Friday, August 22, 2014

The Augmented Contraception Coverage Regulations (and an NPRM on extension of the accommodation to some for-profit employers)

Marty Lederman

As promised, the federal government today issued an an interim final rule in which it has augmented the secondary accommodation for nonprofit religious employers that have religious objections to including contraceptive coverage in their employee (or student) insurance plans.  The augmented regulation responds directly to the Supreme Court's suggestion in its Wheaton College order that the Government might "rely[] on [a nonprofit employer's] notice [to HHS of its religious objection] . . . to facilitate the provision of full contraceptive coverage under the Act,” and in so doing guarantee that the employees of that objecting organization would continue to receive cost-free access to contraceptive services while at the same time eliminating any religious objection that such organizations might have had to the requirement that they file "Form 700" in order to opt out.

The government has simultaneously issued a proposed rule, as to which it is soliciting comments for 60 days (until October 21), on how it might extend to certain closely held for-profit entities, such as Hobby Lobby, the same accommodation that is available to non-profit religious organizations--something that the Court in Hobby Lobby described as a less-restrictive means of advancing the government's compelling interests without any significant harm to the employees and students of objecting employers and schools.  Under the proposed rule, covered companies would not have to contract, arrange, pay or refer for contraceptive coverage to which they object on religious grounds, even if they retain employee health plans.  The proposal offers two possible definitions of covered, closely held for-profit companies, and seeks comments on those and other possible definitions, and whether other steps might be appropriate to implement this policy. 

* * * * 

The new interim final rule for nonprofit organizations

This is, in sum, how the accommodation would now work as to a nonprofit employer (or school) that offers its employees (or students) a "self-insured" insurance plan.  (See this post for explanation of the distinction between insured and self-insured plans.)  Under the augmented rule, such an employer or school would have two, alternative means of opting out of coverage.  It can continue to use Form 700, as many organizations have done.  Or, in the alternative:

1.  An objecting organization that has an objection to submitting Form 700 to the plan's third-party administrator need only inform the Department of Health and Human Services that it has a religious objection to offering contraception coverage.  The organization must also provide HHS with the name and contact information for any of the plan’s third party administrators and health insurance issuers.  HHS has provided a "model notice" that eligible organizations may, but are not required to, use  

2.  At that point, HHS would inform the Department of Labor of the organization's opt-out.

3.  DOL would, in turn, inform the plan's third-party administrator (TPA), if any, that it is obliged to offer contraceptive coverage--initially from its own resources--to the organization's employees (and/or students) without imposing any cost-sharing requirements on the eligible organization, its insurance plan, or its employee beneficiaries.  (Moreover, the TPA must provide notice of this separate treatment to the plan beneficiaries, and do so separate from materials distributed in connection with the eligible organization’s group health coverage.  The notice to employees must make clear that the objecting organization is neither administering nor funding the contraceptive benefits.)

4.  The notice from DOL to the TPA -- rather than any form signed or submitted by the objecting organization -- will then become a "plan instrument" that designates the TPA as an ERISA "plan administrator" for purposes of contraception coverage.*

5.  The federal government would then reimburse the TPA for its payments in the form of an adjustment to the TPA’s assessed user fees for the ACA exchanges.  In other words, the cost of the contraceptive coverage in the self-insured setting is ultimately borne by the government itself, rather than by the organization or by the plan TPA.

6.  In a hypothetical case in which the objecting organization does not use either an issuer or a third-party administrator,  the government will not have any way of guaranteeing that the organization's employees are eligible for contraceptive coverage.  In addition to the option of (i) not using a third-party administrator, an organization also has the options of (ii) using an insured rather than a self-insured plan; or (iii) not providing employer (student) health insurance in the first instance.**  

7.  The earlier regulation had provided that eligible organizations that establish or maintain self-insured group health plans “must not, directly or indirectly seek to interfere with a third party administrator’s arrangements to provide or arrange for separate payments for contraceptive services” and “must not, directly or indirectly, seek to influence a third party administrator’s decision to make any such arrangements.”  Although the Departments had interpreted this solely as prohibiting the use of bribery, threats, or other forms of economic coercion in an attempt to prevent a third party administrator from fulfilling its independent legal obligations to provide or arrange separate payments for contraceptive services, these provisions nevertheless had caused some confusion and disputation in the courts.  Accordingly, and because such conduct is generally unlawful and is prohibited under other state and federal laws in any event, the augmented regulation deletes the prohibitions in question.

* * * *

This should take care of any religious objections that eligible organizations might assert, almost all of which I described in this post (and most of which were based on mistakes of law even before this augmentation).  For example, under this regulation:

-- The objecting organization would not be obliged to direct (or require, or instruct) the TPA to provide contraception coverage.

-- The objecting organization would not be obliged to inform the TPA that it is opting out of providing coverage.

-- The objecting organization would not be obliged to inform or “notify” the TPA of the TPA’s obligation to provide contraception coverage.

-- The TPA would not be an “agent” of the objecting organization for purposes of contraception coverage.

-- The objecting organization would not be required to take any steps to help administer the TPA’s provision of contraceptive coverage.

-- The objecting organization would not be required to enter into, or sustain, a contract with a TPA that provides its employees with contraceptive coverage, or to “identify” a TPA to contract with if it has no such contract already.

