August 27, 2014
Authored by: benefitsbclp
The so-called “contraceptive mandate” saga continues. Since the passage of the ACA in Spring 2010, its preventive care requirement mandating coverage of all FDA-approved contraceptive drugs, devices, and related services – and at no cost to women – has been a point of controversy for non-profit religious organizations and closely held businesses, as we have discussed previously.
Although the government attempted to settle the matter for religious institutions by creating an “accommodation” in final regulations issued in July of 2013, certain entities – both non-profit and for-profit – continued their challenges. The final regulations provided non-profit group health plan sponsors that hold themselves out as religious organizations and that have religious objections to contraceptive coverage (called an “eligible organizations”) an alternative to offering the contraceptives to which it objects.
However, the alternative required completing and mailing a “self-certification” to the sponsor’s insurer that acts as a claims administrator in an insured plan or third party administrator (TPA) of a self-insured plan, as applicable. The submission of the self-certification to the insurer/TPA then “triggered” the requirement that the insurer/TPA carve out the objectionable drugs/devices/services from the plan offered to the sponsor and to separately provide for that coverage to the plan’s participants at no cost to the eligible organization (or the covered women).
Proposal to Expand Final Regulation “Accommodation” to For-Profits
We’re all well-aware of the lawsuit filed by Hobby Lobby that made its way up to the Supreme Court and, as discussed in our prior post, the high Court held that the contraceptive mandate violates the statute designed to protect religious freedoms – RFRA – as applied to closely-held corporations. While the Court did not go so far as to expressly approve of use of the accommodation for for-profit objectors, it did recite that it did not find any legitimate reason to distinguish between non-profits and for-profits for this purpose under RFRA.
Many observers expected HHS to expand the “accommodation” to closely-held for-profit organizations like Hobby Lobby, which it did in proposed regulations released on Friday. They purport to expand the definition of eligible organization to include a qualifying closely held for-profit entity that has a religious objection to providing coverage for some or all of the contraceptive services otherwise required to be covered.
To use the accommodation, a for-profit organization must be “closely-held” and the objections to the provision of certain contraceptive coverage must stem from its “owners’ sincerely held religious beliefs is made in accordance with the organization’s applicable rules of governance, consistent with state law.” The government declined to define the term “closely-held” at this juncture and instead asked for comments and suggestions. Two alternative definitions being vetted by the government include:
- An entity in which none of the ownership interests in the entity is publicly traded and where the entity has fewer than a specified number of shareholders or owners; and
- An entity in which the ownership interests are not publicly traded, and in which a specified fraction of the ownership interest is concentrated in a limited and specified number of owners.
It is unclear how either definition would apply for a company that was owned wholly or partially by an employee stock ownership plan.
“Alternative” Means to Coverage under the “Accommodation” for Non-Profits
Also on Friday, the government issued interim final rules modifying the mechanism by which an organization can be exempted from the contraceptive mandate.
This change stems from the Supreme Court’s interim order in connection with an application for an injunction brought by Wheaton College (see 134 S. Ct. 2806 (2014)). In short, Wheaton College objected that filing the form (EBSA Form 700) which was required by the accommodation made the organization complicit in the provision of the contraceptives to which it objected. The Court upheld an injunction in Wheaton’s favor, holding that the College need only file a letter with the federal government stating its objections.
The interim final regulations create an alternative process to filing Form 700, consistent with the Wheaton order. Instead of filing a notice with the insurer/TPA, an eligible organization could notify the Secretary of HHS that it will not act as the plan administrator or claims administrator with respect to, or contribute to the funding of, coverage of all or a subset of contraceptive services. The notification must include certain specific information, including: identification of the plan, plan type and the identity and mailing addresses of any third party administrators.
The government can then turn around and tell the insurer/TPA to provide the coverage for the contraceptives. Once it does so, the government says that notice will designate the insurer/TPA as the plan administrator for purposes of these benefits. This means the insurer/TPA an ERISA fiduciary, at least with respect to the applicable contraceptives.
This creates many potential questions. For example, who is responsible for monitoring this “plan administrator?” If the “plan administrator” breaches a fiduciary duty, is the eligible organization potentially responsible for co-fiduciary liability (certainly, the government would not be)? Do insurers/TPAs need to make sure that they have fidelity bonds since the plan benefits are not paid from the general assets of the employer? Do they need to establish trusts for these benefits? It’s likely that the DOL will come out with FAQs that answers the last three questions in the negative. However, the ERISA fiduciary implications of such an appointment are unclear.
Public reaction to these changes is still developing. At a minimum future changes will still be needed to address the definition of privately-held. Time will tell whether additional changes will be forthcoming to address continuing concerns/objections. Stay tuned….