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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Obamacare Contraceptive Mandate Regulations Respond to Hobby Lobby and Wheaton College: A Preliminary Review

Posted in Executive - OMB Review, Judicial Review & Remedies, Regulatory Flexibility & Small Business, Regulatory Process

The Administration released new and expected revisions and proposals to Obamacare (Patient Protection and Affordable Care Act or PPACA) regulations to address exemption from the contraceptives mandate for non-profit and for-profit organizations in light of recent adverse United States Supreme Court (SCOTUS) decisions.  One interim final rule (IFR) addresses non-profits related to religious institutions, while a proposed rule addresses privately held for-profits whose owners have religious objections to the contraceptive mandate.  A preliminary review suggests that the Administration has set an awkward path forward and probably ensured another round of more refined litigation.

New Releases:  The tripartite agencies – the Department of the Treasury (DOTr) Internal Revenue Service (IRS), Department of Labor (DOL) Employee Benefits Security Administration (EBSA), and the Department of Health and Human Services (HHS) Centers for Medicare and Medicaid Services (CMS) – released:

  • an IFR changes in the Obamacare preventive services / contraceptive mandate regulations in light of the SCOTUS’s order in Wheaton College v. Burwell, preliminarily enjoining a requirement that non-profit institutions related to religious organizations use a specific form to notify their insurance administrator that they are exempt, and
  • a proposed rule to respond to SCOTUS’s decision in Burwell v. Hobby Lobby, holding, under the Religious Freedom Restoration Act (RFRA), the agencies could not require closely held for-profit corporations to provide contraceptive coverage if their owners had religious objections to providing that coverage because the Administration’s goal of guaranteeing coverage for contraceptive methods without cost sharing could be achieved in a less restrictive manner by offering closely held for-profit corporations the same accommodation already provided to religious nonprofit organizations with the same religious objections to contraceptive coverage.

The IFR and proposed rule are scheduled for publication in the August 27, 2014, Federal Register – the IFR will become effective immediately and public comments are due on October 27, 2014; public comments on the proposed rule are due no later than 5:00 PM (presumably EDT) on October 21, 2014.

Wheaton College IFR:  Starting with Wheaton College v. Burwell because of the immediate impact of the IFR, Wheaton College challenged the regulatory requirement that an eligible organization invoking the religious organization accommodation in the existing regulations send EBSA Form 700 to the insurance issuer or third party administrator as violating the RFRA.  SCOTUS’s July 3 interim Order enjoined the agencies from enforcing the contraceptive mandate against the petitioners if they inform HHS in writing that it is a nonprofit organization that holds itself out as religious and has religious objections to providing coverage for contraceptive services “pending final disposition of appellate review.”  SCOTUS further ordered that Wheaton College need not use EBSA Form 700 or send a copy of the executed form to its health insurance issuers or third party administrators to meet the conditions for the injunctive relief.  At bottom, SCOTUS held that EBSA Form 700 was not the least restrictive means under the RFRA for the agencies to fulfill their regulatory conclusion.

Despite the interim nature of SCOTUS’s injunction pending appeal, the agencies are adopting an IFR to broadly apply the terms of that “preliminary injunction” to any religious nonprofit organization could inform HHS of its religious objections and HHS would then contact the insurer and arrange the birth control coverage at no cost to the employer or its employees.  Informing HHS under this IFR can be done through a discretionary model notice.  A religious non-profit can advise HHS in its own way.

Under the IFR, institutions would presumably tell HHS which company administers their health-insurance plan, and the government would then contact that administrator to ask it to arrange contraception coverage for the institution’s employees.  What is not clear, however, is how this is the least restrictive means for implementing the program if any of the relevant agencies already possesses that information.  It may be that the RFRA’s “least restrictive means” is no more than a certification that the non-profit organization is exempt (and perhaps some identification number so that HHS, DOL, and IRS can access existing government information), and that may soon be tested.

Hobby Lobby Proposed Rule Definition:  The Hobby Lobby proposed rule posits two alternative ways in which the agencies might structure the definition of closely held for-profit entities with religious objections to contraceptive coverage, but proposes no preference:

  1. an entity where none of the ownership interests in the entity is publicly traded and where the entity has fewer than a specified number of shareholders or owners – such as the current tax definition for a Subchapter S (“closely held”) corporation, and / or
  2. an entity in which the ownership interests are not publicly traded, and in which a specified fraction of the ownership interest is concentrated in a limited and specified number of owners – such as the current tax definition for real estate investment trusts.

