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Published: 2012-12-31

Contraceptive Coverage Provision of Health Care Law Takes Effect



On January 1, 2013, the much talked about "contraceptive mandate" goes into effect, requiring non-exempted group health plans to provide coverage for women's preventative health services, including contraceptive methods. Specifically, under section 1001(5) of the Patient Protection and Affordable Care Act (as passed in 2010), non-grandfathered group health plans must cover certain preventative health services without cost-sharing, as provided in the Health Resources Services Administration guidelines, including "all Food and Drug Administration . . . approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity as prescribed by a provider." This includes the "morning-after pill."

The requirement has been met with resistance from certain employers claiming that it violates their religious beliefs to provide said coverage.

In the last week of December, two very different outcomes came from the U.S. Supreme Court and the Seventh Circuit Court of Appeals on these challenges. Both were applications from for-profit employers for injunctions to block the mandate from taking effect pending their appeals on the merits -- a request by Hobby Lobby, Inc. and Mardel, Inc. at the U.S. Supreme Court was denied, and a request from Korte & Luitjohan Contractors, Inc. was granted by the Seventh Circuit.

Justice Sotomayor Denies Request to Block the Contraceptive Coverage Provision

On December 26, 2012, Justice Sotomayor denied Hobby Lobby's application for an injunction to stay the mandated coverage requirement.

"Hobby Lobby is an arts and crafts retail chain store, with more than 13,000 employees in over 500 stores nationwide. Mardel is a chain of Christian-themed bookstores, with 372 full-time employees in 35 stores."

The companies argued that the mandate will require them to provide insurance coverage for certain drugs and devices that the applicants believe can cause abortions, in violation of their religious beliefs and their rights under the Free Exercise Clause of the First Amendment and the Religious Freedom Restoration Act of 1993 (RFRA).

Both the District Court for the Western District of Oklahoma and the Court of Appeals for the Tenth Circuit denied their motion for an injunction to block the mandate, pending resolution of the appeal.

As Circuit Justice for the Tenth Circuit, the injunction application came before Justice Sotomayor.

Her four-page opinion noted that the "only source of authority for this Court to issue an injunction is the All Writs Act, 28 U. S. C. section 1651(a). We have consistently stated, and our own Rules so require, that such power is to be used sparingly."

The standard, she wrote, is that "a Circuit Justice may issue an injunction only when it is '[n]ecessary or appropriate in aid of our jurisdiction' and 'the legal rights at issue are indisputably clear.'"

Noting that this is a demanding standard of proof, Justice Sotomayor concluded that Hobby Lobby and Mardel had not satisfied their burden, and the requested relief was denied.

"This Court has not previously addressed similar RFRA or free exercise claims brought by closely held for-profit corporations and their controlling shareholders alleging that the mandatory provision of certain employee benefits substantially burdens their exercise of religion."

Further, she recognized that lower courts were not in agreement on whether to grant such relief to those raising similar claims, and no court had granted permanent relief on said claims.

Hobby Lobby and Mardel also failed to show that they would face irreparable harm if forced to choose between complying with the contraception coverage requirement and paying significant fines, because they could continue their challenge to the requirement in the lower courts, and file a petition for writ of certiorari to the U.S. Supreme Court following a final judgment, wrote Sotomayor.

The case is Hobby Lobby Stores, Inc. et al. v. Sebelius 568 U.S. ____ (2012) [Case No. 12A644].

Seventh Circuit Grants Injunctive Relief Blocking the Contraceptive Coverage Mandate for Illinois Employer

Just two days later, on December 28, 2012, a panel from the Seventh Circuit granted Kortes' request to stay the mandate pending its appeal of the law, reported Reuters.

"Cyril and Jane Korte own K & L Contractors, a construction firm with approximately 90 full‐time employees. About 70 of their employees belong to a union, which sponsors their health‐insurance plan; K & L Contractors provides a group health‐insurance plan for the remaining 20 nonunion employees. The Kortes are Roman Catholic, and they seek to manage their company in a manner consistent with their Catholic faith, including its teachings regarding the sanctity of human life, abortion, contraception, and sterilization. In August 2012 they discovered that the company's current health‐insurance plan includes coverage for contraception. The plan renewal date is January 1, 2013. The Kortes want to terminate this coverage and substitute a health plan (or a plan of self‐insurance) that conforms to the requirements of their faith. The ACA's preventive‐care provision and implementing regulations prohibit them from doing so."

The Kortes argued that the coverage requirement violated their rights under the Religious Freedom Restoration Act (RFRA), the First Amendment's Free Exercise, Establishment, and Speech Clauses, the Fifth Amendment's Due Process Clause, and the Administrative Procedure Act.

Their request for an injunction blocking the mandate was denied by the lower court and they filed an emergency motion with the Seventh Circuit Court of Appeals.

The Seventh Circuit noted in its opinion that, for the purposes of the injunction request, the Kortes were relying solely on the RFRA claim.

