By Elizabeth Sepper and John Aloysius Cogan, Jr.

This post originally appeared on Bill of Health. Click here to read more analysis about the latest issues in health law policy, biotechnology, and bioethics.

Known for his national injunctions of federal legislation, district court judge Reed O’Connor is at it again. In DeOtte v. Azar, he issued a permanent injunction granting religious exemptions to two nationwide classes that object to the Affordable Care Act’s contraception mandate. Judge O’Connor’s decision is notable for both its expansion of religious exemptions—in contradiction of eight out of nine appellate courts to consider the issue—and its casual disregard for the realities of health insurance markets.

DeOtte is the latest in a series of lawsuits pitting the Religious Freedom Restoration Act, which bars the federal government from substantially burdening a person’s exercise of religion, against the ACA’s mandate that insurance plans cover FDA-approved contraceptives.

Initially, under the mandate, churches were exempt and religious non-profit employers—like hospitals and universities—received an accommodation. So long as non-profits gave notice of their objection, their plans could exclude contraception. Their employees then would receive contraception coverage through the insurance company or health plan administrator. In 2014, the Supreme Court extended the accommodation to closely held for-profit corporations in Burwell v. Hobby Lobby, Inc.

Unsatisfied, Braidwood Management—the for-profit employer in DeOtte—sought a total exemption. It argued that the accommodation process itself imposes a substantial burden on its religious exercise in violation of RFRA. While sexist beliefs about women’s roles may have been submerged in previous cases, they were front and center in DeOtte. Braidwood argued that copay-free contraception encouraged women to engage in nonmarital sexual activity. The individual plaintiffs instead mounted a claim that the contraceptive mandate violates their RFRA rights “because it forces [them], and other religious believers, to choose between purchasing health insurance that makes them complicit in abortifacient contraception, or forgoing health insurance entirely.”

Judge O’Connor agreed, issuing summary judgment in favor—not only of the named plaintiffs—but “[e]very current and future employer in the United States that objects, based on its sincerely held religious beliefs” to covering contraception and “all current and future individuals in the United States” who object to coverage and “would be willing to purchase or obtain health insurance that excludes coverage.”

The decision mounts an end run around other federal courts and prior precedent in the Fifth Circuit and risks disrupting insurance markets.

Accommodation as Substantial Burden – An End Run Around Courts of Appeals?

RFRA requires that religious objectors establish a substantial burden on their free exercise. Faced with claims from religious non-profits identical to the employer in DeOtte, eight out of nine courts of appeals concluded that the accommodation process does not meet this threshold. One of those courts was the Fifth Circuit, which includes the Northern District of Texas where O’Connor presides. This would seem to be an insurmountable barrier for the employer plaintiffs.

But Judge O’Connor said a distinction exists. The religious non-profits before the Fifth Circuit held a religious objection to facilitating access to abortion, and the Fifth Circuit concluded that filling out a form giving notice of objection did not facilitate access given insurers’ independent legal obligations. For Braidwood, by contrast, “Refraining from executing the accommodation forms . . . *is* the religious exercise here.” In other words, filling out the form is a substantial burden. Assuming compelling interest, the opinion then breezes through the least restrictive means analysis. It says Hobby Lobby “held” that the government can provide free contraceptives (it didn’t) and “its reasoning controls.”

Because O’Connor certified a national class, the decision applies even in areas of the country where eight federal courts of appeal have ruled that the accommodation process does not violate RFRA. It also represents an end run around injunctions issued by federal courts in California and Pennsylvania against the Trump Administration’s 2017 regulations that would exempt any employer from the contraception mandate.

Everything and Nothing Is a Burden on Religion

The individual plaintiffs’ claim of a substantial burden on their free exercise seemed even thinner. After all, the ACA’s individual mandate penalty has been repealed. No individual faces a tax penalty for failing to carry insurance. Any objector to contraceptive coverage (which other people in the risk pool might use) could either buy non-ACA coverage without contraception coverage or go bare.

