Supreme Court: Closely-Held Corporations Are Protected by the Religious Freedom Restoration Act – Who Will Foot the Bill?

Yesterday morning, the U.S. Supreme Court announced its decision in the much anticipated Burwell v. Hobby Lobby case, holding that closely-held corporations are protected by the Religious Freedom Restoration Act of 1993 (“RFRA”), and therefore cannot be required to pay for employee health plans that cover contraceptives if the corporation’s owners have religious objections.

The Affordable Care Act requires all health plans to cover preventive health services for women, which the Institute of Medicine has defined to include contraceptive products approved by the Food and Drug Administration.  The owners of three closely-held corporations, Hobby Lobby Stores Inc., Conestoga Wood Specialties Corp., and Mardel, opposed certain contraceptives that operate after an egg is fertilized and argued that being forced to facilitate access to such drugs or devices violates their religious beliefs.  The Supreme Court found that the requirement to provide contraceptive products substantially burdened the exercise of religious freedom and was not the least restrictive means to that ensure that women have access to these contraceptives.

What Does this Decision Mean for Health Plans and PBMs? 

Many people believe that the fastest way to ensure that women who may potentially be affected by this decision continue to have access to no-cost sharing contraceptives is to expand the exemption that the Department of Health and Human Services (“HHS”) promulgated for religiously-affiliated nonprofits to cover closely-held corporations.  This change could happen relatively quickly through sub-regulatory guidance by expanding the definition of eligible organization.

If the Administration and HHS decide to go this route, health plans and PBMs could potentially face an increased demand for no-cost contraceptives for which they will not be reimbursed for over a year, if ever.  As discussed in our earlier blog post, the exemption for eligible organizations requires an employer’s health plans or third party administrator, commonly a PBM, to provide contraceptives to the organization’s employees at no cost to the employee or the employer.  The health plan or PBM is only able to obtain reimbursement for providing these drugs or devices over a year later; in the case of the health plan, by receiving an effective tax credit that goes towards the amount it would have otherwise been forced to pay to participate in a Federally Facilitated Exchange; and in the case of a PBM, by contracting with health plan to report the PBM’s expenses and then pass through the credit to the PBM.

The regulations require that a health plan or PBM that intends to seek reimbursement must provide written notice to HHS that it intends to submit its contraceptive costs for reimbursement.  As of a few weeks ago, HHS had failed to establish a mechanism by which plans and PBMs could provide such notice even though health plans and PBMs were supposed to be able to provide such notice prior to 2014.

The Court’s decision did not address whether forcing eligible organizations to sign a permission slip that in essence instructs another entity (their plan administrator) to do something to which they are morally opposed (provide contraceptive services to their members) violates the organization’s religious freedoms, which is the issue raised by Little Sisters of the Poor in their case before the Tenth Circuit Court of Appeals.

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