July 15, 2015
Author(s): Yelena F. Gray
The Departments of Health and Human Services, Treasury and Labor recently issued final regulations revising the process for religiously affiliated nonprofits to seek accommodation of their religious objections to providing women’s contraceptive coverage under the Affordable Care Act. The final rule extends the accommodations to closely held for-profit employers and to religiously affiliated nonprofit institutions of higher education with respect to their student health plans. The regulations also include other clarifications regarding the preventive care mandate that are generally applicable to all employers. This alert discusses what religiously affiliated nonprofits and closely held employers with religious objections to coverage of contraceptives need to know about applying for the accommodation, and includes other general employer takeaways.
Since 2011, various stakeholders have been battling over the requirement that employer group health plans cover women’s FDA-approved contraceptive services. Court cases brought by employers with religious objections to providing such coverage are still pending at various levels of the court system. The Supreme Court weighed in on the issue in 2013, holding in Burwell v. Hobby Lobby that the contraceptive coverage mandate substantially burdens religious beliefs of closely held businesses.
The latest milestone in the contraceptive coverage debate is marked by the final regulations issued by the Departments of Health and Human Services, Treasury and Labor (the “Departments”) on July 10, 2015. In part, the regulations respond to the Supreme Court’s emergency orders allowing religiously affiliated organizations to notify the Department of Health and Human Services (HHS), rather than their plans’ insurers or third-party administrators, of their objections to contraceptive coverage.
The regulations also finalize various pieces of prior guidance. The final rule permits nonprofit religiously affiliated employers and closely held for-profit businesses with sincerely held religious objections to all or a subset of contraceptive services to self-certify to or notify HHS of such objections. These “eligible employers” will not have to provide, pay or arrange for contraceptive coverage under their group health plans if they follow the terms of the accommodation.
The Affordable Care Act (“ACA”) requires non-grandfathered group health plans and insurance issuers to cover certain recommended preventive services at no cost to the covered individuals. Women’s preventive services, including 18 currently recognized contraceptive methods and relating counseling and education must be covered without cost. Although group health plans may use reasonable cost management techniques in providing preventive care, such as encouraging the use of generic oral contraceptives over brand drugs, they are required to cover at least one form of contraception in each recognized method. Thus, plans may determine the quantity, frequency and settings in which women’s services are provided. However, they must also have an easily accessible, transparent, expedient and not overly burdensome exception process where an attending physician’s recommendation based on medical necessity dictates coverage of a specific service or supply.
Consistent with prior guidance, the Departments’ final regulations exempt houses of worship from the contraceptive coverage mandate entirely. They also lay out how religiously affiliated nonprofits (e.g., hospitals, universities, nursing homes) with objections may avoid providing contraceptive coverage, while still ensuring that the employees covered by the group health plans of such nonprofits will have access to contraceptive services through other means. The final regulations add for-profit closely held businesses that object to contraceptive coverage on religious grounds to the list of employers eligible for this accommodation. Similar accommodations were also extended to student health plans of nonprofit institutions of higher education.
To avail themselves of this accommodation, eligible employers may either complete a self-certification of their objection to all or a subset of contraceptive services (a copy of which must be provided to the plan’s insurer or, if the plan is self-insured, to the third-party administrator), or may instead notify HHS of their objection. If an organization opts for providing notice to HHS, HHS will notify the insurer or, if the plan is self-insured, will work with the Department of Labor (“DOL”) to notify the third-party administrator of the objection.
Insurers or third-party administrators will then be required to provide coverage for contraceptive services to participants in the plans of the eligible employers. The Departments determined that this coverage is cost neutral to insurers by virtue of reduced costs of treating illnesses that can be prevented by the use of approved contraceptive methods. Third-party administrators who do not opt out of the contractual relationship altogether will have to provide or arrange with a health insurer for the provision of contraceptive coverage. In either case, the party paying for the coverage can obtain reimbursement for its costs by working with the issuers of qualified health plans on the insurance Marketplaces. If a plan is covered by ERISA, third-party administrators act as “plan administrators” for the contraceptive coverage they provide.
