* Majority could rule companies have religious rights of individuals
* Court split on exempting companies from Obamacare contraception provision (Rewrites throughout with details on arguments, demonstrations outside court)
By Lawrence Hurley
WASHINGTON, March 25 (Reuters) - The U.S. Supreme Court signaled on Tuesday it may allow corporations to mount religious objections to government action, possibly paving the way for companies to avoid covering employees' birth control as required under Obamacare.
During a 90-minute oral argument, 30 minutes more than usual, a majority of the nine justices appeared ready to rule that certain for-profit entities have the same religious rights to object as individuals do. A ruling along those lines would likely only apply to closely held companies.
As in most close cases of late, Justice Anthony Kennedy will likely be the deciding vote. Based on his questions, it was unclear whether the court would ultimately rule that the companies had a right to an exemption from the contraception provision of President Barack Obama's 2010 Affordable Care Act, commonly known as Obamacare.
The dozens of companies involved in the litigation do not all oppose every type of birth control. Some object only to emergency contraceptive methods, such as the so-called morning-after pill, which they view as akin to abortion.
The case marks the second time Obamacare has featured prominently before the Supreme Court. In 2012, the court upheld by a 5-4 vote the constitutionality of the act's core feature requiring people to get health insurance.
Although the case has no bearing on the overall healthcare law, it features its own volatile mix of religious rights and reproductive rights. A capacity crowd filled the marble courtroom, while outside hundreds of demonstrators, most of them women, protested loudly in an early spring snowstorm.
The challengers are arts-and-crafts retailer Hobby Lobby Stores Inc, run by evangelical Christians, and Conestoga Wood Specialties, which is run by a Mennonite family. They sued under a 1993 law called the Religious Freedom Restoration Act.
"We believe that Americans don't lose their religious freedoms when they open a family business," Barbara Green, one of Hobby Lobby's owners, told reporters after the hearing. "We were encouraged by today's arguments."
'OUT OF THE WOODWORK'
Liberal-leaning justices and the government said that allowing companies to make claims could lead to a swathe of challenges to government regulations, from Social Security to health coverage for immunizations.
"If your argument were adopted ... then you would see religious objectors come out of the woodwork with respect to all of these laws," Justice Elena Kagan told lawyer Paul Clement, who argued before the court on behalf of the companies.
The conservative members of the court did not seem convinced. Chief Justice John Roberts said the ruling could be limited to closely held companies. That outcome would "avoid all the problems" raised by the government concerning how to determine if a company has a valid claim, such as a situation in which some shareholders have religious objections but not others, Roberts said.
His conservative colleagues, including Samuel Alito and Kennedy, seemed to share that view.
"If you say they can't even get their day in court, you are saying something pretty, pretty strong," Alito told Solicitor General Donald Verrilli, the Obama administration's lawyer.
Kennedy hinted at his views in another exchange with Verrilli over whether in a hypothetical situation a for-profit corporation, such as a medical provider, would not be able to object if the government required it to carry out abortions.
Verrilli told the justices that the court would be "skating on thin constitutional ice" if the companies won an exemption because of the impact it would have on women employees. That view appeared to be shared by Kagan, one of three women on the court. When an employer refuses to provide the coverage, a female employee is "quite directly, quite tangibly harmed," Kagan said.
BIRTH CONTROL ISSUE
On the question of whether the companies can ultimately win their claim on the birth control provision, Kennedy hinted at some sympathy for the government. He wondered whether the objecting companies might have alternative means to avoid providing the coverage. Rather than face fines for not providing the contraception coverage, might they instead be able to pay employees more to buy their own health insurance, thereby circumventing their religious objections?
"How is the employer hurt? He can just raise the wages," Kennedy asked Clement.
Kennedy was seizing on similar comments made by liberal justices Sonia Sotomayor and Kagan. Kagan noted that if a company were to drop its health insurance, it would face a $2,000 per employee tax under Obamacare, which would cost roughly the same as providing health insurance.
The 2012 case overshadowed the proceedings on several occasions during the argument, with Kennedy, one of the justices in the minority who voted to strike down the law, joking to Verrilli, who won the earlier case, that perhaps the court should take another look at the entire healthcare law.
"Well, I think it has been examined, your honor," Verrilli said to laughter in the courtroom.
A short distance from the Supreme Court, Obamacare faced a separate legal challenge, which, if it succeeds, would further undermine the 2010 law considered to be the President's signature domestic policy achievement.
A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit appeared divided as it heard arguments from businesses in states with federally run health insurance exchanges who said the government was overstepping the authority of the law in providing subsidies on the exchange.
The cases are Sebelius v. Hobby Lobby and Conestoga Wood v. Sebelius, U.S. Supreme Court, No. 13-354, 13-356. (Additional reporting by Joan Biskupic, Julia Edwards, David Ingram and Ian Simpson; Editing by Howard Goller and Grant McCool)