Much has been made of the Court’s proposal in Hobby Lobby to simply apply the same contraceptive mandate exemption that applies to non-profits, to for-profit entities.

HHS itself has demonstrated that it has at its dis- posal an approach that is less restrictive than requiring employers to fund contraceptive methods that violate their religious beliefs. As we explained above, HHS has already established an accommodation for nonprofit organizations with religious objections. See supra, at 9–10, and nn. 8–9. Under that accommodation, the organization can self- certify that it opposes providing coverage for particular contraceptive services. See 45 CFR §§147.131(b)(4), (c)(1); 26 CFR §§54.9815–2713A(a)(4), (b). If the organization makes such a certification, the organization’s insurance issuer or third-party administrator must “[e]xpressly exclude contraceptive coverage from the group health insurance coverage provided in connection with the group health plan” and “[p]rovide separate payments for any contraceptive services required to be covered” without imposing “any cost-sharing requirements . . . on the eligi- ble organization, the group health plan, or plan partici- pants or beneficiaries.” 45 CFR §147.131(c)(2); 26 CFR §54.9815–2713A(c)(2).

Likewise, Justice Kennedy praised this solution:

But the Government has not made the second showing required by RFRA, that the means it uses to regulate is the least restrictive way to further its interest. As the Court’s opinion explains, the record in these cases shows that there is an existing, recognized, workable, and already-implemented framework to provide coverage. That framework is one that HHS has itself devised, that the plaintiffs have not criticized with a specific objection that has been considered in detail by the courts in this litiga- tion, and that is less restrictive than the means challenged by the plaintiffs in these cases. Ante, at 9–10, and n. 9, 43–44. The means the Government chose is the imposition of a direct mandate on the employers in these cases. Ante, at 8–9. But in other instances the Government has allowed the same contraception coverage in issue here to be pro- vided to employees of nonprofit religious organizations, as an accommodation to the religious objections of those entities. See ante, at 9–10, and n. 9, 43–44. The accom- modation works by requiring insurance companies to cover, without cost sharing, contraception coverage for female employees who wish it. That accommodation equally furthers the Government’s interest but does not impinge on the plaintiffs’ religious beliefs.

This could certainly be accomplished by statute, but the odds of that happening in this climate are nil. After all, the only exemption that could pass the Congress would be much broader than what the President would prefer through narrow executive orders. Of course, the President, because Congress does nothing about a serious problem, can do it himself through executive action, and extend the exemption.

But that begs the question. Did HHS have the authority, in the first place, to carve out the exemption for religious non-profits? I recognize that much of what HHS has done since 2010 was without authority, but you must indulge my quaint belief that agencies can only act when Congress gives them the authority to do.

First, you must recall that the non-profit exemption was a compromise. Initially, HHS announced that it would not exempt most religious employers. After some outrage, they exempted some nonprofits. As Jon Adler explained:

 As explained by HHS Secretary Kathleen Sebelius in January, this exemption would be limited to those religious employers that are primarily focused on the inculcation of religious values and primarily serve and employ those of the same religious faith. In other words, houses of worship are exempt, as are those religious institutions that exclude non-believers. All other religious employers, including schools, hospitals, universities, charities, and welfare organizations that serve the general public, would have to comply or pay fines of approximately $2,000 per employee. 

For those that qualify under the exemption, the insurance companies would have to foot the bill: “This imposition of a burden on the insurance companies was authorize not by Congress, but by HHS regulations.”

Justice Alito in Hobby Lobby offers a brief history about the origin of this exemption:

HHS also authorized the HRSA to establish exemptions from the contraceptive mandate for “religious employers.” 45 CFR §147.131(a). That category encompasses “churches, their integrated auxiliaries, and conventions or associ- ations of churches,” as well as “the exclusively religious activities of any religious order.” See ibid (citing 26 U. S. C. §§6033(a)(3)(A)(i), (iii)). In its Guidelines, HRSA exempted these organizations from the requirement to cover contraceptive services. See http://hrsa.gov/ womens guidelines.

In addition, HHS has effectively exempted certain religious nonprofit organizations, described under HHS regulations as “eligible organizations,” from the contracep- tive mandate. See 45 CFR §147.131(b); 78 Fed. Reg. 39874 (2013). An “eligible organization” means a nonprofit organization that “holds itself out as a religious organi- zation” and “opposes providing coverage for some or all of any contraceptive services required to be covered . . . on account of religious objections.” 45 CFR §147.131(b). To qualify for this accommodation, an employer must certify that it is such an organization. §147.131(b)(4).

