Final Regulations Issued on Contraceptive Coverage, Religious Organizations

The U.S. Departments of Health and Human Services, Labor, and Treasury recently released final regulations on the exemption from providing coverage for contraceptive and certain other preventive services that is available to certain religious organizations. The final regulations apply to plan years beginning on or after January 1, 2014.

The final rules adopt most of the proposed regulations, including the rules that define which organizations will be treated as “eligible organizations” and qualify for the exemption. In particular, the relatively simple definition of a “religious employer” recommended in the proposed rules has been retained.

A religious employer is an employer that is organized and operates as a nonprofit entity and is referred to in section 6033(a)(2)(A)(i) or (iii) of the U.S. Internal Revenue Code. Under the final rules, an accommodation (which essentially amounts to an exemption) also will be extended to an “eligible organization,” which includes an entity organized and operating as a nonprofit and holding itself out as a religious organization, such as a religiously affiliated hospital or community center.

Religious employers and eligible organizations qualify for the contraceptive coverage exemption/accommodation by self-certifying that they are entitled to it and providing a copy of the certification to their insurance issuer or third-party administrator before the start of the plan year. Multiple-employer health plans must do so on an employer-by-employer basis. An insurance issuer or third-party administrator will be held harmless for its good faith reliance on an organization’s representation of its eligibility. Similarly, an organization will be held harmless for an issuer’s or third-party administrator’s failure to provide direct payments for contraceptive services.

Where an exemption/accommodation applies, the responsibility for providing payments for contraceptive services (without cost-sharing, premiums, fees, or other charges to plan participants) rests solely with the health insurer or third-party administrator. The health insurance provider or third-party administrator will be required to keep the funds used for payment of contraceptive services separate from the premiums paid by the eligible organization and to document this separation through its bookkeeping.

To reduce administrative burdens and avoid potential conflicts with state insurance laws, the final regulations drop the proposal to require that coverage for contraceptive services be provided through a separate health insurance policy. These expenses may now be met through direct payments by the insurance issuer or third-party administrator.

In all cases, the insurance issuer or third-party administrator will be required to notify plan participants of the availability of no-cost contraceptive coverage after receiving the self-certification document.

Self-insured plans must contract with a third-party administrator for the purpose of providing payments for contraceptive services. The third-party administrator will act as the plan administrator and process claims solely related to the payment of contraceptive services. Such administrators will be reimbursed for these payments through adjustments in their Federally Facilitated Exchange (FFE) user fees. On that basis and on the basis that the use of contraceptives reduces other medical expenses, the final regulations dismiss any notion that insurance issuers or third-party administrators are unable to bear the cost of contraceptive services, concluding that the effect is “cost-neutral.”

As the federal health care reform effort gained steam, Ballard Spahr attorneys established the Health Care Reform Initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting health care entities and employers in understanding the relevant changes and planning for the future. They also have launched the Health Care Reform Dashboard, an online resource center for news and analysis on developments under the Affordable Care Act.