The justices, in a unanimous decision, wrote that they were not deciding the case on the merits but instead sent the case back down to the lower courts for opposing parties to work out a compromise.
"The court expresses no view on the merits of the cases," the justices wrote, adding that "given the gravity of the dispute" and the fact that the parties have clarified their positions during the course of the litigation the parties should be able to "arrive at an approach."
The decision to send the case back to the appellate level appears to be a direct impact of Justice Antonin Scalia's death in February. Scalia, a stalwart conservative, would likely have ruled against the Obama administration.
The court currently has four justices appointed by Republican presidents and four by Democrats.
"It seems pretty clear that this is a compromise born out of an eight-justice court, where the justices avoid saying anything on the merits and try to make the case go away," said Steve Vladeck, a CNN contributor and a professor of law at American University Washington College of Law.
"It's not the first time they've punted since Scalia's death, but it may well be the most brazen one."
The White House has argued that the divided court and prospect for 4-4 rulings on major cases is a primary reason why the Senate should act on President Barack Obama's nomination of Judge Merrick Garland to fill Scalia's seat. Senate Republicans have no plans to hold hearings or vote on Garland's nomination before the November election.
In an interview with BuzzFeed Monday, President Barack Obama suggested a fully staffed Supreme Court would have ruled differently.
"I won't speculate as to why they punted, but my suspicion is if we have nine Supreme Court justices instead of eight we might have had a different outcome," he said.
Fourth Obamacare case at Supreme Court
This was the fourth time the Supreme Court heard a challenge to the signature legislative achievement of the Obama administration, and the second case challenging the contraception mandate. In 2014, the court ruled in favor of closely held for-profit companies like Hobby Lobby that objected to providing certain contraceptives.
The challenge to Obamacare's contraceptive mandate came from religiously affiliated non-profit groups, including the Little Sisters of the Poor
, who object to having to provide "abortifacients and contraceptives" to their employees.
The Obama administration offered the groups an accommodation meant to respect their religious liberty concerns, but the groups say that it is not good enough and still makes them complicit in committing a sin. They argue the accommodation forces them to violate their religious beliefs or pay ruinous fines in violation of federal law.
Obama said the administration is "properly accommodating religious institutions" who object to providing contraception coverage for their employees.
The "practical effect" of the Supreme Court's ruling was that women will "still continue to get contraception if they are getting health insurance," he told BuzzFeed.
The decision came as a disappointment to some women's rights groups. "In punting today, the Supreme court only forces women and families to wait longer to learn who in this country has the 'right' to interfere with a woman's personal health care decisions," said Ilyse Hogue, president of NARAL Pro-Choice America.
Mark Rienzi, a lawyer for the Little Sisters of the Poor, called the decision a "win" for his clients and other plaintiffs. "There is still work to be done, but today's decision indicates that we will ultimately prevail in court,' he said in a statement.
"The Little Sisters deserve more than a victory in court," House Speaker Paul Ryan said in a statement. "The Sisters deserve relief from this mandate, and an end to this ordeal. The administration should resolve this as soon as possible so the Sisters can go on serving the poor in peace as they have for so long. I am proud to stand with the Sisters, and all those who work every day to protect religious liberty."
In its ruling Monday, the court said it is not deciding whether the religious exercise of the challengers has been substantially "burdened."
"When all is said and done, the challengers may well get what they want -- not having to directly provide contraceptive coverage against their religious beliefs," Vladeck said. "But if the court gets its way, that will be the result of a pragmatic compromise, not a legal ruling about the balance between individual rights and religious freedom."
At oral arguments in March
, the justices seemed divided and a few days later issued an unusual order for more briefs suggesting that they were searching for a compromise.
In an opinion concurring with today's decision Justice Sonia Sotomayor, joined by Justice Ruth Bader Ginsburg emphasized the impact of the supplemental briefs.
"Today's opinion does only what it says it does: 'affords an opportunity' for the parties and Courts of Appeals to reconsider the parties' arguments" in light of the information gleaned from the order.
Sotomayor emphasized that the order "does not" endorse the views of the non profit groups that "the existing regulations substantially burden their religious exercise."