Michael W. Durham, Caplin & Drysdale, Chartered 1) Overview of Contraceptive Mandate 2) Current religious exceptions 3) Status of current religious freedom challenges 4) Options for objecting organizations 5) Employer Mandate: Aggregation Rules for Churches 2 59
Affordable Care Act forces insurance products to conform to a variety of standards (market reforms). Specifically, PHSA 2713(a)(4) requires coverage with no cost-sharing for with respect to women, such additional preventive care and screenings as provided for in comprehensive guidelines supported by the Health Resources and Services Administration ( HRSA ) for purposes of this paragraph. 3 4 60
Excise tax liability for failure to comply with market reforms (4980D) $100 per day with respect to each individual to whom such failure relates Penalty assessed for each day until the failure is corrected Self-assessed on Form 8928; failure to file can result in interest. 5 $6,000,000 $5,000,000 $5,096,000 $4,000,000 $3,000,000 $2,000,000 $2,555,000 4980D Reasonable Cause 4980H $1,000,000 $500,000 $80,000 $- 1/1/2014 1/1/2015 $1,000,000 $160,000 6 61
Exceptions and limitations on 4980D penalty: if due to reasonable cause and not willful neglect, No penalty if cured within 30 days of discovery (or, for church plans, within 270 days of IRS finding a violation) penalty capped at $500,000 per year, and may be waived. Small employers that provide health insurance coverage solely through a contract with a health issuer may avoid penalty if violation is solely due to health insurer s lapse. 7 A. Government may substantially burden a person s exercise of religion only if it demonstrates that application of the burden to the person (1) is in furtherance of a compelling governmental interest; and (2) is the least restrictive means of furthering that compelling governmental interest. B. Judicial relief provided C. Government must have a compelling interest not only in the general scheme, but also in applying that scheme to the religious objector. 8 62
RFRA applies to Hobby Lobby, a corporation Contraceptive mandate violates RFRA because it is not the least restrictive means to further a compelling state interest: Many other exceptions (e.g., grandfathered plans) Accommodation would be less restrictive while preserving access. 9 HRSA guidelines applicable for plan years beginning on or after August 1, 2012 Regulations authorize a religious employer exemption, definition was modified effective August 1, 2013 Temporary enforcement safe harbor through January 1, 2014, at which time eligible organization accommodation is available Dec. 20, 2013: Preliminary Injunction for Guidestone plan employers (on appeal) June 30, 2014: Hobby Lobby v. Burwell August 22, 2014: Latest revisions to accommodation 10 63
Not Covered Exempt ( religious employers ) Accommodated (can indicate objection and insurer or TPA will be responsible for coverage) No exception Grandfathered plans Employers who don t provide any coverage Churches Exclusively religious activities of a religious order Integrated auxiliaries Nonprofits that hold themselves out as religious, have religious objections, and self-certify OR inform DOL Proposed Hobby Lobby accomodation: Closely held for-profits that have taken corporate action confirming a religious objection, and self-certify / inform DOL Other for-profit companies Nonprofits that do not hold themselves out as religious? Sole proprietors? 11 Pre-ACA / Religious Employers: Plan excludes religiously objectionable services Health Insurance Provider claims & payments under plan: Religious Nonprofit Health Plan Employees NOT Including religiously objectionable services 12 64
No Accommodation: Plan MUST cover religiously objectionable services Health Insurance Provider claims & payments under plan: Religious Nonprofit Health Plan Employees Including mandatory coverage of religiously objectionable services 13 No Accommodation: Plan MUST cover religiously objectionable services Health Insurance Provider claims & payments under plan: Religious Nonprofit Health Plan Employees Including mandatory coverage of religiously objectionable services 14 65
Accommodation: Insurer must exclude benefits from plan coverage and pay for those benefits out of segregated funds Note: Administration claims contraception savings offset costs Health Insurance Provider Selfcertify to HIP on EBSA Form 700 claims & payments under plan: Religious Nonprofit Health Plan Employees no premiums used for objectionable benefits* 15 Accommodation: Insurer must exclude benefits from plan coverage and pay for those benefits out of segregated funds DOL Note: Administration claims contraception savings offset costs Health Insurance Provider Aug. 22: Selfcertify to HIP or DOL claims & payments under plan: Religious Nonprofit Health Plan Employees no premiums used for objectionable benefits* 16 66
Religious Nonprofit claims & payments under plan: Third Party Administrator TPA processes claims but passes cost through Employees No Accommodation: Plan MUST cover religiously objectionable services 17 Self-certify; TPA informed of duties EBSA 700 Religious Nonprofit Federally facilitated exchange fee credits Separate Health Insurance Provider Third Party Administrator For ERISA plans, if TPA stays it is treated as plan administrator for contraceptive benefits Employees Accommodation: TPA/separate insurer makes payments; cost-plus reimbursement 18 67
