One year ago, the U.S. Supreme Court ruled in the case of Burwell v. Hobby Lobby Stores, Inc. et al, that for-profit closely held corporations must be permitted to opt out of the Affordable Care Act’s contraception mandate on religious grounds. As discussed in our July 7, 2014 blog post, the Hobby Lobby ruling left many key questions unanswered. In final regulations published on July 14, 2015, the regulating agencies addressed many of those questions.

Which “closely held corporations” may opt out of the ACA’s contraception mandate? A closely held corporation which properly adopts a resolution under applicable state corporation laws establishing that it objects to covering some or all forms of contraception on account of the owner’s sincerely held religious beliefs may opt out of the contraception mandate. The new final regulations define “closely held corporation” to mean an entity that:

  1. Is not a nonprofit entity;
  2. Has no publicly traded ownership interests; and
  3. Has more than 50% of the value of its ownership interest owned directly or indirectly by 5 or fewer individuals.

Such corporations must also either “self-certify” their status in a form developed by the Department of Labor or via a notice to the Department of Health and Human Services.

Do any ownership attribution rules apply? Yes. Ownership interests owned by a corporation, partnership, estate or trust are considered owned proportionately by the entity’s shareholders, partners or beneficiaries. An individual is considered to own the ownership interests owned, directly or indirectly, by or for his or her family. Family includes only brothers and sisters (including half-brothers and half-sisters), a spouse, ancestors and lineal descendants. If a person holds an option to purchase ownership interests, he or she is considered to be the owner of those interests.

What if a corporation is not certain whether it qualifies?  In these instances, a corporation may send a letter describing its corporate structure to the Department of Health and Human Services (“HHS”) seeking a determination of eligibility.  Interestingly, the regulations state that if the corporation does not receive a response from HHS within 60 calendar days, it will be considered to be eligible for the opt-out for as long as the corporate structure is maintained.

How do closely held corporations opt out of the mandate? A corporation offering self-insured health coverage may provide either a copy of its self-certification to its plan’s third party administrators or a notice to HHS advising that it is an eligible closely held corporation and of its religious objection to coverage of some or all of the mandated contraceptive services. Corporations offering insured health benefits may provide their self-certification to their insurers or to HHS.

Does opting out prevent covered employees from obtaining contraception benefits? No. The regulations place the burden on insurance companies and third-party administrators to ensure that all covered employees have access to free contraceptive coverage, albeit not through the objecting corporation’s health plan. Third-party administrators (“TPAs”) that administer self-insured health plans for closely held corporations that opt out are expected to provide contraception benefits to plan participants without imposing any charge to the objecting corporation. TPAs may do this by reimbursing participants for contraceptive services directly or through an arrangement with another party. Similarly, insurers that provide group health insurance to closely held corporations that opt out bear the sole responsibility of providing contraception benefits to plan participants independent of the objecting corporation’s health plan. The regulations indicate that costs associated with providing this coverage may be reimbursed through an adjustment to the federally-facilitated Exchange user fee.

If you have any questions regarding the new regulations or any aspect of the ACA, please contact any member of our Labor and Employment Law Practice Group.

On June 25, 2015, the U.S. Supreme Court issued its decision in King v. Burwell, ruling that Section 36B of the Patient Protection and Affordable Care Act (“ACA”) authorizes insurance exchanges run by the federal government to issue tax subsidies like their state-run counterparts. The 6-3 decision was authored by Chief Justice Roberts, an appointee of President George W. Bush.

The case involved whether Section 36B of the ACA permits only state-run exchanges to issue tax subsidies to qualifying purchasers of coverage.  That Section defines “premium assistance amount” in part by referring to insurance plans that are enrolled in “an Exchange established by the State.”  The absence of any reference to federal exchanges in these portions of Section 36B led opponents of the Act to argue that only state-run exchanges have the power to issue ACA tax subsidies.  Since only 16 states (plus the District of Columbia) elected to run their own exchanges, the opponents’ position, if adopted, could have made ACA tax subsidies unavailable to residents of 34 states (including Pennsylvania) – and may have rendered the “individual mandate” penalty unenforceable in those states.

