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From Health Law Daily, November 1, 2013

Appeals court would strike down PPACA’s contraceptive coverage mandate

By Michelle L. Oxman, JD, LLM

The Court of Appeals for the D.C. Circuit has overturned the denial of a preliminary injunction against the enforcement of the requirement that most health plans cover FDA-approved contraceptives (Gilardi v Department of Health and Human Services, November 1, 2013, Brown, J). The court ruled that the mandate infringed the rights of two owners of Subchapter S corporation under the Religious Freedom Restoration Act (RFRA). Although the court did not go so far as to rule that secular, for-profit corporations have a right to free exercise of religion, it did find that the connection between the Gilardis’ payment for health insurance coverage and the use of the premiums to cover contraceptive services was direct enough to infringe on their individual rights under RFRA and the Free Exercise Clause of the First Amendment.

Factual background. Francis and Philip Gilardi owned two businesses, Freshway Foods and Freshway Logistics (together, Freshway). Because they operated as Subchapter S corporations for tax purposes, the two companies paid no income tax; the income and tax obligations were passed through to them as individuals. They alleged that as practicing Catholics, they felt a moral obligation to provide health insurance for their 400 employees, but had never covered contraception, sterilization, or abortion under their self-insured plan. They contended that violation of the employer mandate to provide coverage of essential services would cost them $14 million in penalties, ruining their businesses.

The Gilardis and Freshway claimed that the mandate to cover contraceptives violated the rights of both the individuals and the corporations under the RFRA, the Freedom of Speech and Free Exercise Clauses of the First Amendment to the United States Constitution, and the Administrative Procedure Act (APA). They asked for a temporary restraining order and a preliminary injunction against enforcement of the statutory mandate.

The trial court ruling. The trial court denied the injunction. It ruled that: (1) the corporations had no rights under the RFRA or the Free Exercise Clause because commercial corporations do not exercise religion; (2) the Gilardis’ rights were not substantially burdened because the obligation to provide essential coverage fell to the corporations, not to them individually. The trial court rejected the contentions that the Gilardis were required to arrange for, subsidize, and support activities to which they strongly objected on religious grounds. Although the employer pays for actual health care services under a self-insured plan, the court would not disregard the corporate form. Therefore, the plaintiffs were not likely to succeed on the merits, and the preliminary injunction was denied.

The appeals court. All three judges agreed that: (1) if the denial of a preliminary injunction was based upon an error of law, the court’s de novo review of questions of law allowed reversal; (2) the claims of the corporations must be distinguished from the claims of the Gilardis as individuals; and (3) the burden on the Gilardis’ rights to free exercise did not have to be related to the essential obligations of the religion. However, only two of the three judges agreed on the other five rulings.

The commercial corporations. A majority of the court ruled that the word “person” in the RFRA and the Free Exercise Clause must be understood in the context of the case law interpreting them. The Supreme Court’s rulings protecting the exercise of religion had involved individuals and religious entities who represented adherents to their religion. For example, the Supreme Court had upheld requirement that businesses be closed on Sunday against a challenge by business owners whose religion required them to close on Saturday to observe the Sabbath In contrast; the Court had overturned a ruling that denied unemployment compensation to an employee who resigned because his religion forbade him to produce weapons. The appeals court read these cases to mean that religion involved individuals and communities of individuals who engaged in prayer, sacraments, or collective worship. The court declined to extend the Citizens United ruling because the case law distinguished political speech from religious speech

Burden on the individuals. The court noted that RFRA and the Free Exercise Clause protect individuals whether or not the principle that is burdened is central to the tenets of the faith. The statute prohibits any burden on the practice of religion. The court reasoned that closely held, Subchapter S corporations are distinguished from larger, publicly held entities because the income is attributed to the individual owners, who pay the taxes. In addition, the court ruled that the burden on the owners did not occur when the employees purchased contraceptives, but when the employers chose the benefits to be covered under the health plan. The employers could not be compelled to pay for propagation of opinions they did not believe.

Lack of compelling interest. The court rejected the government’s arguments that the contraceptive coverage requirement furthered its interests in public health and gender equality. The court ruled that the interest in promoting public health was not compelling because it was too broad, and compelling interests must be particular. In addition, the court reasoned that there was evidence that contraceptives increased the risk of breast cancer. It rejected the characterization of the law as promoting gender equality, describing it as “resource parity,” which had been rejected in the cases upholding public funding of abortion. The interest in protecting women’s autonomy did not outweigh the Gilardis’ interest in not being compelled to support activities that violate their religious beliefs.

Even if the government was compelling, the law was not tailored to accomplishment of its objectives. There were too many exceptions to the requirement, e.g., for small businesses and grandfathered plans.

The case number is 13-5069.

Attorneys: Francis J. Manion , American Center for Law & Justice, for Francis A. Gilardi, Philip M. Gilardi and Fresh Unlimited Incorporated. Alisa B. Klein, U.S. Department of Justice, for U.S. Department of Health and Human Services, Health and Human Services Secretary Kathleen Sebelius, Department of Treasury and Department of Labor.

Companies: Fresh Unlimited Incorporated

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