"We evaluate a motion for an injunction pending appeal using the same factors and 'sliding scale' approach that govern an application for a preliminary injunction. The Kortes must establish that they have "(1) no adequate remedy at law and will suffer irreparable harm if a preliminary injunction is denied and (2) some likelihood of success on the merits," said the Court.

"Once the threshold requirements are met, the court weighs the equities, balancing each party's likelihood of success against the potential harms. . .The more the balance of harms tips in favor of an injunction, the lighter the burden on the party seeking the injunction to demonstrate that it will ultimately prevail."

Using this test, the Seventh Circuit concluded that the Kortes had established a reasonable likelihood of success on the merits and irreparable harm, and that the balance of harms tipped in their favor.

Noting that the RFRA prohibits the federal government from imposing a substantial burden on a person's exercise of religion unless it meets the requirements of the strict scrutiny test, the Seventh Circuit rejected the government's arguments that the burden on religious exercise was minimal and attenuated, as found by the Tenth Circuit in the Hobby Lobby case [No. 12‐6294 (10th Cir. Dec. 20, 2012)].

"The religious‐liberty violation at issue here inheres in the coerced coverage of contraception, abortifacients, sterilization, and related services, not--or perhaps more precisely, not only--in the later purchase or use of contraception or related services."

The Seventh Circuit found support in the 8th Circuit's case O'Brien v. U.S. Dep't of Health & Human Servs., No. 12‐3357 (8th Cir. Nov. 28, 2012), which also recently granted a motion for injunction on this issue, although noting that it did so without discussion.

The Seventh Circuit distinguished Justice Sotomayor's in-chambers opinion in the Hobby Lobby case, because the "'demanding standard' for issuance of an extraordinary writ by the Supreme Court, differs significantly from the standard applicable to a motion for a stay or injunction pending appeal in this court. As Justice Sotomayor noted, the entitlement to relief must be 'indisputably clear.'"

As such, the Seventh Circuit concluded that the Kortes established a reasonable likelihood of success on their claim that the contraception mandate imposes a substantial burden on their religious exercise, and that the government had not advanced an argument that the contraception mandate is the least restrictive means of furthering its asserted interests. The Court did reserve judgment as to whether the government interests in 1) "ensuring that employees and their families have access to recommended preventative health services," and 2) "ensur[ing] that decisions about whether to use contraception and which form to use are made by a woman and her doctor--not by her employer or insurer," qualified as compelling under the strict scrutiny test.

With regard to the harm, the Seventh Circuit found that irreparable harm was established as the "Kortes will be forced to choose between violating their religious beliefs by maintaining insurance coverage for contraception and sterilization services contrary to the teachings of their faith and subjecting their company to substantial financial penalties."

Finally, in balancing the harms, the Court determined that it tipped in favor of the Kortes. "An injunction pending appeal temporarily interferes with the government's goal of increasing cost‐free access to contraception and sterilization. That interest, while not insignificant, is outweighed by the harm to the substantial religious‐liberty interests on the other side."

In dissent, Judge Rovner wrote that the Kortes had not demonstrated either a reasonable likelihood of success on the merits of their appeal or irreparable harm in the absence of an injunction pending the resolution of the appeal.

"Although the Kortes contend that complying with the Patient Protection and Affordable Care Act's insurance mandate violates their religious liberties, they are removed by multiple steps from the contraceptive services to which they object."

Convincing to Judge Rovner were the following factors: 1) the corporation, and not the Kortes individually, will pay for the insurance coverage; 2) the firm itself will not be paying directly for contraceptive services; it will be a decision made between the employee and her doctor that will be paid by the insurer; 3) the insurance plan currently in effect for their company's non‐union employees, which plan the company voluntarily entered into, already covers the relevant contraceptive services and thus their claim of irreparable harm must fail; and 4) the regulations imposing the insurance mandate were issued in August 2011 and the Kortes waited for more than a year to file this suit and seek a preliminary injunction relieving their firm of the duty to comply with the statute and the implementing regulations.

Conclusion

Interestingly, filings in both the Hobby Lobby case and the Korte case reveal that both employers' group health plans did in fact previously provide for contraceptive coverage. It was only after the mandate made the news that the companies reviewed their policies and realized that they provided contraceptive coverage. However, in the Korte case, the Seventh Circuit determined that this fact did not derail the Kortes' claims. "It is well‐established that a religious believer does not, by inadvertent nonobservance, forfeit or diminish his free‐exercise rights."

Neither court decided the cases on the merits so it looks like the issue will eventually be headed for the U.S. Supreme Court. In the meantime, the law takes effect January 1, 2013.

Employers who do not comply are subject to enforcement actions and substantial financial penalties. See, 29 U.S.C. section 1132(a); 26 U.S.C. section 4980D(a), (b) ($100 per day per employee for noncompliance with coverage provisions); 26 U.S.C. section 4980H (approximately $2,000 per employee annual tax assessment for noncompliance).

Anne O'Donnell is a recovering litigator who is now currently a Senior Writer for legal professional content at Findlaw.com. She practiced for 10 years in civil litigation in San Francisco.