Proposed Contraceptives Coverage Rules Would Involve Insurers and TPAs

Practical Law Legal Update 6-523-9588 (Approx. 6 pages)

Proposed Contraceptives Coverage Rules Would Involve Insurers and TPAs

by PLC Employee Benefits & Executive Compensation

Criteria for Religious Employer Exemption

Regarding the religious employer exemption, commenters noted that group health plans sponsored by some religious entities could fail to meet the third prong of the religious employer definition, and not qualify for the exemption, because they provide benevolent services to community members of different faiths (for example, maintaining a soup kitchen that provides free meals to low-income individuals).

To avoid this outcome, the proposed regulations eliminate the first three prongs of the religious employer definition and clarify how the fourth prong applies. Under the proposed regulations, an employer that operates as a nonprofit entity under IRC Sections 6033(a)(3)(A)(i) or (iii) would be considered a religious employer for purposes of the religious employer exemption. The proposed regulations would make it unnecessary to determine a nonprofit entity's tax-exempt status in assessing whether the religious employer exemption applies. In addition, by eliminating the first three prongs of the religious employer definition, the proposed regulations would avoid inquiry into an employer's purposes.

Accommodations for Eligible Organizations with Religious Objections

The proposed regulations include accommodations for certain nonprofit religious organizations that do not satisfy the religious employer exemption (for example, educational institutions and charities). For purposes of the accommodations, an eligible organization is one that:

Opposes providing coverage for some or all of the required contraceptive services due to religious objections.
Is organized and operates as a nonprofit entity.
Holds itself out as a religious organization.
Self-certifies that it satisfies the first three criteria, under a process to be addressed in future guidance.

The definition of eligible organization does not include for-profit secular employers.

Under the proposed accommodations:

Eligible organizations would not have to contract, arrange, pay or refer for coverage of contraceptives they object to on religious grounds.
Participants and beneficiaries would receive contraceptive coverage through separate individual health insurance policies, without cost-sharing or additional premiums.

Insured Health Plans

The insurer of an insured plan maintained by an eligible organization would assume sole responsibility, independent of the organization and its plan, for providing contraceptive coverage without cost-sharing to the plan's participants and beneficiaries. The organization would provide the insurer a copy of its self-certification, after which the insurer would ensure that:

Contraceptive coverage identified in the self-certification is not reflected in the group health premium.
No fees or other charges in connection with the coverage are imposed on the eligible organization or its plan.

The insurer would provide contraceptive coverage under individual policies in which participants and beneficiaries would be automatically enrolled, without cost-sharing. The coverage would not be offered by or through a group health plan, and the eligible organization would have no role in contracting, arranging, paying for or referring for the separate contraceptive coverage.

Self-insured Health Plans

The proposed regulations identify multiple approaches for providing contraceptive coverage under self-insured plans. Under these approaches, insurers:

Would provide individual policies to participants and beneficiaries.
Could claim an adjustment to reduce the insurers' federally-facilitated exchange (FFE) user fees.

Self-insured plans that use a third-party administrator (TPA) would provide their self-certification to the TPA. TPAs receiving a self-certification would automatically arrange separate, individual insurance policies for contraceptive coverage from an insurer. The insurer would:

Receive an additional adjustment in its FFE user fees to offset a reasonable charge to the TPA for performing this service.
Pass along the FFE user fee adjustment to the TPA, as a condition of receiving the adjustment, and be required to attest to HHS that it had done so.

As a condition of receiving the adjustment from the insurer, the TPA also would not be allowed to charge any amount to the eligible organization, its plan, participants or beneficiaries for the service. Under one of the proposed approaches, TPAs would act not as TPAs to the self-insured plan, but in their independent capacity apart from their role as agent of the plan. Under another of the approaches, a TPA that received a self-certification would be:

Directly responsible for arranging contraceptive coverage for self-insured plan participants and beneficiaries.
Designated as the ERISA plan administrator for purposes of satisfying the contraceptive coverage.

This approach would implicate ERISA's reporting, disclosure, claims processing and fiduciary rules, for both TPAs and eligible organizations.

Notice Requirement

Insurers providing separate individual policies would also be required to provide participants and beneficiaries an annual written notice regarding the availability of separate contraceptive coverage. The proposed regulations include model language for this purpose.

Contraceptives-only Excepted Benefits

The proposed regulations would establish a new contraceptives-only excepted benefits category for coverage provided under the accommodations. The new category would ensure that individual policies for providing contraceptives are not subject to certain requirements under the ACA and the Public Health Services Act. However, certain core ACA requirements would apply to the individual coverage, including:

The prohibition on lifetime and annual limits (see Practice Note, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA).
The prohibition on coverage rescissions (see Practice Note, Preexisting Condition Exclusions and Rescissions Under the ACA).
Internal claims appeals and external review (see Practice Note, Internal Claims and Appeals Under the ACA).
The ACA's requirements for guaranteed renewability.

Practical Impact: Litigation by For-profit Employers

The religious employer exemption and accommodations for plans sponsored by nonprofit entities with religious exemptions will be of particular interest to insurers and TPAs that would be involved in arranging for the coverage envisioned under the proposed regulations. TPAs, for example, might wish to comment on the approach that would make them ERISA plan administrators, with all the legal obligations that follow from such status, for purposes of providing contraceptive coverage. Meanwhile, challenges to the contraceptive coverage requirement by for-profit employers continue to make their way through the courts. On January 30, 2013, for example, the US Court of Appeals for the Seventh Circuit issued a decision in William Grote, III v. Kathleen Sebelius. The court granted a for-profit employer's motion for a preliminary injunction pending appeal against enforcement of the contraceptive coverage requirement regarding the employer's self-insured health plan. (The case was consolidated with Korte v. Sebelius, in which the Seventh Circuit recently granted a similar injunction.) The employer argued, among other things, that the contraceptive coverage requirement conflicted with duties required by its Catholic faith, and that it could not comply with both. The court concluded that the employer would suffer irreparable harm absent an injunction pending appeal.

Court documents:

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