Around 1990, the Supreme Court decided in Employment Division v. Smith that it was permissible to deny unemployment benefits to two guys who were fired for smoking peyote, even though they were American Indians (or at least belonged to a Native American church of some kind) who smoked peyote during religious rituals. Writing for the majority, Justice Scalia rejected the First Amendment argument because the policy against peyote use was a neutral law of general applicability.
This decision provoked outrage, apparently, and in response Congress eventually passed RFRA, which required courts to apply strict scrutiny to any law—including any state law—that substantially burdens a person's free exercise of religion. The bill passed nearly unanimously, and was signed by President Clinton.
Congress claimed the power to pass this law under Section 5 of the 14th Amendment, which allows Congress to pass appropriate legislation to enforce the protections guaranteed by the 14th Amendment (e.g., due process & equal protection under the law). In City of Boerne v. Flores, however, the Supreme Court held this was an inappropriate use of the Section 5 power, and therefore unconstitutional as applied to the states.
But the law still applies to federal legislation, and Congress even amended it so that it now explicitly applies only to federal legislation. There is no question that this application of the law is constitutional, and the Supreme Court recently applied it in a unanimous decision (Gonzales v. O Centro Espirita Beneficiente Uniao do Vegetal) to exempt from prosecution under the Controlled Substances Act the use of a hallucinogenic tea as part of a religious ritual.
But an obvious question presents itself: how should we apply RFRA to subsequent Congressional legislation? Obviously Congress cannot tie its own hands and prevent itself from passing legislation that repeals previous legislation. So if Congress passes a neutral law of general applicability that substantially burdens the free exercise of religion, hasn't it implicitly carved out an exception to RFRA?
RFRA itself appears to answer this question in section 6(b), which reads: "Federal statutory law adopted after the date of the enactment of this Act is subject to this Act unless such law explicitly excludes such application by reference to this Act." So, according to RFRA, no implicit exceptions are allowed; only explicit exceptions. In this way, RFRA is a kind of a super-statute.
As far as I can tell, Obamacare has makes no explicit exception to RFRA. This isn't surprising, given that RFRA passed unanimously and presumably remains popular.
So, theoretically RFRA could prevent application of contraception-coverage mandate to Catholic hospitals, if you accept that (1) the Catholic Church's administration of hospitals and providing health insurance to non-Catholics is a religious exercise; and (2) that the contraception-coverage mandate substantially burdens the free exercise of religion. Sure enough, a group called Priests for Life has filed suit against HHS claiming, among other things, that the relevant regulations are invalid under RFRA (See Count II). The straight-up First Amendment claims seem frivolous under Smith, but the RFRA argument is worth debating, I think.
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