Supreme Court Will Consider Regulations Permitting Employers to Opt Out of Contraception Coverage

By Russell W. Jackson

In Trump v. Commonwealth of Pennsylvania, the Supreme Court has granted certiorari to hear a case challenging whether businesses should be allowed to opt out of contraceptive coverage for their employees for religious or moral objections.

Coverage Imposed by ACA

In 2010, Congress passed the Women’s Health Amendment as part of the Patient Protection and Affordable Care Act (“ACA”).  The Amendment directed health insurance providers to cover “preventative care and screenings” without cost-sharing (i.e., no copay).  After the ACA was enacted, the Health Resources and Services Administration (“HRSA”) commissioned the Institute of Medicine to recommend services the Amendment should cover.  The Institute proposed eight health services to be covered, which included the Food and Drug Administration-approved contraceptive methods, sterilization procedures and patient education. 

In August 2011, HRSA issued guidelines adopting the Institute’s recommendations.  After adopting the HRSA’s guidelines, the Departments of Health and Human Services, Labor, and Treasury – the agencies assigned to administer the ACA (the “Agencies”) – exempted certain religious employers (churches and their integrated auxiliaries) from complying with the contraceptive coverage guarantee.  A number of religious groups urged the Agencies to expand the exemption to cover all entities that had moral or religious objections to providing contraceptive coverage.  In response, the Agencies created an accommodation exempting nonprofit employers with religious objectives.  The rules provided an “accommodation,” whereby nonprofit employers could refuse to “contract, arrange, pay, or refer for contraceptive coverage” if it self-certified its religious objection to its insurance company or third-party administrator.  In those situations, female employees would receive access to contraceptive care directly from the insurance company or third-party administrator. 

U.S. Supreme Court Requires Religious Accommodation

Several employers brought challenges under the Religious Freedom Restoration Act (“RFRA”), and after a circuit split, the Supreme Court granted certiorari in Burwell v. Hobby Lobby, 573 U.S. 682 (2014).  Hobby Lobby held that the RFRA prohibited applying the contraceptive mandate to closely held for-profit corporations with religious objections.  The Court held that the requirement “impose[d] a substantial burden on the exercise of religion” for those employers.  Id. at 726.  In accordance with Hobby Lobby, the Agencies promulgated rules extending the accommodation to closely held for-profit employers with religious objections to contraceptive coverage. Even with the extended accommodation, entities objected to the mandate and litigation ensued.  Another circuit split developed, and the Supreme Court granted certiorari to hear Zubik v. Burwell, 136 S. Ct. 444 (2015).  The Zubik Court, however, vacated all lower court judgments and remanded the cases to allow the parties an opportunity to resolve the issue.

In response to Zubik, the Agencies sought public comment to resolve the objections while also providing a mechanism for contraceptive coverage.  The Agencies received approximately 54,000 comments and ultimately determined they were unable to identify how to amend the accommodation that would satisfy the objecting entities and ensure women covered by the entities received coverage. 

Administrative Agency Rules

Following a 2017 executive order from President Trump, in October 2017, the Agencies released two interim final rules affecting the contraceptive guarantee.  They expanded coverage to entities that either have sincere religious objections (religious exemption) or sincere moral objections (moral exemption).  Each rule was immediately effective.  The Agencies relied upon the “good cause” exception to the Administrative Procedures Act’s (“APA”) notice-and-comment period to permit them to issue interim rules without notice and comment.  The Agencies then solicited public comment for 60 days on the interim rules in anticipation of the final rules. 

Pennsylvania sued to block enforcement of the interim final rules.  Pennsylvania argued (1) the interim rules violated the APA because they failed to comply with the notice-and-comment period and (2) the rules were arbitrary and capricious, an abuse of discretion, or otherwise contrary to law because they violated the ACA and were not justified by RFRA.  The district court granted Pennsylvania’s motion for preliminary injunction.  The district court held that the Agencies had neither independent statutory authority nor good cause under the APA to enact the rules without providing a notice and comment period.  The government appealed the district court’s decision. 

In November 2018, during the appeal’s pendency, the Agencies replaced the interim final rules with final rules, which were substantially similar to the interim final rules.  The final rules allowed private employers to opt out of the contraceptive guarantee for religious reasons and allowed all employers, other than those publicly traded, to opt out on moral grounds.

Pending Supreme Court Review

After publication of the final rules, Pennsylvania, now joined by New Jersey, filed an Amended Complaint and moved for a nationwide preliminary injunction, which was granted.  The district court held that the final rules violated the APA’s procedural requirements. 

The Third Circuit Court of Appeals affirmed.  The court held that the Agencies did not have specific statutory authorization or good cause to forgo the notice-and-comment period.  The court also held that although the Agencies received comments between the interim and final rules, the Agencies did not review the comments with an open mind; therefore, they were procedurally improper.  Finally, the court held that the final rules exceeded the agencies’ authority pursuant to the ACA.  The appellate court also held that the district court had acted within its discretion when it entered the injunction on a nationwide basis. 

The government petitioned the Supreme Court for review, which has been granted.  Before the Supreme Court, the government has argued the agencies had statutory authority to adopt the expanded exemptions under the ACA, the RFRA authorized the expanded religious exemption, the final rules do not violate the APA, and the court of appeals’ affirmation of the nationwide injunction was incorrect.  Relying on Hobby Lobby, the government argues the religious exemption is specifically authorized as it prohibits the government from “substantially burdening a person’s exercise of religion” unless the application is “the least restrictive means” of furthering a “compelling government interest.”  The government also argued that the agencies did not violate the APA because they issued the final rules after soliciting and considering public comments. 

Pennsylvania and the other states involved in the case (the “States”) argue that the court of appeals correctly held that the agencies improperly failed to follow the notice-and-comment procedures of the APA and that the agencies lacked authority to issue the rules under the ACA or under the RFRA.  The States contend that the government’s notice and comment exercise surrounding the final rules did not reflect a real open-mindedness, and that if this approach were permissible, agencies would have no reason to comply with their obligation to seek comments prior to issuing final rules.  With respect to the moral objection, the States pointed to the appellate court’s opinion, which noted that the government did not attempt to claim that the RFRA authorizes or requires the moral exemption.  With the current makeup of the Supreme Court, it is expected that the Court will likely, at least eventually, determine that employers with sincere religious objections should be exempt from the contraceptive coverage guarantee.  However, it will be interesting how the Court analyzes the moral objection exemption.  Oral argument and a decision are expected during this term, with a decision by summer 2020.