But Judge O’Connor found a burden. Although the penalty is gone, the mandate still exists in the federal code. According to O’Connor, the expressive function of law—in the absence of any enforcement mechanism—burdened individuals who wanted insurance but objected to contraception. If individual plaintiffs can find insurers willing to offer contracts without contraception coverage, Judge O’Connor ruled, those insurers may issue the policies without fear of federal penalties.

DeOtte flies in the face of a number of decisions rejecting substantially similar religious objections to contraception coverage. It also opens the door to more libertarian uses of RFRA. If a regulated industry won’t challenge laws that apply to it, potential consumers of their products now might.

Haphazard Deregulation of Health Insurance Markets

DeOtte’s aberrant application of RFRA isn’t its only problem. The decision also demonstrates a profound misunderstanding (or disregard) of U.S. health insurance markets. The order covers more employer groups that its analysis justifies, haphazardly attempts to regulate insurance markets, and opens the door to risk fragmentation in the self-insured market.

We’re about to get a little wonky, but stay with us.

Employer-based insurance falls into three categories: small group markets for small employers (fully insured), large employer plans from insurance companies (fully insured), and employers (mostly large, but some small) that essentially act as insurers and use an insurance company to administer their plans (self-insured). Judge O’Connor lumped these three together, but they differ in important ways.

Small employers with fewer than 50 employees (whether fully or self-insured) pay no penalty if they don’t provide health coverage. By O’Connor’s own reasoning, they face no burden. They are not forced to choose between paying a tax penalty or violating their beliefs by providing contraceptive coverage through a health plan (or filing for a religious accommodation). Yet these small employers are included in the order.

Fully insured plans in the small and large group markets may not find any relief from the religious burdens Judge O’Connor identifies. These plans remain subject to state insurance regulation, which in thirty states requires some form of contraceptive coverage. Judge O’Connor’s order doesn’t preempt those state requirements.

Self-insured employer plans, by contrast, are exempt from state insurance laws under the Employee Retirement Income Security Act of 1974 (ERISA). Judge O’Connor’s order thus frees them from any contraceptive coverage requirements. But these freedoms come at a cost. Self-insured employers can now shift medical costs onto women employees. Under DeOtte’s reasoning, a self-insured plan might equally seek religious exemptions from adult HPV vaccination, STI screening, prenatal care, and other medical services. Women would then have to bear their medical costs directly, seek coverage elsewhere (from a spouse’s plan or in the individual market), or find other employment.

The order’s treatment of individual plaintiffs is even more baffling from an insurance perspective. This class of individuals encompasses two distinct groups: people like the named plaintiffs who purchase insurance on healthcare exchanges and employees covered by a group plan. Their argument boils down to wanting to buy a product the market doesn’t offer, like a seatbelt-free car or a lead pacifier. Judge O’Connor’s order purports to allow them to do so, by permitting group plans and insurers offering individual coverage to offer separate insurance contracts without fear of federal penalties.

But health insurance does not work this way. Again, any fully insured plan is subject to coverage mandates under state insurance laws. And there is also the issue of price. In the individual and small group markets under the ACA and state law, insurance contracts remain subject to strict pricing and pooling restrictions. It is unclear how Judge O’Conner’s order would function in these markets. Group plans are even less likely to spin off individual policies for employees. The purpose of grouping individuals (usually employees of a single employer) within a single plan is to pool risks and price accordingly.

What’s Next?

Despite its strained extension of RFRA and its slapdash attempt at insurance regulation, Judge O’Connor’s order is binding on the federal government; it cannot enforce the contraception mandate against any insurers or employers that raise a religious objection. The central question now is procedural: What happens next? It’s unclear if anyone will appeal DeOtte. The defendant, the Trump administration, agreed that the contraception coverage requirement violates RFRA. The State of Nevada filed a motion to intervene in May, but Judge O’Connor has yet to rule on it. A notice of appeal must be filed by July 5th. Absent an appeal, the order will stand.

Elizabeth Sepper is a Professor of Law at the University of Texas at Austin School of Law. 

John Aloysius Cogan, Jr. is an Associate Professor of Law and Roger S. Baldwin Scholar at UCONN School of Law. 

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