The Departments of Labor (DOL), Health and Human Services (HHS) and Treasury have issued final regulations on the preventive health services requirements (including contraceptives coverage) under the Affordable Care Act (ACA). The regulations address which for-profit companies may seek an accommodation involving the ACA's contraceptives requirement and clarify other preventive service rules for employer-sponsored group health plans.
The 2015 regulations apply beginning on the first day of the first plan year beginning on or after September 14, 2015 (for calendar year plans, January 1, 2016).
Coverage of Preventive Services under the ACA
The ACA requires nongrandfathered group health plans and insurers to provide coverage for certain preventive health services without cost-sharing, including:
Evidence-based items or services, including various types of screenings, with a rating of "A" or "B" under current recommendations from the US Preventive Services Task Force (Task Force), an independent panel of scientific experts.
Routine immunizations.
Preventive care and screenings for infants and children through age 21.
Plans and health insurers also must provide coverage for all Food and Drug Administration (FDA)-approved contraceptive methods, sterilization procedures and patient education and counseling for women with reproductive capacity, as prescribed by a doctor (see Practice Note, Contraceptives Coverage under the ACA).
In addition to FAQ guidance, the Departments have issued a series of regulations implementing the preventive services requirements. The July 2015 regulations finalize:
Interim final regulations addressing the preventive services rules (July 2010) (29 C.F.R. § 2590.715-2713).
Additional interim final regulations (August 2014) involving the process used by eligible organizations to provide notice of their religious objections to covering contraceptives.
Additional proposed regulations (August 2014) addressing the scope of eligible organizations under the government's accommodations for covering contraceptives.
Some Closely-Held, For-Profit Companies Are Eligible for an Accommodation
Reflecting the Supreme Court's Hobby Lobby decision, the 2015 regulations extend availability of an accommodation to the contraceptives mandate to include certain closely-held, for-profit companies. Specifically, a closely-held, for profit company is one that:
Is not a nonprofit entity.
Has no publicly traded ownership interests (defined as any class of common equity securities required to be registered under Section 12 of the Securities Exchange Act of 1934).
Has more than 50% of the value of its ownership interest owned directly or indirectly by five or fewer individuals (or a substantially similar ownership structure), as of the date of the entity's self-certification or notice (see Substantially Similar Standard Adds Flexibility).
Regarding the last of these requirements, three additional rules apply. First, ownership interests owned by a:
Corporation, partnership, estate or trust are considered owned proportionately by an entity's shareholders, partners or beneficiaries.
Nonprofit entity are considered owned by a single owner.
Second, an individual is considered to own the ownership interests owned, directly or indirectly, by (or for) his family. The term family includes only:
Brothers and sisters (including half-brothers and half-sisters).
A spouse.
Ancestors and lineal descendants.
Third, any person who holds an option to purchase ownership interests is considered to be the owner of those ownership interests.
Notably, the Departments' definition of closely-held, for-profit entity, which is generally based on the definition of closely held corporation under the Internal Revenue Code (Code), excludes publicly traded entities. According to the Departments, the definition is intended to cover entities that are controlled and operated by individual owners who:
Are personally identified with the entity.
Can be regarded as conducting personal business affairs through the entity.
Also, a personal services corporation (for example, a law, accounting or architecture firm) may qualify as a closely held for-profit entity under the 2015 regulations, if it satisfies the other criteria.
Substantially Similar Standard Adds Flexibility
The scope of closely held, for-profit corporations, for accommodation purposes, includes a "substantially similar" standard intended to offer greater flexibility over the Code's 5-owner/50% requirement. Under the "substantially similar" standard, for example, an entity ownership structure in which 49% of the value of the outstanding ownership interests are owned directly by six individuals also could qualify as a closely held, for-profit entity.
