplish its goal. The court opined that the cost for the four contraceptives not covered in the Hobby Lobby plan could be covered by the federal government. The Court also noted that, in the alternative, the federal government could shift the costs of objectionable contraceptives to the insurers as it had done for religious non-profit organizations. Subsequently the Court held “[t]he contraceptive mandate, as applied to closely-held corporations, violates RFRA.”

The Court's decision is extremely narrow. It applies only to closely-held companies. The Court specifically noted that it would be unlikely that a publicly traded company would or could successfully assert the objections raised by Hobby Lobby. However, the parameters of the decision may only be relevant (for now) to those “closely-held,” for-profit corporations with religious objections to contraceptive coverage. The Court repeatedly references “closely-held corporation” as opposed to “family-owned” or “family-operated” corporations, and leaves unanswered the construction of what constitutes a “closely-held corporation.” However, the Court squarely requires that closely-held companies have bona fide religious objections to the contraceptive mandate. Hobby Lobby has a formal mission statement that states it operates under Biblical and Christian principles. It adopted other practices, such as remaining closed on Sundays, to adhere to these principles. Accordingly, the Court concluded that Hobby Lobby met the “bona fide religious objection” requirement.

The decision only impacts ACA-covered, closely-held companies with bona fide religious beliefs. Companies with 50 employers or less are not required to provide health insurance at all under the ACA. Also, employers with grandfathered health plans, those that existed prior to March 23, 2010, and that have not made specified changes thereafter, are not required to comply with many parts of the ACA, including the contraceptive mandate. In the decision, the Court noted that roughly 84 million of 154 million employees who have insurance coverage under employer-sponsored health care plans fall into these latter categories, and thus were not covered by the contraceptive mandate even before Hobby Lobby.

Contributing Author

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Kimberly James

Kimberly James is Of Counsel in the Houston office of McGlinchey Stafford . Kim handles labor and employment law, as well as other general business...

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