Update on Hobby Lobby Decision

The Hobby Lobby ruling has continued to cause controversy since its decision more than a month ago.  The ruling declared two closely-held, for-profit corporations with sincerely held religious beliefs do not have to provide a full range of contraceptives at no cost to their employees, as required under the Affordable Care Act.   The Court in a close 5-4 opinion stated that the Religious Freedom Restoration Act, as applied to the corporations, was being violated.  This was the first time the Court has recognized a for-profit corporation’s claim of religious belief.


The Hobby Lobby decision apples only to closely-held, for-profit corporations operating under religious principles and who suffer a substantial burden on their religious liberty because of the contraceptive requirement of the Affordable Care Act.

Closely-held means the number of equity owners, not the size of the business.   The IRS defines a closely held corporation as a corporation that:

  • Has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year; and
  • Is not a personal service corporation.


The takeaway from the Hobby Lobby decision is if a plan of a closely held business eliminates coverage for any contraceptive item or service, it has to distribute an SMM or revised SPD within 60 days after the change.   This is a much shorter timeline than the usual 210 days after the end of the plan year in which the change is effective.

Predicting the Future

If the IRS tax credit rule is invalidated, the IRS would have to issue a new rule in its place limiting tax credits to state operated exchanges.  However, the IRS and the government have adamantly stated that federally facilitated exchanges can issue premium tax credits, and hundreds of people have relied on that statement to obtain coverage.   The federal statute governing IRS regulations, 26 U.S.C. 7805, says the possible new rule would not have a retroactive effect.  Individuals who obtained tax credits in federally facilitated exchanges should not worry about paying the money back, regardless of what the Supreme Court decides.

Unanswered Questions

There are still some ambiguities emerging from the case.  The Court did not expressly say one way or another if the exemption from ACA applied to privately held corporations that may happen to have larger shareholder bases.  Nor did it say if it was possible that ownership in a family owned business could be sufficiently diffused throughout the family that the corporation would no longer be deemed “closely-held.”  Despite Justice Alito stating that the case was limited only to the contraceptive mandate for closely held, for-profit companies, there are still doubts about the long-term effects of this ruling and what other mandate companies might object to.

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About Andie Schieler

Andie is an attorney and works in J.W.Terrill's Compliance division specializing in interpreting the Affordable Care Act and various insurance laws. She advises clients on legal and regulatory issues affecting their employee benefit plans. She obtained her law degree from Saint Louis University and undergraduate from Indiana University Bloomington.

View all posts by Andie Schieler

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