For-Profits Controlled by Nonprofits
In the preamble to the 2015 regulations, the Departments indicated that the definition of closely held, for-profit entity should include any for-profit entity that is controlled (directly or indirectly) by a nonprofit eligible organization. The nonprofit entity in this case represents one shareholder that owns more than 50% of the ownership interests in the for-profit entity. For purposes of the ownership concentration test applicable to for-profit entities:
A nonprofit organization with an ownership interest in a for-profit entity is considered one individual owner of the for-profit entity.
The non-profit organization's percentage ownership in the for-profit entity is attributed to that nonprofit organization.
Demonstrating Religious Objections
A closely held, for-profit entity's objection to covering contraceptives (based on its owners' sincerely held religious beliefs) must be consistent with the entity's rules of governance. State corporate law determines how a corporation establishes its governing structure. Specifically, the organization's board of directors, board of trustees, or owners (that is, the organization's highest governing body) must adopt a resolution establishing that the organization objects to covering some or all of the contraceptive services on account of its owners' sincerely held religious beliefs. As an alternative to adopting resolutions, the organization may take other similar action consistent with its applicable rules of governance and state law.
The Departments declined to adopt rules requiring that:
The owners unanimously agree that an entity will not offer contraceptive coverage based on a religious objection.
Any equity holder certify, under penalty of perjury, to having religious objections to the entity providing contraceptive coverage.
ERISA Recordkeeping Requirements Apply
The 2015 regulations do not require that a resolution establishing an entity's religious objections be provided as a matter of course to the government or any other party. Regarding documentation of this decision, however, the Departments noted that ERISA's recordkeeping requirements apply:
To other plans or coverage under the preventive services/contraceptives implementing rules, which incorporate ERISA's recordkeeping requirements (29 C.F.R. § 2590.715-2713A(a)).
Alternative to Filing EBSA Form 700
As with the August 2014 interim final regulations, the 2015 regulations allow eligible organizations to seek an accommodation regarding the contraceptives mandate by submitting EBSA Form 700 or using an alternative notification process. Under the alternative process, an eligible organization that objects to using Form 700 may notify HHS directly, in writing, that it is an eligible organization with religious objections to covering contraceptives.
Other Preventive Services Rules under the 2015 Regulations
The 2015 regulations incorporate certain clarifications provided under previous FAQ guidance and contain new changes regarding preventive services.
Out-of-Network Providers and Reasonable Medical Management
The 2015 regulations adopt a rule (previously issued in FAQ guidance) regarding out-of-network providers (see Practice Note, Preventive Health Services under the ACA, Other Than Contraceptives: Out-of-Network Services). Under this rule, if a plan or insurer does not have a provider in its network that can furnish a particular recommended preventive service, the plan or issuer must cover the item or service when performed by an out-of-network provider (without cost-sharing).
Also, the 2015 regulations incorporate (or simply reference, by way of reminder in the preamble) prior FAQ guidance addressing reasonable medical management and value-based insurance designs (VBID) (see Practice Note, Preventive Health Services under the ACA, Other Than Contraceptives: Reasonable Medical Management Techniques).
Timing Requirements for Providing Preventive Services
In general, plans and insurers must provide coverage for new recommended preventive services for plan years beginning on or after the date that is one year after the date the recommendation or guideline is issued. The 2015 regulations include a rule intended to avoid coverage disruptions during a plan year. Under this rule, a plan or insurer that must provide coverage for a preventive service on the first day of a plan year under a particular recommendation or guideline generally must provide that coverage through the last day of the plan year, even if the recommendation or guideline changes or is eliminated during the plan year. Limited exceptions to this rule exist, for example, if a preventive item or service with an "‘A" or "B" recommendation as of the first day of a plan year is downgraded during the year to a "D" rating.
Practical Impact
As evidenced by the now lengthy list of proposed, interim final and final regulations addressing the preventive services/contraceptives rules (in addition to numerous sets of FAQ guidance), these ACA requirements have proven especially difficult for the Departments to implement. Although the Departments' definition of closely held, for-profit companies is intended to include the types of entities likely to have religious objections to providing contraceptives coverage, it remains to be seen whether this latest guidance will quell the significant litigation under the preventive health/contraceptives rules.