On February 21, 2014, the Seventh Circuit Court of Appeals, in a 2-to-1 decision, denied a preliminary injunction enjoining the federal government from enforcing the self-certification provisions of the Affordable Care Act (ACA) that affect how religious non-profit employers contract with their health care providers for the provision of contraceptive services. In University of Notre Dame v. Sebelius, the University of Notre Dame claimed that the self-certification provisions violate the Religious Freedom Restoration Act (RFRA) in light of the Employee Retirement Income Security Act (ERISA) constructs that were adopted in the ACA concerning third-party administrators (TPAs) and plan fiduciaries.
The ACA requires providers of health insurance, including TPAs of self-insured health plans—even though TPAs are conduits rather than ultimate payers of plan benefits—to pay for contraceptives for women. To opt out of this requirement, the self-certification provisions of the ACA, require religious non-profit employers to file the EBSA Form 700 with their insurer or TPA, which in turn is required to notify plan participants or beneficiaries and offer them segregated contraceptive services directly. If the organization does not self-certify—and does not provide the religiously objectionable coverage—it will face fines in the amount of $100 per day for each individual to whom such failure relates.
The federal government crafted the self-certification provisions as an accommodation to balance—as RFRA requires—the secular interests that motivate provision of contraceptives to women for free and the interests of religious institutions that provide health services. RFRA provides that,
Government shall not substantially burden a person’s exercise of religion even if the burden results from a rule of general applicability, except . . . if it demonstrates that application of the burden to the person (1) is in furtherance of a compelling government interest; and (2) is the least restrictive means of furthering that compelling governmental interest.
Notre Dame’s principal claim is that the self-certification provisions cause it to provide contraceptive services to its employees in violation of its religious beliefs under RFRA by requiring the university to complete and mail the EBSA Form 700 in the face of a stiff penalty. Notre Dame rests this claim on the provision that reads:
The copy of the self-certification [EBSA Form 700] provided by the eligible organization to a third party administrator (including notice of the eligible organization’s refusal to administer or fund contraceptive benefits) . . . shall be an instrument under which the plan is operated, [and] shall be treated as a designation of the third party administrator as the plan administrator under section 3(16) of ERISA for any contraceptive services required to be covered . . . to which the eligible organization objects on religious grounds.” 29 C.F.R. § 2510.3-16
Notre Dame argues that the action it takes in filling out the self-certification form results in its TPAs being authorized to provide contraceptive services under ERISA. Specifically, as the plan’s sponsor, Notre Dame is the only authorized party to designate plan fiduciaries, and it made that designation in the EBSA 700 and thus is complicit in the provision of contraceptives.
The Seventh Circuit did not find this argument persuasive. Writing for the majority, Judge Posner found that federal law requires health-care insurers, along with TPAs, to cover contraceptive services regardless of what an eligible organization, such as Notre Dame, does or does not sign, unless and until the contract between the organization and its TPAs terminates. In dissent, Judge Flaum found the converse to be true—that federal law does not mandate such a requirement, because group health insurers have an independent obligation under the regulations to provide contraceptive coverage whereas TPAs do not. Judge Posner’s and Judge Flaum’s opinions illustrate opposing sides of the debate regarding the underlying RFRA claim that the filing of the EBSA Form 700 substantially burdens Notre Dame by causing the provision of contraceptives to its employees. Whereas the majority finds that simply filing the EBSA 700 form is an insubstantial burden because contraceptive services will be provided so long as Notre Dame contracts with TPAs, the dissent finds substantial burden because the EBSA 700 is the actual instrument under which the plan is operated.
Key Takeaways
The significance of the Seventh Circuit’s decision should neither be overstated nor understated.
As an initial matter, the opinion is of limited precedential value because appellate review of district court denials of a preliminary injunction is limited to whether the district court abused its discretion in refusing to grant the injunction (rather than whether a party’s rights have been violated). Yet, even though the district court could come to a different conclusion on the merits following discovery, the Seventh Circuit’s opinion provides insight into the ways the self-certification provisions can be—and perhaps will be—interpreted in light of the Affordable Care Act.
The opinion expands, as compared to the merits holdings of district courts, the obligations of TPAs under the Affordable Care Act. According to the majority, TPAs have an independent obligation to provide contraceptive services merely by contracting with a plan sponsor, which goes well beyond the existing district court case law suggesting that TPAs have a conditional obligation to provide contraceptive services only after—not before—a plan sponsor files the EBSA 700. Indeed, if TPAs have an independent obligation to provide contraceptives no matter the sponsor’s actions, query the purpose of imposing fines on plan sponsors for noncompliance with the self-certification provision. The imposition of fines on the employer seems to reinforce the conclusion, which the majority challenges, that the employer-sponsor possesses a distinct and affirmative obligation to ensure the provision of contraceptives (not the TPA under some federally-imposed obligation under the ACA).
This leads to the second significant outcome of this decision—that it may present some religious organizations with a difficult choice: either opt of out of providing health benefits to employees altogether or incur a separate—and substantial—penalty under the Affordable Care Act for failing to provide contraceptive coverage. The fine for failing to comply with the Affordable Care Act’s many substantive benefits requirements (e.g., to provide no-cost preventive care services) is $100 per day per affected individual. Because contraceptive services are considered to be “preventive care,” an employer’s failure to provide those services would trigger this penalty even if the health plan at issue otherwise fully complies with the Affordable Care Act’s other requirements. In many circumstances (especially for universities), this penalty would be significantly greater than the non-deductible “assessable payment” (which is a penalty, in reality) for completely dropping health care coverage for employees, which in general is $2,000 per year for each full-time employee. If religious organizations do not choose to contravene their religious tenets and can absorb the expense resulting from imposition of “assessable payments,” the result could be elimination of health care coverage for all employees. Arguably, applying the preventive care requirement to religious organizations in this manner may cause exactly the opposite result generally intended by the Affordable Care Act, namely to expand access to health insurance coverage and better control the costs of medical care.
Third, under RFRA, an issue remains whether courts will analyze an organization’s purported religious burdens resulting from legal obligations objectively or subjectively. As seen in this case, the majority suggests the former while the dissent suggests the latter.
Lastly, the resolution of this case may also significantly influence the scope of ACA obligations on for-profit organizations. This term, the Supreme Court will decide whether for-profit corporations may seek exemption from the provision for some forms of contraceptive services based on RFRA. Because Notre Dame concerns the process of becoming exempt, any rulings on this issue could affect the efforts of for-profit organizations seeking exemption under similar processes should the Supreme Court rule that they are afforded that right under RFRA.
On the whole, this opinion risks expanding the scope of the Affordable Care Act as it affects non-profit (and potentially for-profit) employers that have religious affiliations. Such organizations, which typically include colleges and universities, should keep abreast of further developments in this case and others to understand their obligations under the Affordable Care Act and how they relate to RFRA.
