Impact to Calif. Employers From Hobby Lobby Ruling


On June 30, 2014, the U.S. Supreme Court handed down its decision in the Burwell v. Hobby Lobby case, holding that closely held corporations could refuse to provide contraceptive coverage mandated by U.S. Department of Health and Human Services regulations implementing the Affordable Care Act, if to do so would violate their owners' "sincerely held" religious beliefs.

The decision has sparked commentary across the country from all sides of the reproductive rights debate. But before employers gear up for litigation challenging HHS coverage requirements with which they disagree, they should consider the Hobby Lobby decision's effect on state law, which may be minimal.

The Hobby Lobby decision expressly avoided a decision on constitutional grounds, instead resting its holding on the Religious Freedom Restoration Act. The decision is thus an exercise in statutory interpretation, solely concerned with the meaning and application of RFRA, not the Constitution. When Congress passed the ACA in 2010, it could have exempted that law or various of its provisions from RFRA's jurisdiction, but did not do so. The plaintiffs also sued under the Free Exercise Clause of the First Amendment, but the Supreme Court ruled only on the RFRA claim and avoided the constitutional issue.

The fact that Hobby Lobby implicates only the RFRA and not the Constitution is critically important for California and many other states. Nearly 20 years ago, the Supreme Court ruled that the RFRA does not apply to the states in the City of Boerne v. Flores decision. As a result, Hobby Lobby has no direct effect on state laws.

Twenty-eight states, including California and New York, require insurers to provide coverage for contraceptive drugs and devices. Seventeen states also require coverage of correlated outpatient services. California's leading statute on the subject, Health and Safety Code § 1367.25, is part of the state's managed care statutory scheme, the Knox-Keene Act. It requires all individual and group health plans (though not employer self-funded plans, which are governed by ERISA) that include prescription drug benefits to cover "a variety of [U.S.] Food and Drug Administration approved prescription contraceptive methods designated by the plan." (California Insurance Code § 10123.196 imposes similar requirements in the traditional health insurance arena.)

Similar to federal law, California's law includes a provision permitting a "religious employer" to opt out of providing such coverage. But the California law's definition of "religious employer" is narrower than that of the Hobby Lobby decision. California's law defines a "religious employer" as a nonprofit whose primary purpose is to inculcate religious values, and which primarily serves and employs people who share the entity's religious beliefs. Companies like the plaintiffs in Hobby Lobby — for-profit retailers specializing in crafts and furniture — would not meet this definition. Consequently, the Hobby Lobby decision has no effect on the Knox-Keene Act's requirements for contraceptive coverage, nor does its reasoning threaten the legality of California's contraception coverage mandate.

Many commentators have suggested that Hobby Lobby could invite a broad range of new litigation under the ACA. While the justices specifically characterized their decision as narrow, advocates of all stripes argue that coverage mandates for treatments such as blood transfusions may be imperiled by Hobby Lobby's reasoning. This could very well be true at the federal level. But while California imposes a variety of potentially controversial coverage mandates, including for HIV testing and acupuncture, Hobby Lobby offers no ammunition to those seeking to challenge such state-enacted mandates.

Nor is there any immediate likelihood that a closely held California corporation could try to duplicate the results of Hobby Lobby on a state level. While some states have enacted copycat statutes based off the RFRA, California is not among them, leaving no clear avenue for a Hobby Lobby-like legal challenge. Indeed, Catholic Charities unsuccessfully attempted to challenge California's contraception coverage mandate 10 years ago in Catholic Charities v. Superior Court, and the California Supreme Court's determination that the contraception mandate was consistent with the state Constitution largely settled the controversy. The majority of states mandating contraceptive drug and device coverage appear to be similarly insulated from court challenge.

In addition, some commentators argue that at the federal level, the debate over Hobby Lobby is far from over. A 2000 decision by the U.S. Equal Employment Opportunity Commission requires employers to "cover the expenses of prescription contraceptives to the same extent, and on the same terms, that they cover" other drugs and preventive care, and "offer the same coverage for contraception-related outpatient services as are offered for other outpatient services." Should a potential plaintiff be burdened in any way in obtaining contraceptive coverage from her employer, she could therefore sue based on the EEOC ruling. An objecting employer, too, could challenge this rule on the same "sincere religious belief" basis that succeeded in Hobby Lobby. Such a case might not unfold in exactly the same way, because such a challenge would be against the Civil Rights Act rather than the ACA. The court would therefore not be as readily able to point to the ACA's regulations exempting religious employers as a "least restrictive alternative" the government could have pursued. Time will tell how such arguments will fare.

Without a doubt, Hobby Lobby is a major decision with dramatic implications for health law — and perhaps other laws as well — in the U.S., particularly for the approximately 22 states without a state-level contraception mandate. There are already indications that, despite the Supreme Court's portrayal of the Hobby Lobby decision as narrow, it may have significant implications for the future. For example, the high court cited Hobby Lobby in an order allowing Wheaton College, a Christian college, to refuse to take any action to provide contraceptive coverage — not even the needed paperwork for another party to fully cover employees' contraception in the college's stead — while its own court case was pending.

Arising out of a legal perfect storm of reproductive rights issues, corporate personhood and religious freedom, Hobby Lobby's analysis — or lack thereof — on complex issues, such as the sincerity of religious faith as the basis for an exemption from statutory duties, will be debated by business leaders, policymakers and scholars for years to come. Reviewing the decision, some advocacy groups will weigh how to challenge policies ranging from contraceptive and vaccination mandates to same-sex couple benefits. In California, however, many policymakers appear more interested in shoring up rather than reducing women's access to contraception.

We are not saying that California or other states have complete answers to any challenge that anyone might make to any federal law or regulation under the RFRA or to Hobby Lobby's outcome. However, the court's reasoning leaves California and other states free to require the same or higher levels of contraceptive care as federal law requires, and the court's reasoning leaves states free to increase those requirements in any area where federal provisions may be challenged. Just two days after the Supreme Court released its Hobby Lobby decision, the California State Senate's Health Committee again considered SB 1053, a bill that would forbid California insurers from imposing any form of cost-sharing on contraception coverage, much as the ACA's contraception mandate does. SB 1053 therefore has the potential to enhance contraceptive access for the California population at a time when much of its basic availability is being challenged at the federal level. On July 2, the Health Committee amended SB 1053 to permit cost sharing in situations where patients (other than Medi-Cal beneficiaries) select "nonpreferred" contraceptive drugs, devices or products. While SB 1053 has yet to become law, there is a perceptible trend here toward more thorough reproductive health coverage. Most California employers who for any reason would prefer not to offer coverage for contraception will find no solace in Hobby Lobby.

Twitter Facebook LinkedIn

Related Practices

Jump to Page

We use cookies on this website to improve functionality, enhance performance, analyze website traffic and to enable social media features. To learn more, please see our Privacy Policy and our Terms & Conditions for additional detail.