Self-certify; TPA informed of duties DOL EBSA 700 Religious Nonprofit Federally facilitated exchange fee credits Separate Health Insurance Provider Third Party Administrator For ERISA plans, if TPA stays it is treated as plan administrator for contraceptive benefits Employees Accommodation: TPA/separate insurer makes payments; cost-plus reimbursement 19 NO Still connects coverage with employer s plan Employers may be sharing in financial benefit from objectionable pregnancy prevention Employer s self-certification is trigger for payments for objectionable services. TPA s obligations as plan administrator YES Religious freedom can t stop government from finding an alternative means to cover women working for the objector Organization does not have to contract, arrange, pay, or refer for the objectionable coverage. 20 68
NO Still connects coverage with employer s plan Employers may be sharing in financial benefit from objectionable pregnancy prevention Employer s self-certification is trigger for payments for objectionable services. TPA s obligations as plan administrator YES Religious freedom can t stop government from finding an alternative means to cover women working for the objector Organization does not have to contract, arrange, pay, or refer for the objectionable coverage. 21 Numerous preliminary injunctions protecting religious groups from complying with accommodation Recent losses in the Sixth and Seventh Circuits Most cases were decided before there was an option to notify the DOL rather than use EBSA Form 700 22 69
Not Covered Exempt ( religious employers ) Accommodated (can indicate objection and insurer or TPA will be responsible for coverage) No exception Grandfathered plans Employers who don t provide any coverage Churches Nonprofits that hold Restructure to qualify themselves as out as religious, Exclusively a religious religious employer have religious objections, activities of a and self-certify OR inform religious order DOL Accept Integrated auxiliaries Proposed accommodation Hobby Lobby accomodation: Closely held for-profits that have Restructure to stop providing taken corporate coverage action confirming a religious objection, and self-certify / inform DOL 23 Other for-profit companies Nonprofits that do not hold themselves out as religious Must be a 501(c)(3) and a public charity standards have changed, especially for 509(a)(3) orgs Must meet an affiliation test: Majority control; Another 509(a)(3) relationship group ruling or facts and circumstances. Must be internally supported Consider getting an IRS ruling or legal opinion 24 70
Two Paths to Internal Support & Integrated Auxiliary Status Option 1: Face Inward Option 2: Keep bad support < 50% No admissions, goods, services, or facilities for sale to the public except incidentally Exception if charge is nominal or an insubstantial portion of the cost. Must total below 50% of support Public solicitations Mission-related fees, sales, rentals Gov t funding More than 50% UBTI Investments Royalties Church gifts Other income? 25 Explore increasing other kinds of revenue donations from the church / affiliates / members Investment income, UBIT, royalties, etc. Could more support come through church? Where are endowments or other large revenue streams held? Merge in for-profit subsidiaries? But remember liability concerns 26 71
Accept accommodation Self-certification (or DOL letter) triggers obligation of insurer or third-party administrator to provide benefits; may authorize TPA to do so as a plan administrator. Groups may have sincere differences about whether accommodation still leaves them involved in providing contraception or facilitating abortion Groups with multiple subsidiaries should take care that each entity is eligible for the accommodation or the religious employer exemption and complies. 27 Stop providing health plans altogether For applicable large employers, this would avoid 4980D penalties but result in smaller penalties under 4980H Depending on degree of control, employers in a church group may not have to aggregate with other entities in the system, and may each separately qualify as small employers. What options are there for employees not covered by their employer? 28 72
For now, take the position that RFRA precludes the contraceptive coverage requirement Guidestone plans have injunction Viability of argument may depend on jurisdiction Also may depend on breadth of violation and record of religious opposition Nontrivial risk of penalties, particularly if weight of appellate authority does not shift. Consider taking steps to limit penalty exposure by establishing reasonable cause In the interim, organization may need to file Form 8928 TPA and Insurance Carrier may not go along 29 Common control for tax-exempt organizations, generally Common control if 80% of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization Additional rule in Notice 89-23 for churches and qualified church-controlled organizations (defined in 3121(w)(3)) Common control if one organization provides 80 percent of another organization s operating funds and there is a degree of common management or supervision between the organizations 30 73
Proposed regulations Reserve on the applicability of the controlled group aggregation rules to churches Good faith standard until further guidance Anti-abuse rules IRS may set aside arrangements that have the effect of avoiding or evading the rules. Compare with other anti-abuse rules requiring a primary purpose or significant purpose of tax avoidance Church Plan Clarification Act of 2013 31 Michael W. Durham 202.862.5031 / mdurham@capdale.com Disclaimer This communication does not provide legal advice, nor does it create an attorney client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome. Attorney Advertising It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation. 2013 Caplin & Drysdale, Chartered All Rights Reserved. 32 74