The way that this works–no such thing as a free lunch–is that the insurance company must effectively absorb the cost of the contraceptive, and not charge the religions group, in any way, for the cost. Later, the government reduces a fee the insurance company has to pay, by the amount paid for contraceptives. This is accomplished through 45 CFR 147.131(c). Justice Alito explains how it works:

When a group-health-insurance issuer receives notice that one of its clients has invoked this provision, the issuer must then exclude contraceptive coverage from the employer’s plan and provide separate payments for contraceptive services for plan participants without imposing any cost-sharing requirements on the eligible organization, its insurance plan, or its employee beneficiaries. §147.131(c).8

In the footnote, Alito refers to a regulation noticed on July 2, 2013 (45 CFR 147.131(c)).

8. In the case of self-insured religious organizations entitled to the accommodation, the third-party administrator of the organization must “provide or arrange payments for contraceptive services” for the organi- zation’s employees without imposing any cost-sharing requirements on the eligible organization, its insurance plan, or its employee beneficiar- ies. 78 Fed. Reg. 39893 (to be codified in 26 CFR §54.9815– 2713A(b)(2)). The regulations establish a mechanism for these third- party administrators to be compensated for their expenses by obtaining a reduction in the fee paid by insurers to participate in the federally facilitated exchanges. See 78 Fed. Reg. 39893 (to be codified in 26 CFR §54.9815–2713A (b)(3)). HHS believes that these fee reductions will not materially affect funding of the exchanges because “payments for contraceptive services will represent only a small portion of total [exchange] user fees.” 78 Fed. Reg. 39882.

In case you can’t sleep at night, here is the paragraph that explains the basis for this reduction of the fee (78 Fed. Reg. 39882.):

In response to these comments, and to account for the payments for contraceptive services for participants and beneficiaries in self-insured group health plans of eligible organizations under the accommodation described previously, HHS is finalizing a modification of the proposed policy. In § 156.50(d)(1), a participating issuer (defined at 45 CFR 156.50(a) [FN45]) offering a plan through an FFE (Federally-facilitated Exchange) may qualify for an adjustment to the FFE user fee to the extent that the participating issuer either: (i) made payments for contraceptive services on behalf of a third party administrator pursuant to 26 CFR 54.9815-2713A(b)(2)(ii) or 29 CFR 2590.715-2713A(b)(2)(ii); or (ii) seeks an adjustment to the FFE user fee with respect to a third party administrator *39883 that, following receipt of a copy of the self-certification referenced in 26 CFR 54.9815-2713A(a)(4) or 29 CFR 2590.715-2713A(a)(4), made or arranged for payments for contraceptive services pursuant to 26 CFR 54.9815-2713A(b)(2)(i) or (ii) or 29 CFR 2590.715-2713A(b)(2)(i) or (ii). Under the final regulation, neither the third party administrator, nor the participating issuer, nor any entity providing payments for contraceptive services (if neither the third party administrator nor the participating issuer is providing such payments) is required to be part of the same issuer group or otherwise affiliated. This modification allows greater flexibility in the arrangements among third party administrators, issuers, and other entities, while still ensuring that eligible organizations are not required to contract, arrange, pay, or refer for contraceptive coverage. Consistent with the proposed regulations, an allowance for administrative costs and margin in the FFE user fee adjustment accounts for the costs of arrangements among the third party administrator, the participating issuer, and any other entity providing payments for contraceptive services (if neither the third party administrator nor the participating issuer is providing such payments).

Alito explains that under HHS regulations, because of this reduced fee, there will not be an increased obligation.

Al- though this procedure requires the issuer to bear the cost of these services, HHS has determined that this obligation will not impose any net expense on issuers because its cost will be less than or equal to the cost savings resulting from the services. 78 Fed. Reg. 39877.9

Here is the relevant discussion from the Federal Register (78 Fed. Reg. 39877.9).

HHS notes that it is not raising the FFE user fee finalized in the 2014 Payment Notice to offset the FFE user fee adjustments, and estimates that payments for contraceptive services will represent only a small portion of total FFE user fees.

To state this simply, if an insurer is required to pay for the cost of contraceptives, because a non-profit meets the exemption, HHS will reduce a user fee that must be paid, in proportion to the cost of the contraceptives. Alito explains this later in a footnote:

HHS has concluded that insurers that insure eligible employers opting out of the contraceptive mandate and that are required to pay for contraceptive coverage under the accommodation will not experience an increase in costs because the “costs of providing contraceptive coverage are balanced by cost savings from lower pregnancy-related costs and from improvements in women’s health.” 78 Fed. Reg. 39877. With respect to self-insured plans, the regulations establish a mecha- nism for the eligible employers’ third-party administrators to obtain a compensating reduction in the fee paid by insurers to participate in the federally facilitated exchanges. HHS believes that this system will not have a material effect on the funding of the exchanges because the “payments for contraceptive services will represent only a small portion of total [federally facilitated exchange] user fees.” Id., at 39882; see 26 CFR §54.9815–2713A(b)(3).