Neither definition works well because both are premised on an arbitrary metric (all numbers are inherently arbitrary because they are numbers) that is unrelated (or capricious) to the issue of minimum interference with the religious beliefs of the owners of a privately held for-profit corporation, whatever its size.  The proposed rule leaves open other alternatives and that is a good idea:  a definition without arbitrary size metrics is needed.  Moreover, complicating the nature of the definition by dependency on State corporation rules creates a separate road to perdition.  The agencies’ continued adherence to the notion that Obamacare is superior to the RFRA makes these arbitrary lines in the sand inevitable – and inevitable logic failure because size has nothing to do with the preservation of privately held religious rights.

Questionable Analysis:  Based only on the Hobby Lobby proposed rule (and we do not yet have any supporting documents on the docket), the proposed rule appears to operate on a baseline premise that all closely held for profit organizations are currently required to comply with the contraceptive mandate and the rule would permit some to be exempted.  This baseline premise appears faulty because the agencies have erroneously applied the regulations to entities owned by individuals who apply their religious scruples to their businesses – as far back as the August 1, 2011, HHS first regulations on contraceptive services.  That requirement violated the RFRA – the very point of Hobby Lobby.  Confessing this error returns the baseline to pre-Obamacare regulations and requires analysis of the additive costs with none of the benefits.

The proposed rule asserts that the existing count of plaintiffs already in litigation (the agencies count 71) represents the universe of potential organizations claiming exemption.  The agencies have provided no research on the number of for-profit organizations adhere to religious precepts of their owners that are contrary to providing preventative contraceptive care.  That universal mistake pervades the certification under the Regulatory Flexibility Act (RFA) and the analysis under the Paperwork Reduction Act (PRA), as well as the executive review under Executive Orders 12866 and 13563.  Sadly, this assumed universe reflects only that the agencies have not even seriously thought about the potential organizations seeking exemption.  The number of small entities organized as corporations that might seek exemption is considerably larger than the number of plaintiffs that have already filed suit.*

Even assuming that the agencies’ baseline and population universe premises are correct, the PRA time and cost assumptions appear to presume an existing knowledge of the contours of the caselaw and this proposed rule – no lawyer, for example, can competently read and understand Hobby Lobby, and apply the RFRA and this proposed rule to a client organization in so little as five minutes at a cost of $127 per hour (far below reality, Equal Access to Justice Act (EAJA), Laffey Matrix, or Modified Laffey Matrix fee rates).  The proposed rule does not explain how the agencies reached these numbers.  Unless the public docket includes a fuller justification (if that is possible), the sum of these faulty considerations may lead to arbitrary and capricious rules under the Administrative Procedure Act (APA).

The agencies have had years to develop the research necessary to provide meaningful metrics, but, alas, appear not to have done so.*

*The agencies apply the same fallacy to the Wheaton College IFR:  HHS states that it is “aware, based on litigation, that there are approximately 122 eligible organizations that would now have the option to provide notice to HHS, rather than provide a self-certification to TPAs and/or issuers.”  Similarly, sadly, the same burden metrics are used in both releases.

A Side Note on Timing:  The agencies met the expectations announced by the Department of Justice (DOJ) before the United States Court of Appeals for the Tenth Circuit in Wheaton to publish responses this month.  Indeed, the Office of Management and Budget (OMB) completed review of the IFR and NPRM in “two days” according to its formal records, but internal discussion, debate, and coordination have likely occurred on a daily basis since the beginning of this process, rendering the formal Executive Order 12,866 legal- and policy-significant review a last stage check for final clearance, not a formidable review.

The Office of the Federal Register (OFR) public inspection release, on the other hand, was a surprise –timed at 3:30 PM – not the usually scheduled public inspection release, indicating that a special request was made.  Special filings are usually released at 11:15 AM, and regular filings are usually released at 8:45 AM and 4:15 PM.  Then again, release on a Friday afternoon is not unexpected and consistent with the tendency to try to spin the news

  • xuinkrbin

    Thank You for this analysis.