ERISA Fiduciary Duties and the Tension Between the Affordable Care Act and the Religious Freedom Restoration Act 

March, 2017 -

The Patient Protection and Affordable Care Act ("ACA") has significantly changed the healthcare industry in the United States.  Among the many changes is the new requirement that healthcare providers must provide all "Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education counseling for all women with reproductive capacity."77 Fed. Reg. 8725 (Feb. 15, 2012); see 42 U.S.C. 300gg-13(a)(4), 45 C.F.R. § 147.130(a)(1)(iv).


The ACA's mandate that women be provided contraceptives runs directly contrary to the religious principles of multiple religious institutions, including the Catholic Church.  Catholic for-profit businesses subject to the law have since refused to comply with the mandate of the ACA, claiming that the ACA infringes on their right to religious freedom under the Religious Freedom Restoration Act ("RFRA").42 U.S.C. § 2000bb, et. seq.  RFRA provides that "laws 'neutral' toward religion may burden religious exercise as surely as laws intended to interfere with religious exercise; governments should not substantially burden religious exercise without compelling justification."  Notably, challenges to the ACA based on RFRA are not limited to contraceptives: for example, a South Charleston, West Virginia business owner recently filed suit declaring that the obligation to provide "morning after" pills as part of his employee plan's coverage violated RFRA.


This argument has had preliminary success, as it was the basis for injunctive relief in the Seventh and Eighth Circuits barring the Federal government from "enforcing the mandate of 42 U.S.C. § 300gg-13(a)(4) and its implementing regulations against . . . any health insurance issuer when offering health insurance coverage to [a catholic for-profit corporation]." Annex Medical, Inc. v. Sebelius, 2013 WL 1276025, at *3 (8th Cir. Feb. 1, 2013), see also Grote v. Sebelius, 708 F.3d 850 (7th Cir. 2013) (same result), Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013) (finding that Hobby Lobby qualifies as a "person" under RFRA, and are likely to succeed on the merits of its RFRA claims).  However, this issue has created a significant circuit split.  See Conestoga Wood Specialties Corp. v. Sec'y of the United States Dept. of Health and Human Svcs., 2013 WL 3845365 (3d Cir. July 26, 2013) (denying Conestoga's motion for a preliminary injunction because, in part, "for-profit, secular corporations cannot engage in religious exercise" and therefore cannot assert a RFRA claim), Liberty University, et al. v. Lew, et al., 2013 WL 3470532 (4th Cir. July 11, 2013) (finding that the ACA's mandate imposes "no substantial burden" on an employer's religious freedom and therefore is legal under RFRA), Autocam Corp. v. Sebelius, 2013 WL 5182544 (6th Cir. Sept. 17, 2013) (same).


In Annex Medical v. Sebelius, the Eighth Circuit considered Annex Medical's (and owner Stuart Lind's) motion for a preliminary injunction pending appeal against the enforcement of the ACA's mandatory contraceptive coverage provisions. Annex Medical, 2013 WL 1276025 at *1.  Specifically, Lind asserted that enforcement of the ACA constituted a substantial burden on Lind's ability to practice his Catholic beliefs, as the mandate requires Lind and Annex Medical to provide contraceptive coverage in direct conflict with those beliefs. Id.  In granting Lind's motion, the Eighth Circuit stated that "appellants satisfied the prerequisites for an injunction pending appeal, including sufficient likelihood of success on the merits and irreparable harm."Id., at *3.


In Grote v. Sebelius, the Seventh Circuit considered whether a privately owned, for-profit corporation with over 1,000 employees met the standards for obtaining an injunction against enforcement of the ACA's contraceptive coverage mandate. Grote, 708 F.3d at 852.  The Seventh Circuit observed that the Grotes "maintain that the legal duties imposed on them by the contraception mandate conflict with the religious duties required by their faith, and they cannot comply with both."Id. at 854.  The Seventh Circuit agreed with the Grotes, noting that they had a sufficiently high likelihood of success on the merits as the government "has not demonstrated that requiring religious objectors to provide cost-free contraception coverage is the least restrictive means of increasing access to contraception."Id. at 855.  Therefore, the Seventh Circuit granting the Grotes' motion for a preliminary injunction. Id.


The Tenth Circuit considered similar facts in Hobby Lobby Stores, Inc. v. Sebelius.  In Hobby Lobby, the owners and operators of Hobby Lobby stores, take issue with the ACA's contraceptive mandate as being contrary to their religious beliefs.Hobby Lobby, 732 F.2d at 1121.  In finding in Hobby Lobby's favor, the Tenth Circuit noted "as a matter of statutory interpretation that Congress did not exclude for-profit corporations from RFRA's protections."Id. at 1129.  The Tenth Circuit then found that the ACA imposed a "substantial burden" on Hobby Lobby as it would require them to "compromise their religious beliefs" or "pay close to $475 million more in taxes every year," which the Tenth Circuit noted is a "substantial burden as a matter of law."Id. at 1141.  The Court went on to hold that Hobby Lobby met the preliminary injunction standards and reversed the district court. 