Here is the complete regulation, in case you are sleep deprived (78 Fed. Reg. 3977):

The proposed regulations provided, in the case of an insured group health plan established or maintained by an eligible organization, that the health insurance issuer providing group coverage in connection with the plan be required to assume sole responsibility, independent of the eligible organization and its plan, for providing separate individual health insurance policies covering contraceptive services for plan participants and beneficiaries without cost sharing, premium, fee, or other charge to plan participants or beneficiaries or to the eligible organization or its plan. Under this proposal, an organization seeking to be treated as an eligible organization would need only to meet the self-certification standard. The issuer, in turn, would automatically enroll plan participants and beneficiaries in separate individual health insurance policies that cover contraceptive services (and notify them of such enrollment) without the imposition of any cost-sharing requirement (such as a copayment, coinsurance, or a deductible), premium, fee, or other charge on plan participants or beneficiaries or on the eligible organization or its plan. …

Issuers are prohibited from charging any premium, fee, or other charge to eligible organizations or their plans, or to plan participants or beneficiaries, for making payments for contraceptive services, and must segregate the premium revenue collected from eligible organizations from the monies they use to make such payments. In making such payments, the issuer must ensure that it does not use any premiums collected from eligible organizations. Issuers have flexibility in how to structure these payments, provided that the payments in no way involve the eligible organization, and provided that issuers are able to account for this segregation of funds in accordance with applicable, generally accepted accounting and auditing standards.
The Departments stated in the preamble of the proposed regulations that issuers would find that providing contraceptive coverage is at least cost neutral because they would be insuring the same set of individuals under both the group health insurance policies and the separate individual contraceptive coverage policies and, as a result, would experience lower costs from improvements in women’s health, healthier timing and spacing of pregnancies, and fewer unplanned pregnancies. The Departments continue to believe, and have evidence to support, that, with respect to the accommodation for insured coverage established under these final regulations, providing payments for contraceptive services is cost neutral for issuers. Several studies have estimated that the costs of providing contraceptive coverage are balanced by cost savings from lower pregnancy-related costs and from improvements in women’s health.30 31 The Departments are unaware of any studies to the contrary.[FN32] …

• The issuer must segregate premium revenue collected from the eligible organization from the monies used to make payments for contraceptive services. When it makes payments for contraceptive services used by plan participants and beneficiaries, the issuer must do so without imposing any premium, fee, or other charge, or any portion thereof, directly or indirectly, on the eligible organization, its group health plan, or its plan participants or beneficiaries. In making such payments, the issuer must ensure that it does not use any premiums collected from eligible organizations. Issuers have flexibility in how to structure these payments, but must be able to account for this segregation of funds, subject to applicable, generally accepted accounting and auditing standards. Thus, an eligible organization need not contract, arrange, pay or refer for contraceptive coverage.
*39879 • Plan participants and beneficiaries may refuse to use contraceptive services.
• An eligible organization and its group health plan are considered to comply with the contraceptive coverage requirement even if the issuer fails to comply with the requirement to provide separate payments for contraceptive services for plan participants and beneficiaries at no cost.

While HHS seems to be evening things out, in terms of the money paid, they are still requiring the insurances companies to pay for something the statute does not authorize. It doesn’t seem to be based on any statutory authorization.

Justice Alito notes that other exemptions are carved out by statute:

In addition to these exemptions for religious organiza- tions, ACA exempts a great many employers from most of its coverage requirements. Employers providing “grandfa- thered health plans”—those that existed prior to March 23, 2010, and that have not made specified changes after that date—need not comply with many of the Act’s re- quirements, including the contraceptive mandate. 42 U. S. C. §§18011(a), (e). And employers with fewer than 50 employees are not required to provide health insurance at all. 26 U. S. C. §4980H(c)(2).

What makes this issue different from HHS’s myriad other re-writing of the law, is that groups, such as the Little Sisters of the Poor, are challenging it. An exemption imposed by an invalid statute may be invalid altogether. (I’ll assume for the moment that the cost-shifting provision cannot be severed from the rest of the regulation, because the entire regulation would collapse in the absence of  the payment mechanism).

Of course, Justice Alito finds no reason why this accommodation would fail to work.

The principal dissent identifies no reason why this accommodation would fail to protect the asserted needs of women as effectively as the contraceptive mandate, and there is none.

I’m not sure if he considered that the exemption itself is invalid.

I will study this issue further.

Update: I have updated the post in a few places to add quotations from the opinion and regulations.

Update: Conestoga Woods raised an Administrative Procedure Act claim in their complaint.

 

As Justice Alito noted, this issue was not a play in the appeal, because it was not at issue in the motion for preliminary injunction.

13 The Hahns and Conestoga also claimed that the contraceptive mandate violates the Fifth Amendment and the Administrative Proce- dure Act, 5 U. S. C. §553, but those claims are not before us.

It was the denial of that motion the Court reversed. So the APA issue is still in play on remand, not that it matters.