The preliminary issue facing the Court was whether the Act, and specifically Section 36B, was ambiguous with respect to its use of the phrase “Exchange established by the State.” Acknowledging that the ACA is replete with “more than a few examples of inartful drafting,” Justice Roberts recited a number of passages in the ACA in which Congress blurred the distinction between state-run and federal exchanges. Given this ambiguity, the Court looked to the greater context of the Act and legislative intent. Finding ample provisions in the Act to support the notion of subsidies being issued by all exchanges, the Court ruled that Congress intended the Act to be interpreted to allow for such subsidies. Otherwise, the Court surmised, the individual insurance markets in states with federal exchanges may experience a “death spiral” – a result that the ACA was intended to prevent.

In sum, the Court found that the opponents of the law were arguing that “Congress made the viability of the entire Affordable Care Act turn on the ultimate ancillary provision: a sub-sub-sub section of the Tax Code.  We doubt that is what Congress meant to do.”

Employers with 50-99 employees are expected to comply with the “pay or play” provisions of the Act in 2016.  For those employers that have already begun to plan to comply, today’s decision is an endorsement to “carry on.”  For employers that have delayed planning in hopes that the Supreme Court would derail the ACA, it is now time to catch-up.

If you have any questions regarding this article or the ACA, please contact any member of our Labor and Employment Practice Group.

Background

The Americans with Disabilities Act (ADA) generally prohibits employers from requiring current employees to submit to medical examinations or medical inquiries unless the exam or inquiry is “job-related and consistent with business necessity.”  Guidance issued by the Equal Employment Opportunity Commission (EEOC) in 2000 makes an exception to this rule for wellness programs that request employee medical information (e.g. biometric testing, health risk assessments, etc.) as a condition of participating in the program.  However, this exception only applies if participation in the wellness program is “voluntary” – meaning that participation may not be required and non-participants may not be penalized.

Over the past fifteen years, employers and their benefits consultants have developed a myriad of strategies for encouraging employee participation in wellness programs, many of which involve “discounts” on employee contributions for health coverage for wellness participants.  More aggressive employers have gone so far as to condition enrollment in their group health plan on an employee’s participation in a wellness program.  Allegations of such requirements were the basis for EEOC lawsuits filed in late 2014 against Honeywell International Inc. and several other employers.  It is in this context that the EEOC published their proposed regulations on April 20, 2015 to further define the “do’s and don’ts” for wellness programs under the ADA.  The proposed regulations, if finalized in their current form, would change the wellness landscape in five significant ways.

Financial Incentives

The Affordable Care Act caps aggregate financial incentives that are offered under wellness programs at 30% of the applicable group health plan premium (and 50% for tobacco-related incentives).  The EEOC proposed regulations, on the other hand, would cap total financial incentives for participation in any wellness program(s) that involves employee medical inquiries (e.g. health risk assessments) or examinations (e.g. biometric testing) to 30% of the cost of employee-only coverage.

Employee Notice Requirements

If a wellness program is offered as part of a group health plan, employees must be provided with a notice that: (i) describes the type of medical information that will be obtained through the program and the purposes for which it is used; (ii) describes applicable restrictions on the disclosure of the employee’s medical information; and (iii) is written in a manner that the employee is likely to understand.

Reasonable Design Requirement

Wellness programs which include medical inquiries or examinations must be “reasonably designed to promote health or prevent disease.”  The EEOC explains that medical information that is gathered through a wellness program must be put to a use that benefits program participants.  For example, if a particular health risk is identified through such information, the risk should be communicated to the participant.  Gathering such information without providing employees with follow-up information or advice would not meet this standard.

Equal Benefit Rule

Some employers have offered additional health plan options to wellness participants while non-participants are limited to participating in a single less generous plan.  The proposed regulations would prohibit employers from denying coverage under any group health plan or otherwise limiting the extent of benefits available to employees who do not participate in wellness programs.

Non-Retaliation

The EEOC proposed regulations further prohibit employers from taking any “adverse employment action” due to an employee’s decision not to disclose medical information or submit to medical exams in connection with wellness programs.  For programs that offer financial incentives for participation, the “packaging” of these incentives will be important.  Premium discounts will remain lawful if they are within the applicable limits set forth in the ACA and the EEOC regulations.  However, premium “surcharges” for non-participation would likely be considered unlawful retaliation.

The EEOC will be accepting public comments on the proposed regulations through June 19, 2015.  Although the regulations are merely “proposed” at this stage, they provide a road map for how the Commission interprets the ADA in the context of wellness programs.  Non-compliant programs could conceivably be challenged even before the regulations are finalized.  For this reason, employers would be wise to reconsider their existing programs in light of the new proposed regulations now.