-- The objecting organization need not refrain from objecting to the TPA’s provision of contraceptive coverage to its employees.

-- The objecting organization would not be required to act hypocritically by not "practicing what it preaches," or to do anything else that a reasonable observer might view as approval or endorsement of contraception use or coverage.

-- The objecting organization would not be required to confer a legal status upon the TPA, such as "plan administrator."

As I explained several weeks ago, however, it appears that at least some of the objecting organizations will continue to raise purported religious objections to this further accommodation--indeed, that they would continue to make RFRA claims for exemptions no matter what the government does, as long as the government continues to require plan issuers or TPAs to offer contraceptive coverage to the objecting employer's employees when the employer opts out.

These organizations will continue to object to the accommodation because (in the words of counsel for some of them) it allegedly requires them to "offer[] health plans through an insurance company or third-party administrator" at a time when that same issuer company or TPA is also providing contraceptive coverage to the organization's employees.  

As I explained, this is not a claim that the organization itself is offering coverage, or paying for it, or facilitating it.  Nor is it even a claim that the organization's action is a "but-for" cause of the employees' access to such coverage or eventual use of contraception:  As I've stressed on several occasions, the employees will receive the coverage in any event--that's the whole point of the "preventive services" provision of the ACA--and these plaintiffs presumably would not conclude that they were complicit if their opting out caused the government itself to offer the coverage to those same employees.

Instead, the residual theory of complicity, as I understand it, is that the accommodation requires the organization to contract with an issuer or a TPA, and that the organization's choice of contractor, together with its employee hiring decisions, will be responsible for the fact that a particular insurance company offers contraceptive coverage to a particular set of employees.  As the brief for Thomas Aquinas College puts it:  "Plaintiffs’ insurance company or TPA will provide the objectionable coverage to Plaintiffs’ employees only by virtue of their enrollment in Plaintiffs’ health plans and only 'so long as [they] are enrolled in [those] plan[s].'”  For example, if Thomas Aquinas College had contracted with Aetna, rather than with Benefits Allocation Systems, to be the plan's third party administrator, then it would be Aetna, rather than BAS, that would offer coverage to Aquinas employees under the accommodation.  And if any one of those employees left Thomas Aquinas College employment next month, they would then receive coverage from another party, other than BAS.

The premise of this argument is mistaken:  The regulation does not require the organizations to contract with an issuer or a TPA--and if they do not do so, then the government currently has no way of ensuring contraceptive coverage for their employees.  But even if that were not the case--i.e., even if federal law coerced the organizations to contract with such an issuer or TPA--Thomas Aquinas College and the other plaintiffs haven't offered any explanation for why, according to their religion, the College's responsibility for this particular match between TPA and employees would render the College itself morally responsible for the employees' eventual use of contraceptives, when (i) such employees would have the same coverage if Aquinas had contracted with a different TPA; (ii) such employees would continue to have coverage if they left the College; and (iii) the College itself does not provide, subsidize, endorse, distribute, or otherwise facilitate the provision of, its employees' contraceptive services.

Be that as it may, it appears that this will now be the primary (if not the only) argument the courts will have to contend with in light of the government's newly augmented accommodation.

The proposed extension of the accommodation to some closely held for-profit companies

The new proposed rule, subject to notice-and-comment review, accepts the Hobby Lobby Court's invitation:  It would extend to certain closely held for-profit entities, such as Hobby Lobby itself, the same accommodation that is available to non-profit religious organizations.  

The agencies offer up two possible definitions of covered, closely held for-profit companies:

-- Under the first proposed approach, "a qualifying closely held for-profit entity would be an 
entity where 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."

-- Under the second, alternative proposed approach, a qualifying, closely held entity would be "a for-profit 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."

According to the preamble, these approaches "might serve to identify for-profit entities controlled and operated by individual owners who likely have associational ties, are personally identified with the entity, and can be regarded as conducting personal business affairs through the entity.  These appear to be the types of entities the Court sought to accommodate in Hobby Lobby."  The preamble further suggests that there may also be "useful definitions or principles in state laws governing close corporations, or other areas of law" that could be employed.

The agencies are seeking comments on those and other possible definitions, and whether other steps might be appropriate to implement the policy. 


* That's what is said to afford the government the statutory authority under ERISA to compel the TPA to be the intermediary.  As for DOL's statutory authority, the Preamble states that "[i]n establishing and implementing this alternative process, DOL is exercising its broad rulemaking authority under Title I of ERISA, which includes the ability to interpret and apply the definition of a plan administrator under ERISA section 3(16)(A)."

** The regulation further confirms that because "church plans" are exempt from ERISA pursuant to ERISA section 4(b)(2), a third party administrator of a self-insured church plan "cannot become the plan administrator by operation of 29 CFR 2510.3-16, although such third party administrators may voluntarily provide or arrange separate payments for contraceptive services and seek reimbursement for associated expenses under the process set forth in 45 CFR 156.50."  Thus, as I've explained, there is nothing at stake--and thus no valid RFRA claim--in cases such as Little Sisters, where a church plan TPA will not voluntarily offer contraceptive coverage if and when the employer opts out. 

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