Understanding the Supreme Court’s Hobby Lobby Decision

Employee Benefits Update

Date: July 01, 2014

On June 30, 2014, the Supreme Court of the United States issued a decision in Burwell et al. v. Hobby Lobby Stores Inc. et al. and Conestoga Wood Specialties v. Burwell et al. regarding the Affordable Care Act’s requirement that certain employer health plans provide coverage for contraceptives

This bulletin reviews the impact of that decision for group health plan sponsors. Although the facts and arguments of the two cases are similar, and although they were decided together, this bulletin focuses on the facts of the Hobby Lobby case.

What Coverage Does the Affordable Care Act Require?

The Affordable Care Act requires that non-grandfathered group health plans provide coverage for “recommended preventive services” without requiring employees to pay copayments, deductibles or any other out-of-pocket expenses when obtaining those services from an in-network provider.

Are Contraceptives “Recommended Preventive Services?”

Yes. Recommended preventive services are services that have been recommended by one of four governmental agencies, including the Health Resources and Services Administration (HRSA).  The HRSA has recommended that health plans cover all Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity.

What Happens if a Plan Does Not Cover Contraceptives?

If a group health plan is subject to the contraceptive coverage requirement and does not offer the required coverage, the plan must pay an excise tax of $100 per day per affected individual.

Are any Plans Exempt From the Contraceptive Coverage Requirement?

Yes. In addition to grandfathered group health plans, group health plans sponsored by religious employers are not required to provide coverage of contraceptives. “Religious employers” include churches, their integrated auxiliaries, conventions or associations of churches, and the exclusively religious activities of any religious order. 

Are Plans of Religious Hospitals or Universities Exempt?

Religious hospitals and universities generally do not qualify for the religious employer exemption. However, the Department of Health and Human Services (HHS) has provided an accommodation that would allow these employers (and other religious nonprofit organizations) to avoid providing group health plan coverage for contraceptives while still allowing their employees to obtain them.

This accommodation applies to the group health plan of a religious nonprofit employer that self-certifies that it opposes providing coverage for contraceptives for religious reasons. Under this accommodation, the plan’s insurer or third-party administrator must provide employees with the contraceptives outside the plan at no charge to the employees or the employer.

In response to a challenge brought by Little Sisters of the Poor and pending appeal of that challenge, the Supreme Court has ordered that the eligible organizations in that appeal can instead opt out of the contraceptive coverage requirement by providing written notification of their objections to HHS.

Are Plans of Other Employers Exempt?

To a certain extent. As a result of the Hobby Lobby decision, group health plans of closely held corporations (even for-profit corporations) cannot be required to comply with the contraceptive coverage requirement to the extent that doing so would violate the owners’ sincerely held religious beliefs.

Why Did Hobby Lobby Object to the Contraceptive Coverage Requirement?

Hobby Lobby is a closely held corporation controlled by a family with strong Christian beliefs.  Hobby Lobby’s statement of purpose commits the family to “[honor] the Lord in all [they] do by operating the company in a manner consistent with Biblical principles.” The family believes that life begins at conception and feels strongly that they should not provide health coverage for four contraceptive methods that would prevent an already-fertilized egg from further developing.

Why Did the Supreme Court Agree With Hobby Lobby?

Under the Religious Freedom Restoration Act of 1993 (RFRA), the federal government cannot take action that would substantially burden a person’s exercise of religion unless the action is the least restrictive means of serving a compelling governmental interest.  

The majority of the Supreme Court recognized that the $100 per person per day penalty for failure to cover the four objectionable contraceptives would be a substantial burden on Hobby Lobby and its owners’ exercise of their religious beliefs. 

Even assuming that the contraceptive coverage requirement served a compelling governmental interest, the majority did not believe that it was the least restrictive means of serving that interest because (i) the government could offer to pay for the objectionable contraceptives or (ii) the government could allow other corporations to take advantage of the accommodation currently offered to nonprofit religious employers.

How Does This Decision Impact Publicly Traded Companies?

Generally, it doesn’t. As noted in the decision, publicly held corporations typically are controlled by unrelated investors (including institutional investors with their own shareholders) who likely would not agree to run the corporation under the same religious beliefs. As a result, it would be unlikely that the contraceptive coverage requirement would violate the RFRA with respect to these types of corporations.

Can Group Health Plans Now Stop Covering Contraceptives?

If an employer is a closely held corporation controlled by owners with sincere religious objections to covering contraceptives, the Hobby Lobby decision would likely support a decision to eliminate health plan coverage for contraceptives. However, Congress might pass a law that would change or clarify the result of the Hobby Lobby decision. In fact, Senate Majority Leader Harry Reid responded to the decision by stating, “[i]f the Supreme Court will not protect women’s access to health care, then Democrats will.”

Employers should consult with legal counsel before eliminating group health plan coverage of contraceptives. 


Kim Wilcoxon

Tim McDonald


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