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Implementing Health Reform: New Accommodations For Employers On Contraceptive Coverage



August 22nd, 2014

On August 22, 2014, the Departments of Health and Human Services, Labor, and Treasury released an interim final  and a proposed  rule providing for the accommodation of religious objections on the part of an employer or institution of higher learning to providing their employees or students coverage for contraceptive services.  A fact sheet on the rules was also released,   as was a notice on the revision of the form used to collect information on religious objections to contraceptive coverage.

The proposed rule, which applies to for-profit entities, is being issued in response to the Supreme Court’s decision in Burwell v. Hobby Lobby, which ruled that closely-held for-profit corporations may refuse to cover contraceptives for religious reasons.  The interim final rule responds to the Court’s interim order in Wheaton College v. Burwell  (and to 31 lower court injunctions) that released religious non-profit organizations from accommodations earlier proposed by HHS.

The history.  The back story of this rule has been described in a number of posts here before. The Affordable Care Act requires non-grandfathered health insurance coverage and employer-sponsored group health plans to cover preventive services without cost sharing.  This includes women’s preventive services as defined by the Health Resources and Services Administration.  In response to this requirement, HRSA asked the Institute of Medicine to recommend women’s preventive services that should be covered. At the IOM’s recommendation, HRSA defined women’s preventive services to include all FDA approved contraceptives, sterilization procedures, and patient education and counseling for women of reproductive capacity as prescribed by a health care provider, collectively referred to a contraceptive services.  Under final preventive services rules promulgated by the departments of Health and Human Services, Labor, and Treasury, all contraceptive services must be covered by insurers and group health plans.

Recognizing that some religions object to contraceptive coverage, however, the departments under rules promulgated in 2012 excluded from the mandate’s coverage “religious employers,” non-profit institutions that have inculcation of religious values as their purpose, primarily employ and serve individuals that share their religious tenets, and fall within an Internal Revenue Code definition that largely apples to churches and houses of worship.  Under rules issued in July of 2013, the agencies simplified their definition of “religious employer” and provided an additional accommodation for other non-profit “eligible organizations” (such as religious universities, hospitals, or charities) that objected to providing contraceptive coverage for their employees or students for religious reasons.

Eligible organizations (defined as non-profits that held themselves out as religious organizations and that had a religious objection to providing all or some contraceptives) did not under the rule themselves have to contract, arrange, pay, or refer for contraceptive coverage their employees or students.  But their employees and students were not left without contraceptive coverage.  Eligible organizations that had insured plans had to provide a copy of a self certification (an ERISA form 700) that they met these requirements to their insurers.  The insurers then had to provide coverage for contraceptives to employees or students at no cost to the women or the organization.  It was assumed that the insurers would save enough money to cover the cost of coverage.

Organizations with self-insured plans had to self-certify their religious objections with their third-party administrators (TPAs)—the entities that processed claims and otherwise administered their plans for them—using the ERISA form 700.  The TPA was then responsible for providing contraceptive coverage, recovering the cost of coverage through an arrangement with a health insurer that would deduct the cost of coverage from fees that it otherwise owed a federally facilitated exchange.

No accommodation was made for for-profit organizations under the final rule, as the departments concluded that for-profit corporations could not hold religious beliefs.  Several dozen for-profit employers sued, claiming that the Religious Freedom Restoration Act (RFRA) protected them from having to provide contraceptive coverage.  In Hobby Lobby, the Supreme Court ruled in their favor, finding that “closely held” for profit employers had religious free exercise rights, that the contraceptive mandate substantially burdened these rights, and that — although the contraceptive rule might serve a compelling governmental interest — the religious organization accommodation rule demonstrated that the federal government could in fact accommodate the interest of for-profit employers.  Thus the rule could not be enforced against the plaintiffs under RFRA.

Finally, in its Wheaton College order, the Supreme Court enjoined the administration from requiring Wheaton College, a religious organization, to file a self-certification ERISA form 700 with its third party administrator.  The Court provided that Wheaton could merely notify the government of its beliefs.  The Court assumed that the federal government could then assure provision of contraceptive coverage to the Colleges employees.

