Exemption For Contraceptive Coverage For Religious Employers Is In Final IRS, EBSA, HHS Regs

The Internal Revenue Service, the Employee Benefits Security Administration, and the Department of Health and Human Services (the Departments) have jointly issued regulations that simplify and clarify the exemption for group health plans established or maintained by certain religious employers (and group health insurance provided in connection with such plans) from the requirement under the Public Health Service Act (PHSA) that various preventive services for women, including contraceptive services, be covered without cost-sharing. The final regulations also set forth accommodations regarding the contraceptive coverage requirement for group health plans established or maintained by “eligible organizations” and for student health insurance coverage arranged by eligible organizations that are institutions of higher learning. Related amendments to regulations on the state exchanges are also included in the final regulations. The final regulations were published in the July 2 Federal Register.

The regulations are effective Aug. 1, 2013, and are generally applicable for plan years beginning on or after Jan. 1, 2014, except for amendments to the religious employer exemption, which apply to group health plans and health insurance issuers for plan years beginning on or after Aug. 1, 2013.The safe harbor from enforcement of the contraceptive coverage requirement now encompasses plan years beginning on or after Aug. 1, 2013 and before Jan. 1, 2014.

The Departments explain that making it the sole responsibility of certain health insurance issuers to provide separate payments for contraceptive services directly to plan participants and beneficiaries will ensure that eligible organizations and their plans do not pay or otherwise support such coverage and that the eligible organizations will be able to expressly exclude contraceptive coverage from their group health insurance.

Originally, the Departments proposed that health insurance issuers be required to provide separate individual health insurance policies covering contraceptive services for plan participants, but the final regulations stipulate that these issuers may use a standard exclusion from a group health insurance policy that encompasses all recommended contraceptive services.

Religious employer exemption. A “religious employer” under the simplified and clarified definition is now simply one that is organized and operates as a nonprofit entity and is referred to in Code Sec. 6033(a)(3)(A)(i) or Code Sec. 6033(a)(3)(A)(iii). Those Code sections refer to churches, their integrated auxiliaries, and conventions or associations of churches, as well as to the exclusively religious activities of any religious order. This change to the definition was designed, according to the Departments, to ensure that an otherwise exempt plan would not be disqualified merely because the employer’s purposes extend beyond the inculcation of religious values or because it hires or serves people of different religious faiths. Therefore, group health plans of houses of worship that provide educational, charitable, or social services to their communities qualify for the exemption. For purposes of the exemption, the Departments are clarifying in the regulations that an employer that is a nonprofit entity is not limited to any particular form of entity under state law, and it is not necessary to determine the federal tax-exempt status of a nonprofit entity in determining whether the religious employer exemption applies.

Accommodations for “eligible organizations.” The final regulations also contain accommodations for contraceptive coverage requirements for health coverage established, maintained, or arranged by “eligible organizations.” An “eligible organization” is one that: (1) opposes providing coverage for some or all of the contraceptive services required by the PHSA due to religious objections; (2) is a nonprofit entity; (3) holds itself out as a religious organization; and (4) self-certifies that it satisfies the first three criteria above. The definition does not, the Department emphasize, extend to for-profit organizations.

Self-certification. An organization that wishes to be treated as an “eligible organizations” for purposes of avoiding contraceptive coverage must self-certify that it meets the definition prior to the beginning of the first plan year to which the accommodation is to apply. A copy of the self-certification, which only need to be executed once, must be provided to a new health insurance issuer or third party administrator any time an issuer or administrator is changed by the eligible organization. The self-certification does not have to be submitted to any of the Departments, but a copy, executed by the organization’s authorized representative, must be maintained in its records, and it must be available for examination upon request.

Contraceptive coverage must then be expressly excluded from the eligible organization’s group health insurance coverage by the issuer that receives the self-certification, and the issuer must notify plan participants and beneficiaries that it provides separate payments for contraceptive services at no cost for as long as the participant or beneficiary is enrolled in the plan. This notification must be contemporaneous with, but separate from, any application materials distributed in connection with enrollment in group health coverage that is effective beginning on the first day of each applicable plan year. Premium revenue collected from the eligible organization must be segregated by the issuer from money used to make payments for contraceptive services.

The failure by an issuer to comply with the requirement to pay for contraceptive services at no cost to plan participants and beneficiaries does not mean that an eligible organization will be deemed to have failed to comply with the contraceptive coverage requirement. So, an eligible organization is considered to comply with PHS Act Sec. 2713 (and companion provisions in ERISA and the Code) if it provides to all relevant third party administrators a copy of its self-certification stating that the eligible organization will not act as the plan administrator or claims administrator for contraceptive services or contribute to the funding of contraceptive services and citing ERISA Reg. Sec. 2510.3-16, ERISA Reg. Sec. 2590.715-2713A, and IRS Reg. Sec. 54.9815-2713A.

If a health insurance issuer is to provide separate payments for contraceptive services pursuant to the accommodation, or if a third party administrator is arranging or providing such payments, they must provide timely written notice of this arrangement to plan participants and beneficiaries in group health plans (or students and dependents in student health insurance coverage) of eligible organizations. Model language satisfying the notice requirement is provided in the final regulations.

However, an eligible organization will not be considered to comply with PHSA Sec. 2713 if it directly or indirectly interferes with a third party administrator’s decision or efforts to provide or arrange separate payments for contraceptive services.

The Departments have stated that it is their belief that there are no self-insured group health plans established or maintained by eligible organizations that do not use the services of a third-party administrator, but, if one does exist, a safe harbor from the enforcement of the contraceptive coverage requirement will be provided if the plan or plans submit to the HHS (marketreform@cms.hhs.gov) at least 60 days prior to the first day of the first applicable plan year: (1) identifying information for the plan, the eligible organization that is the plan sponsor, and an authorized representative; (2) a list of the five most highly compensated non-clinical plan service providers; and (3) an attestation that the plan is established or maintained by an eligible organization, and is operated in compliance with all applicable requirements of Part A, Title 27 of the PHSA.

Student health insurance coverage. A similar accommodation applies to student health insurance coverage arranged by certain eligible organizations that are institutions of higher learning. It should be noted, however, that the final regulations state that accommodations specific to nonprofit religious institutions of higher education only apply with respect to their arrangements of student health insurance coverage and students’ covered dependents. For group health plans established or maintained by nonprofit religious institutions of higher learning for employees, the institutions will be accommodated in the same way as any other eligible organization would be.

Multi-employer plans. For multiple employer group health plans, the availability of the exemption or accommodation will be determined on an employer-by-employer basis. Any nonprofit organization with religious objections to contraceptive coverage that is part of the same controlled group of corporations or under common control with a religious employer or eligible organization will be considered to hold itself out as a religious organization and qualifies for an accommodation, but each such organization must independently satisfy the self-certification standard.

Federally-facilitated exchanges. The Departments also have provided an accommodation regarding federally-facilitated exchange (FFE) user fees, which will be charged by exchanges to participating issuers in order to generate funding to support the exchanges’ operations (see ACA Sec. 1311(d)(5)(A)). Costs of payments for contraceptive services by issuers will be reimbursed via an adjustment in their FFE user fees, subject to various conditions, such as notifying the HHS of an intention to seek the adjustment by the later of Jan. 1, 2014 or the 60th calendar day following the date on which an issuer received an applicable self-certification.

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