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The Little Sisters, the Supreme Court and the HSA/HRA alternative

The Little Sisters of the Poor, an international congregation of Roman Catholic women, are unlikely litigants in the US Supreme Court. Consistent with their strong adherence to traditional Catholic doctrines, the Little Sisters oppose birth control. They are now in the Supreme Court because of that opposition.

Under the Affordable Care Act (ACA) and the regulations promulgated under the ACA, employers with 50 or more employees must provide medical coverage, which includes birth control devices and medications. The regulations under the ACA, colloquially known as Obamacare, exempt churches from providing contraceptive coverage to their employees without requiring such churches to affirmatively elect such exemption. However, these regulations require religious nonprofit organizations like the Little Sisters to affirmatively elect against contraceptive coverage for their employees.

In particular, the ACA regulations require a non-church sectarian entity like the Little Sisters to inform one of three persons that the entity declines to provide birth control to its employees. Under the regulations, a non-church religious organization declining to offer birth control can notify its health insurance carrier or, if the organization self-funds its employees’ health coverage, the organization can inform the administrator of that self-funded coverage. Alternatively, under the ACA regulations, a non-church religious employer can notify the Department of Health and Human Services of the employer’s refusal to provide contraceptive coverage to its employees.

The required notification excuses the objecting religious organization from providing birth control to its employees. The notice also triggers a process to enable these employees to receive birth control coverage without the employer’s involvement.

The Little Sisters criticize this opt-out provision, arguing that, by complying with the regulations, the Little Sisters are triggering birth control coverage for their employees. The Little Sisters’ criticism is joined by other similarly-situated sectarian organizations including East Texas Baptist University and Southern Nazarene University. These non-church religious objectors argue that requiring them to file opt-out notices violates their rights under the First Amendment of the US Constitution, as well as their rights under the federal Religious Freedom Restoration Act (RFRA).

The US Court of Appeals for the Tenth Circuit rejected the Little Sisters’ arguments against the regulatory requirement that they affirmatively elect against contraception coverage for their employees. The US Supreme Court has now agreed to hear the arguments of the Little Sisters and of the other non-church religious objectors asserting the same rights under the First Amendment and RFRA.

As I recently observed in the Rutgers Law Record, an alternative approach can obviate the conflict reflected in the Little Sisters’ litigation while preserving the rights of all employees to spend employer-provided medical reimbursement dollars as they wish. In a nutshell, any religious employer objecting to any otherwise ACA-mandated item of medical coverage should have the right to instead fund an independently-administered health savings account (HSA) or health reimbursement arrangement (HRA) for each of its employees. Any employer maintaining HSAs or HRAs for its employees could then decline to offer its employees any particular form of medical coverage to which the employer objects on religious grounds.

Employees can use their employer-provided HSA or HRA funds to purchase any medical service or device they want—in the same way such employees can use their cash wages as they please. Just as an employer has no control over an employee’s decisions to spend his wages as he chooses, an employer has no control over an employee’s expenditures of his independently-administered HSA or HRA funds. HSA/HRA funds are wages controlled by the employees, except that HSA/HRA funds are not included in employees’ gross incomes and must be spent on medical outlays.

Under this proposed approach, an employee of the Little Sisters who desires extra prescription eyeglasses could use her HRA or HSA for that purpose—while her co-worker could use that account to obtain birth control. In neither case would the Little Sisters (or any other similarly sincere religious employer) participate in the employee’s decision regarding how to expend health care account dollars.

The Little Sisters and their supporters might retort that providing HSAs and HRAs still implicates them in the contraceptive services an employee can obtain with her HSA or HRA funds. However, that employee can use her cash wages to purchase such services. Employers cannot veto their employees’ use of their wages. The funds put into HSAs and HRAs are no different; they are wages which belong to the employee to spend as she sees fit on medical care the employee desires. An employee’s decision how to spend her HSA or HRA funds is the employee’s decision, not the employer’s.

At the other end of the spectrum, some women’s health advocates might argue that a tax-advantaged account is an inadequate replacement for employer-financed contraception coverage. However, in a defined contribution culture such as ours, tax-favored 401(k) accounts are how we save for retirement, tax-favored 529 accounts are how we pay for college, tax-favored transit accounts are how we pay for parking and commuting costs—and tax-favored HRAs and HSAs are increasingly how we purchase medical services.

The Little Sisters’ work is admirable and their views are sincere. Similarly sincere are those who believe that employer-provided medical coverage should include contraception services to which the Little Sisters object. A society that respects religious conscience and individual autonomy should accommodate both these concerns. The HSA/HRA option is the best way to reconcile these contrasting views in a civil and respectful way.

Image Credit: “Ritual” by Monik Markus. CC BY 2.0 via Flickr.

Recent Comments

  1. George D. Burns

    Your comparison of wages with HSA/HRA funds is not valid. The employee has paid the taxes due before the net wages can be spent. The HSA/HRA are not included in the taxable income of the employee. You cover these points yet somehow, still found it logical to say that the HSA/HRA funds are no different. It is not the employer who dictates how the HSA/HRA funds can be spent, it is the IRC and Treas Regs. Unless the employee pays applicable taxes on the employer’s contribution to an HSA/HRA there is a difference.

  2. BenefitJack

    Sorry, funding an HSA or an HRA won’t comply with IRS guidance on no cost sharing preventive services – meaning the little sisters get to pay for medical, contribute to a HSA and then pay the $100 per person, per day penalty for providing non-compliant coverage.

    Stop making excuses for a failed design and stupid mandates. Only in PPACA 2010 can someone think it is a good idea, good public policy, competent design to mandate no cost sharing birth control coverage, while excluding hospital coverage, coverage for physician services, and coverage for prescription drugs in the “minimum essential coverage” mandate.

    Time to acknowledge the gaps and design failure that is PPACA 2010.

  3. Brian

    While an interesting proposal, it would amount to a tax on the exercise of religious belief and be smacked down by the courts easily.

  4. Bill Bettag

    Excellent article and excellent concept. I have been implementing HDHPs with HSAs for years and this is still an untapped solution to the battles that still are being waged regarding what should and what shouldn’t be covered.

    We are fighting battles that really don’t need to be fought. Have health plans that individuals can select the core coverage that they want and need. Develop HSAs to allow individuals to pick and choose more specific types of health care that meet their social and spiritual criteria.

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