The eligible employer must complete the self-certification or notice process by the first day of the first plan year to which the accommodation applies. The self-certification or notice must be executed by a person authorized to make the certification or notice on behalf of the eligible employer, and must be maintained in a manner consistent with the record retention requirements under ERISA.
The Departments developed EBSA Form 700 that eligible employers can use for self-certifying their objections. Eligible employers who instead notify HHS of their eligibility for the accommodation may, but are not required to, use a model notice drafted for this purpose by the Centers for Medicare and Medicaid Services and available on its website.
When a self-certification is provided directly to an insurer or third-party administrator, the insurer or third-party administrator may not require any further documentation regarding the organization’s status as an eligible employer. When a notice is provided to HHS in lieu of self-certification, the notice must include the name of the eligible employer, the basis for its status as an eligible employer, a description of its objection based on sincerely held religious beliefs to some or all contraceptive services (including an identification of the subset of contraceptive services to which the eligible employer objects, if applicable), the plan name and type (including whether the plan is a student health plan or a church plan) and the name and contact information for the plan’s insurer or third-party administrator. An accommodation cannot be effectuated until all of the necessary information is submitted to HHS.
The final regulations model the definition of a closely held for-profit entity that is an “eligible employer” on existing tax principles. An entity qualifies for the accommodation if no ownership interests in the entity are publicly traded (i.e., not required to be registered under Section 12 of the Securities Exchange Act of 1934) and more than 50% of ownership interests are held by no more than five individuals. In addition, the entity’s highest governing body (e.g., the board of directors or trustees or owners who directly manage the entity) must adopt a resolution or similar action determining that it objects to providing all or a subset of contraceptive services based on the owner’s sincerely held religious beliefs. A family is considered to be a single owner, and for this purpose family includes siblings (including half-siblings), a spouse, parents, grandparents and other ancestors, and children, grandchildren and other lineal descendants. Ownership by a partnership, corporation or trust is assigned proportionately to partners, shareholders or beneficiaries, respectively. A nonprofit organization is also a single owner for these purposes. Persons holding an option to purchase ownership interests are deemed owners of such interests. Voting or other preferences are disregarded for purposes of the ownership determination.
To illustrate some of these concepts, let’s consider an example:
An employee stock ownership plan (ESOP) holds 460 shares of common stock in an S corporation. A family that started and has actively managed the business since its inception holds warrants to purchase 490 shares of common stock. Three members of the company’s management own options to purchase 50 shares of common stock. The family objects to contraceptive coverage based on its sincerely held religious beliefs. The company’s board of directors is comprised of three family members (two brothers and one of the brother’s wife) and four unrelated individuals who are not employees of the company and do not have an objection to contraceptive coverage.
This business is closely held within the meaning of the regulations (i.e., the family and three employees own 540 shares, or 54% of the ownership interests). However, to avail itself of the accommodation, the board must adopt a resolution that it objects to contraceptive coverage. If it does so, the company may complete EBSA Form 700 and provide a copy of it to the insurer of its group health plan. Alternatively, it may notify the HHS of its objection. If, however, the board does not pass the resolution, the company would have to provide contraceptive coverage despite the family’s objections.
This may not be a commonly encountered scenario, but it illustrates the complexities of the accommodation. Those entities that are in doubt as to their eligibility for the accommodation may ask HHS in a letter to rule on their status, but are not required to do so. If the entity does not hear from HHS within 60 days, it may proceed to rely on its determination of eligibility for the accommodation.
For most employers, the final regulations do not break any new ground, but some of the clarifying provisions for preventive services in general may be helpful.
Closely held businesses with religious objections to coverage of contraceptive services may now notify HHS of their objection. Unless and until the Supreme Court holds otherwise, plans should follow this accommodation.
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