Business Law

Little Sisters of the Poor Saints Peter & Paul Home v. Pennsylvania, __ U.S. __, Nos. 19-431 and 19-454, 2020 WL 3808424 (July 8, 2020)

The ACA authorizes regulators to create religious and moral exemptions to mandated contraceptive health insurance coverage.

The Patient Protection and Affordable Care Act (ACA) requires employers to provide women with “preventive care and screenings” without cost sharing, and requires the Heath Resources and Services Administration (HRSA) to issue comprehensive guidelines defining such services. These requirements have been the subject of continuous litigation. The HRSA initially issued guidelines defining “preventative care” as including a “contraceptive mandate.” In response to complaints by religious employers, federal agencies administering the ACA directed the HRSA to exempt churches and a narrow category of religious nonprofit entities from the contraceptive mandate (the “church exemption”). Then, in response to continued objections, agencies issued a new regulation that created an “accommodation” for certain religious non-profit employers, allowing them to “self-certify” their eligibility and provide that certification to their health insurer, who would exclude contraceptive coverage from the employer’s group health plan while providing payments to beneficiaries for contraceptive services separate from the health plan. After Burwell v. Hobby Lobby Stores, Inc., 573 U.S. 682, 696-697 (2014), and Zubik v. Burwell, 578 U.S. __, __, 136 S. Ct. 1557, 1560 (2016), the HRSA issued interim rules expanding the definition of exempt religious employers and creating a “moral exemption” for employers holding a sincere moral objection to the contraception mandate. After completing the Administrative Procedure Act’s (APA) rule-making procedure, HRSA issued final rules that closely tracked its interim rules.

Pennsylvania and New Jersey sued in federal court, contending that the new rules violated both the ACA and the APA. The Little Sisters of the Poor, a Catholic organization, intervened to defend the exemption rules. The district court issued a nationwide injunction blocking enforcement of the rules. The Little Sisters and the Government appealed. The Third Circuit affirmed, holding that (1) the ACA authorized the HRSA to define what preventive care and screening services are required, but did not authorize the HRSA to carve out exemptions from those requirements, (2) the Religious Freedom Restoration Act (RFRA) did not compel or permit the exemption, (3) the self-certification accommodation did not substantially burden religion, and (4) the final rules were procedurally defective under the APA because agencies failed to exhibit open-mindedness during the notice-and-comment process.

The Supreme Court reversed (7-2), holding that federal agencies had statutory authority to enact the religious and moral exemptions, and that the rules promulgating these exemptions were free from procedural defects. First, the Court held the ACA itself grants “sweeping authority to the HRSA” to craft “comprehensive guidelines” and this “virtually unbridled discretion to decide what counts as preventative care and screening” includes the power to create religious and moral exemptions. The Court did not decide whether RFRA independently compelled or authorized the religious exemption, but it held that it was appropriate for HRSA to consider RFRA when establishing exemption rules. Finally, the Court held that the exemptions were not procedurally defective under the APA because promulgating a document entitled “Interim Final Rules with Request for Comment” provided sufficient notice, even though it was not labelled “General Notice of Proposed Rulemaking.” Moreover, there is no “open-mindedness” test under the APA and courts are not permitted to impose judge-made procedural requirements exceeding APA mandates, which the final exemption rules met.

Justice Alito filed a concurring opinion, which Justice Gorsuch joined, stating that RFRA compels HRSA to create the religious exemption to the contraceptive mandate because neither the ACA nor any other law makes RFRA inapplicable. He would have held that the contraceptive mandate (1) is a substantial burden on an employer’s free exercise of religion, as Hobby Lobby held, (2) does not further a compelling government interest, as reflected by the fact that Congress did not treat it as a compelling interest when enacting the ACA; and (3) was not the least restrictive means of providing cost-free contraception, since Congress could create a stand-along program to do that.

Justice Kagan filed a concurring opinion, which Justice Breyer joined, stating that Chevron compels deference to the HRSA’s interpretation of its authority to issue the exemptions.Justice Kagan noted that the State’s challenge to the exemptions on arbitrary and capricious grounds has yet to be adjudicated, and seems to have merit because the exemptions are arguably overbroad.

Justice Ginsburg filed a dissenting opinion, which Justice Sotomayor joined, stating that the ACA only authorizes the HRSA to determine what preventative and screening services must be provided by health insurers, not to create exceptions to those requirements. Justice Ginsburg further opined that RFRA does not compel or authorize the exemptions because they impose significant burdens on women employees’ seamless access to free contraception, and because the religion accommodation adequately addressed religious objections to the contraceptive mandate.

The bulletin describing the U.S. Supreme Court’s decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission. For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.

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