The interim final rule provides another alternative accommodation for non-profit religious organizations.  Instead of filing the ERISA form 700 with their insurer or TPA, an “eligible organization” may simply inform HHS in writing of its religious objection.  HHS has released a form that can be used for this purpose.   The notification must include the name of the eligible organization and the basis under which it qualifies as an eligible organization.  It must state its religious objection and identify the contraceptives to which it objects.  It must identify its plan name and type (ERISA plan, student health plan, or church plan) and the name and contact information for its insurer or TPA.

Upon receiving this notice, for an insured plan, HHS will inform the insurer of its obligation to cover contraceptives under the ACA.  This obligation is separately binding on the insurer under the ACA regardless of the notification.  If a plan is self-insured, HHS will notify the Department of Labor, which will designate the third-party administrator as the ERISA plan administrator for providing contraceptive services.  The TPA will be able to recover the cost of contraceptive coverage from an insurer with which it has or forms a relationship, which will in turn deduct the cost from the fee it owes a federally facilitated exchange.

The Department of Labor (DOL) notification to the TPA will become the plan instrument under which the TPA is authorized to cover contraceptives, thus getting around the primary objection that eligible organizations had raised against the prior accommodation—that through the ERISA form 700 they were themselves authorizing their TPAs to provide contraceptives.  The authority of DOL to designate a TPA as an ERISA plan administrator is far from clear under ERISA, but DOL claims this authority under its broad ERISA rulemaking authority.

The interim final rule also drops from the current rule the so called “non-interference provision.”  The rule had provided that self-insured eligible organizations “must not, directly or indirectly seek to interfere with a third party administrator’s arrangements to provide or arrange for separate payments for contraceptive services” and “must not, directly or indirectly, seek to influence a third party administrator’s decision to make any such arrangements.”  Plaintiffs in the numerous lawsuits challenging the accommodation asserted that this rule violated their free exercise rights and freedom of speech.  The agencies interpreted these provisions as merely prohibiting bribery, threats, or economic coercion. Since this conduct is prohibited by other laws, the departments dropped this prohibition from the rule.

The proposed rule would, pursuant to the Supreme Court’s judgment in Hobby Lobby, allow closely held for-profit organizations to qualify as “eligible organizations” and thus claim the same accommodation as non-profit religious organizations.  To claim this accommodation, the for-profit organization must take a valid action in accordance with its governing structure under state law to state its religious objection to providing contraceptive coverage.

The departments seek comments on how to define a closely held corporation, referring to two different approaches to defining “closely held” both found in the Internal Revenue Code.  One would define it in terms of number of owners, such as fewer than 100 or 45.  The other would define it in terms of minimum fraction of ownership owned by a set number of owners, such as 50 percent of owned by not more than five individuals.  The departments are seeking a definition that would identify for-profit entities controlled and operated by individual owners likely to have associational ties who are personally identified with the organization and who conduct their personal business through the entity.  These are the entities that the Supreme Court seemed concerned about in Hobby Lobby.

The departments also seek comments on the likely number of for-profit entities that might claim the exemption, the number of participants or beneficiaries that might be affected, and the number of insurers or TPAs affected.  Provisionally for purposes of Paperwork Reduction Act Notice analysis, the departments determined that 71 entities, the number that are currently suing, will be affected.

The interim and proposed rule do not fully meet the twin goals of providing contraceptive coverage for women covered by insurance or group plans while allowing entities that object to such coverage to refuse to provide it.  As the interim rule notes in a footnote, church plans are not subject to ERISA and cannot be required to provide coverage (although they are arguably independently subject to the ACA preventive services requirement).  An eligible organization could also administer its self-insured plan directly rather than through a TPA, and thus deprive its employees or students of contraceptive coverage.

It is also not clear that the plaintiffs in the 100 or so lawsuits raising the contraceptive coverage issue will find the accommodation adequate.  The Becket Fund, which has sponsored some of the lawsuits, has promised a statement once it reviews the rule, but it was not available as of this writing. It is conceivable that some plaintiffs will object that the government requires them to offer coverage through an insurer or TPA that covers contraceptives.  In fact, however, the rule does not require eligible entities to provide coverage through an insurer or TPA.

The Supreme Court in Hobby Lobby assumed that a belief as to one’s responsibility for the sinful conduct of another is itself a protected religious belief.  Some entities may argue that the fact that the TPAs and insurers that cover their employees or students provide contraceptives in some way implicates them in wrongful conduct.  It would seem, however, that at some point the causal link must be broken, and the courts must acknowledge that the government has provided the least restrictive means of achieving its otherwise compelling interest.

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