In Conestoga Wood Specialties Corp. v. Secretary of the United States Department of Health and Human Services, the Third Circuit went the other direction, affirming the lower court's denial of Conestoga's motion for a preliminary injunction. Conestoga, 2013 WL 3845365 at *9.  The Third Circuit recognized that the United States Supreme Court's decision in Citizens United provided that the "Government may not suppress political speech on the basis of the speaker's corporate identity," Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 365 (2010), but found that the "nature, history and purpose of the Free Exercise Clause" does not provide the basis for a similar finding. Conestoga, 2013 WL 3845365 at *5.  Therefore, corporations cannot exercise religion.Id.  In turn, the Third Circuit reasoned that a corporation cannot assert a RFRA claim because it cannot practice religion. Id., at *8.


Health and welfare plan administrators must continue to operate against this backdrop of confusion and uncertainty.  While the decisions of the Third, Seventh and Eighth Circuits cast doubt upon whether insurers are required to comply with the ACA, many existing plans likely already contain contraceptives as part of the health services provided.  The decisions barring enforcement of the Affordable Care Act may be a tempting reason to eliminate contraceptive coverage from existing plans (especially when the plan sponsor strenuously objects to providing such coverage).  However, plan administrators are well advised to continue paying those claims.  While the Federal government is enjoined from enforcing the Affordable Care Act against plan administrators, plan beneficiaries are not enjoined from enforcing the Employee Retirement Income Securities Act ("ERISA"), 29 U.S.C. § 1001, et seq.


The Situation


Jane is a 28 year old Marketing Associate at Big Corp., a nationwide corporation with well over 500 employees.  Big Corp. sponsors a health and welfare plan offered and administered by the experienced insurance company INS.  Part of the plan's coverage, in compliance with the ACA, is contraceptives such as birth control. 


Big Corp. is run by John Doe, a sincere, devout Catholic.  After reading about the Seventh and Eighth Circuit decisions holding that the Federal government cannot enforce the mandatory contraceptive provisions, Doe contacts INS and demands that INS immediately remove coverage for contraceptives from the plan because it is against his religious beliefs.  Doe threatens to change plans if INS is unwilling to modify the plan. 


INS, not wanting to lose a very big contributor to its business, immediately modifies the plan and begins denying claims for contraceptives. Jane, infuriated by this turn of events, files an action under ERISA against INS for breach of fiduciary duty, seeking reinstatement of coverage for contraceptives. Notably, Jane may bring a claim for benefits as well as "a claim for benefits requiring a determination of a plan's ERISA compliance is a claim for benefits under the plan pursuant to Section 502(a)(1)(B)." Fenwick v. Merrill Lynch & Co., Inc., 2009 WL 426464 *1 (D. Conn. Feb. 20, 2009).  However, this article's focus is on fiduciary duties.  At first glance, it does not seem appropriate that Jane can bring an ERISA claim against INS in the case above because the Federal government cannot enforce the law designed to do the same thing.  However, appearances can be deceiving.


The Law


Under ERISA, INS is a fiduciary. See 29 U.S.C. § 1002(21)(A).  Therefore, INS is subject to the fiduciary duties of ERISA, including the requirement that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and . . . for the exclusive purpose of . . . providing benefits to participants and their beneficiaries."29 U.S.C. § 1104(a)(1)(A).  This is known as the duty of loyalty. Crucially, "trustees violate their duty of loyalty when they act in the interests of the plan sponsor rather than 'with an eye single to the interests of the participants and beneficiaries of the plan."Reich v. Compton, 57 F.3d 270, 291 (3d Cir. 1995) (quoting Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982)).  See e.g. Bussian v. RJR Nabisco, Inc., 223 F.3d 286, 295–96 (5th Cir. 2000), Johnson v. Radian Group, Inc., 2009 WL 2137241 *22 (E.D. Pa. July 16, 2009), Deak v. Masters, Mates and Pilots Pension Plan, 821 F.2d 572 (11th Cir. 1987) (applying the same duty of loyalty where trustees were acting in favor of unions involved in plans to the detriment of participants).Big Corp. is a "plan sponsor" under ERISA. See 29 U.S.C. § 1002(16)(B).


Applying The Law to The Situation


Under ERISA, acting in favor of the plan sponsor, to the detriment of the participants or beneficiaries, is possibly a breach of fiduciary duty.  INS took an action that ran contrary to the benefit of the participants of the plan by removing the coverage of contraceptives due to the request by Big Corp. While the Seventh and Eighth Circuits have precluded Federal enforcement of the Affordable Care Act's provisions, INS remains bound by its fiduciary duties under ERISA to act in Jane's best interest within the context of the plan (which provides for contraceptives), even if that interest runs contrary to Big Corp.'s interest.  By acting in Big Corp.'s interest, and against Jane's, INS has very likely committed a breach of fiduciary duty.  Notably, while it is possible that a court will hold that complying with a plan sponsor's religious requests will not constitute a breach of the duty of loyalty, no such case exists as of yet.  




To avoid the potential for liability under ERISA, regardless of the enforceability of the Affordable Care Act, plans that currently offer coverage for contraceptives to the participants of the plan should not amend the plan to exclude such coverage.  While there can be little doubt that the interaction between ERISA, the ACA, and the RFRA will receive some much needed attention, the law as it stands could expose plan administrators to the potential for liability for breach of fiduciary duty under ERISA, should they choose to eliminate benefits to the participants at the plan sponsor's request.


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