Final regulations issued recently clarify and confirm the contraceptive coverage exemption and accommodation for religious institutions.  The Affordable Care Act generally requires non-grandfathered group health plans and insurance policies to cover the cost of contraceptives.  A religious employer, however, is entirely exempt from this requirement under the final regulations and under related guidelines issued by the Health Resources and Services Administration.

The final regulations also confirm that certain other organizations with religious objections to the coverage are eligible for an “accommodation.”  Under the accommodation, the organization does not need to provide the coverage under its health plan, but its insurer or third party administrator does.  Student health plans arranged by eligible organizations are also eligible for the religious accommodation.  The regulations, which were issued by the Departments of Treasury, Labor, and Health and Human Services, explain who ultimately pays for coverage under the accommodation.

Religious Employer Exemption.  The final regulations simplify and clarify which organization is a “religious employer” that is exempt from the contraceptive coverage requirement.  A religious employer is a nonprofit entity that is a church, an integrated auxiliary of a church, a convention or association of churches, or a religious order.  Such an entity is not disqualified from the exemption if it employs persons who do not share its religious tenets or serves people of different religious faiths.

Accommodation for Religious Organizations.  An organization that is not a religious employer is entitled to an accommodation if:

1. the organization opposes on religious grounds providing coverage for some or all of the contraceptive services that are required to be provided;
2. the organization is a non-profit entity;
3. the organization holds itself out as a religious organization; and
4. the organization self-certifies that it satisfies the previous three criteria.

The accommodation relieves the eligible organization from the requirement to provide contraceptive services, but the organization’s insurer or third party administrator must provide the coverage instead.  Here’s how the accommodation works:

Religious Accommodation for Insured Plans

An organization obtains the accommodation for an insured plan by certifying its eligibility to the insurer.  The insurer then must provide the coverage.  Unlike the proposed regulations, the final regulations do not require the insurer to issue separate individual policies to plan participants and beneficiaries.  Instead, the insurer is simply required to notify participants and beneficiaries of the contraceptive coverage and honor claims for payment outside of any insurance policy.

The insurer is not permitted to charge the organization or the plan participants for the coverage.  The insurer must segregate premium revenue from organizations claiming the accommodation and may not use that money to pay for the coverage.

So who pays for the insured coverage?  The agencies observe in the preamble to the final regulations that covering contraceptives is expected to reduce healthcare costs (such as costs of pregnancy).  The preamble states that an insurer that provides contraceptive coverage under the accommodation is permitted to retain these cost savings by establishing the premiums of eligible organizations based on claims experience that ignores the savings attributable to contraceptive coverage.  Alternatively, an insurer may treat the coverage cost as an administrative cost that is spread among the insurer’s entire risk pool, excluding organizations eligible for the religious accommodation.

Religious Accommodation for Self-Insured Plans

An organization obtains the accommodation for a self-insured plan by certifying its eligibility to its third party administrator.  Unlike an insurer, the third party administrator may refuse to serve as the administrator.  If, however, the third party administrator elects to provide services to the plan under the terms of the accommodation, the administrator must inform participants of the availability of contraceptive coverage and must provide (or arrange for an insurer to provide) the contraceptive coverage.  The third party administrator may not charge the eligible organization or its plan participants for the coverage.

Who pays for the coverage provided by the third party administrator?  The final regulations establish a mechanism whereby the administrator may recover the cost of the coverage through an adjustment to the user fee paid by an insurer to participate in the federal health exchange.  If the third party administrator does not participate in the federal health exchange, it may recover costs by contracting with an insurer that participates in the federal health exchange to file a reimbursement request on the administrator’s behalf.  The adjustment will include an allowance for administrative costs and margin that may be retained by the insurer equal to no less than 10% of the total payments for contraceptive coverage.

Effective Date. The clarifications to the definition of “religious employer” apply for plan years beginning on or after August 1, 2013.  The accommodation under the final regulations is effective for plan years beginning on or after January 1, 2014.  For plan years beginning before January 1, 2014, the agencies have provided a temporary safe harbor for certain religious organizations whose non-grandfathered group health plans do not cover contraceptive services.  Under the safe harbor, the agencies will not enforce the contraceptive coverage requirements against eligible organizations.  The requirements to be eligible for the temporary enforcement safe harbor are similar to those for the religious accommodation.  The temporary safe harbor was scheduled to expire for plan years beginning on or after August 1, 2013, but the agencies extended the safe harbor to encompass plan years beginning on or after August 1, 2013 and before January 1, 2014.