Legal Challenge to ACA Contraceptive Coverage Mandate Could Portend More Complications for Self-Insurance Marketplace

The United States Supreme Court is now expected to consider Hobby Lobby’s legal challenge to the contraceptive coverage mandate implemented as part of the Affordable Care Act.  The owners of the national retailer claim that the law’s requirement that the company’s group health plan includes coverage for contraceptive services violates their religious beliefs. 

This blog remains agnostic with regard to the religious liberty issues, but there are evolving self-insurance angles related to this story that deserve attention.

We recently reported that federal regulators contend the final contraceptive coverage mandate rules incudes a practical accommodation for most self-insured religious organizations (non-profit entities), but  it’s really just a bureaucratic illusion.  The rules allow such organizations a functional exemption from the requirements by transferring all financial and administration responsibilities to their third party administrator (TPA) partners.

While this firewall approach may have satisfied the Administration’s political considerations, it is so far proving unworkable in the real world as multiple TPAs servicing this market segment report that they cannot perform the required responsibilities, citing specific substantive reasons.  The end result is that these self-insured religious non-profit organizations may simply have to dissolve their self-insured group health plans to the extent that they wish to stick to their religious convictions.

The Hobby Lobby case potentially adds a new twist specific to for-profit self-insured companies.  In other words, companies that do not have a primary religious mission but whose owners may have strong religious beliefs.

There are actually about 60 similar cases pending in various federal courts and we expect that some companies are self-insured and others are not.  (This blog has not independently verified the funding structure of Hobby Lobby’s group health plans, but it is likely self-insured given the company’s size.)   Hobby Lobby is the highest profile case both because of its size and because its position was affirmed by the 10^th Circuit Court of Appeals in June of this year.

In addition to the central constitutional issue,  Court may also need decide whether the ACA is in conflict with the 1993 Religious Freed Restoration Act (RFRA), which says the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling government interest.

A broad ruling by Court declaring the ACA contraceptive coverage mandate provisions unconstitutional outright would take this issue off the table.  An equally broad ruling in the other direction would certainly not be welcome by Hobby Lobby and other similar plaintiffs, but it would at least bring some clarity to their legal obligations.

The more interesting scenario is if the Court charts a middle course in its ruling and determines that the exemption arrangement designed for self-insured religious organization could satisfy the RFRA’s “least restrictive means test” and therefore opens this option up for companies like Hobby Lobby.

In other words, allow these for profit companies to self-certify as exempt organizations for purpose side-stepping compliance with the contraceptive coverage mandate.

But for self-insured companies it would not be that simple because their TPA partners will be put in the same tenuous position as the current non-profit exempt organizations have already done, which could force these companies into more expensive fully-insured health insurance arrangements or drop coverage altogether.

Yes, companies may be able to rely on legally permissible firewalls should the Court rule accordingly, but both their TPAs and sponsored self-insured group health plans may end up getting burned in the process.  Perhaps this may be an unanticipated example of being careful of what you ask for…or on this case, what you pray for.