The Internal Revenue Service, U.S. Department of Labor, and Health and Human Services (the “Agencies”) have released final regulations on several aspects of the Affordable Care Act’s (ACA’s) preventive care requirements. The regulations finalize prior guidance on coverage of preventive services and define standards regarding a “closely held” for-profit entity’s decision not to provide coverage for contraceptive services. The final regulations are effective for plan years beginning on or after September 14, 2015.

The final regulations related to the coverage of preventive services generally follow prior guidance and contain relatively few changes. Additions include standards to ensure that when a recommended preventive service is downgraded mid-year, a plan generally must continue coverage for the service with no cost sharing through the end of the plan year.

Most notably, the regulations finalize the definition of “closely held” for purposes of determining whether a for-profit entity whose owners have a religious objection to providing coverage for some or all contraceptive services qualifies for an “accommodation” (i.e., an exemption) from the contraceptive coverage requirement. Under the ACA, non-grandfathered group health plans must provide coverage for all FDA-approved contraceptive methods prescribed by a physician, unless a religious exemption applies.

Accommodation for Closely Held For-Profit Entities

In response to the U.S. Supreme Court’s decision in the Hobby Lobby case in 2014, the Agencies released proposed regulations that solicited comments on expanding the availability of an accommodation previously reserved for non-profit organizations to closely held for-profit organizations that have a religious objection to providing coverage for certain contraceptive services.

The final regulations confirm the availability of the accommodation for closely held for-profit organizations and establish parameters for the types of for-profit entities that can be considered “closely held.” To be considered a closely held for-profit entity, the entity:

• Must not be a non-profit organization;
• Cannot have any publicly traded ownership interests; and
• Must have more than 50% of the value of its ownership interest owned directly or indirectly by five or fewer individuals.

For these purposes, ownership interests held by family members are treated as being owned by a single individual. Family members are limited to brothers and sisters (including half-brothers and half-sisters), a spouse, ancestors, and lineal descendants. Also, ownership interests owned by a nonprofit entity are considered to be owned by a single owner. In other words, any for-profit entity that is controlled directly or indirectly by a nonprofit eligible organization may be eligible for an accommodation because the nonprofit entity will represent one shareholder that owns more than 50% of the ownership interests in the for-profit entity.

Under the final regulations, eligible employers may avail themselves of either of two accommodation options identified in prior guidance. An eligible employer may file EBSA Form 700 with its insurance carrier or TPA, or simply notify HHS in writing of its religious objection to providing coverage for contraceptive services. The Agencies will work with insurers and TPAs to ensure that participants will receive separate payments for contraceptive services, with no additional cost to the participant or involvement by the employer.

Employers that wish to confirm their eligibility for an accommodation may send a letter describing their ownership structure to HHS at accommodation@cms.hhs.gov. If they do not receive a response from HHS within 60 calendar days, and the letter properly described the entity’s current ownership structure, then as long as the entity maintains that structure, it will be considered to have satisfied the 50% ownership test.

In terms of documenting an eligible organization’s intent to avail itself of an accommodation, the organization’s highest governing body (such as its board of directors, board of trustees, or owners, if managed directly by the owners) must adopt a resolution (or take other similar action consistent with the organization’s applicable rules of governance and with state law) establishing that the organization objects to covering some or all of the contraceptive services on account of its owners’ sincerely held religious beliefs.

The final regulations generally rely on current notice and disclosure standards and do not establish any additional requirements to disclose the decision. Current standards require that, for each plan year to which the accommodation applies, an issuer or TPA that is required to provide coverage for contraceptive services, provide to participants written notice of the availability of separate payments for these services contemporaneous with (to the extent possible), but separate from, any application materials distributed in connection with enrollment or re-enrollment in health coverage. Model language for this notice is provided in the regulations.

Lastly, the regulations do not require eligible organizations to operate in a manner consistent with religious principles or “hold themselves out” as religious organizations. The Supreme Court’s decision in Hobby Lobby discussed the application of the Religious Freedom Restoration Act (“RFRA”) in connection with the religious beliefs of the owners of a closely held corporation. The Final Regulations likewise focus on the religious exercise of the owners of the closely held entity and provide that the entity, in advancing the religious objection, represent that it does so on the basis of the religious beliefs of the owners. The Agencies do not require that the entity itself demonstrate by its bylaws, mission statement, or other documents or practices that it has a religious character.

Eligible employers that wish to consider opting out of providing coverage for some or all contraceptive services should consult with their insurance broker or employee benefits attorney to ensure that they meet the requirements for an accommodation and document their intent accordingly.

About The Author. This alert was prepared for THE INSURANCE GROUP by Peter Marathas. Mr. Marathas is an ERISA and Executive Compensation lawyer with over 20 years’ experience assisting clients nationally with benefits and compensation matters. He is a partner at Marathas Barrow & Weatherhead LLP, a premier employee benefits, executive compensation and employment law firm. He can be reached at pmarathas@marbarlaw.com or (617) 830-5456.