Religious Freedom and the Contraceptive Mandate

under the ACAPresented by Joanne Youn and Michael Durham

November 15, 2013

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Background on Religious Freedom Restoration Act

Brief summary of “Employer Mandate” and “Market Reform” elements of ACA

Contraceptive Mandate Penalties Exceptions Proposed Legislation and Religious Freedom

Challenges Options for Addressing the Mandate

Overview

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First Amendment guarantees freedom of belief but not necessarily freedom of conduct.

How do you deal with conflicts between generally applicable laws and individual religious conscience?

Background: Religious Freedom and the First Amendment

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Employment Division v. Smith (1990)- Generally applicable laws don’t violate the Free

Exercise clause, even if they burden religious belief.

- Exceptions for expressiveconduct, church autonomy

Background: Religious Freedom and the First Amendment

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Congress’s attempt to “repeal” Smith decision and require accommodation unless the “compelling interest” test is satisfied.

Applies to all federal lawsafter 1993 unless they specifically state that RFRA is not applicable (ACA did not).

Background: Religious Freedom Restoration Act

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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. Judicial relief provided Government must have a compelling interest not

only in the general scheme, but also in applying that scheme to the religious objector.

Background: Religious Freedom Restoration Act

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Patient Protection and Affordable Care Act legislation passed March 23, 2010

Key elements include the employer mandate and market reforms

Employer mandate- Current guidance provides that beginning in 2015, applicable

large employers—employers with 50 or more full-time employees (including full-time equivalents)—are subject to an annual penalty of $2,000 per full-time employee (minus 30 full-time employees) if they fail to offer minimum essential coverage under an eligible employer sponsored plan (4980H(a)) to full-time employees and their dependents, not including spouses

- Penalty assessed yearly based on a monthly calculation

Background: Affordable Care Act

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Full-time employees for applicable large employer status- Number of full-time employees determined at controlled

group level based on previous year data- Full-time means 30 hours per week or 130 hours per month- Full-time equivalents—divide total hours of non-full-time

employees by 120 Full-time employees for determining

coverage/calculation penalty- Different measurement periods for ongoing and new

employees; special rules for variable hour employees Affordability and minimum value requirements

Background: Employer Mandate

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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

Proposed regulations reserve on the applicability of the controlled group aggregation rules to government entities, churches or convention associations of churches- Good faith standard until further guidance - Anti-abuse rules

Background: Employer Mandate

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Market reforms effective for plan years beginning on or after September 23, 2010- Coverage of certain dependents until age 26- Prohibition on lifetime limits on essential health benefits- Restriction on annual limits on essential health benefits- Appeals process and external review requirements- Prohibition on pre-existing condition exclusions for those under

age 19- Prohibition on rescissions (retroactive terminations of coverage)- Patient protections (primary care provider designations, direct

access to obstetrical and gynecological care, emergency services)

Background: Market Reforms

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Market reforms effective for plan years beginning on or after January 1, 2014- Prohibition on annual limits on essential health benefits- Prohibition on pre-existing condition exclusions for all- Required coverage of clinical trials- Required essential health benefits package (for individual and small

group insured plans)- Prohibition on excessive waiting periods- Premium rating limitations- Guaranteed availability and renewability- Nondiscrimination against health care providers- Nondiscrimination based on health status (extended to individual

coverage)- Deductible limits (for small group insured plans)- Out-of-pocket limits

Background: Market Reforms

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Certain market reforms have different applicable dates, including PHSA § 2713(a) (preventive services coverage).

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.

Background: Preventive Services

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Excerpt from HRSA Guidelines

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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.

Background: Contraceptive Mandate Penalties

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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.

Background: Contraceptive Mandate Penalties

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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.

Background: Contraceptive Mandate Penalties

“Ordinary business care” standard

Normally, intentional violations don’t qualify

But reasonable cause may exist if written advice from a qualified professional indicates that requirement doesn’t apply.

At least one case has found reasonable cause because of a good faith RFRA claim.

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Contraceptive Mandate PenaltiesExample: 70 Full Time Employees

1/1/20

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1/29/2

014

2/26/2

014

3/26/2

014

4/23/2

014

5/21/2

014

6/18/2

014

7/16/2

014

8/13/2

014

9/10/2

014

10/8/2

014

11/5/2

014

12/3/2

014

12/31

/2014

1/28/2

015

2/25/2

015

3/25/2

015

4/22/2

015

5/20/2

015

6/17/2

015

7/15/2

015

8/12/2

015

9/9/20

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10/7/2

015

11/4/2

015

12/2/2

015

12/30

/2015

$-

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$2,555,000

$5,096,000

$500,000 $1,000,000

$80,000 $160,000

4980D

Reasonable Cause

4980H

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- HRSA guidelines issued August 1, 2011—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 for some employers effective until plan years beginning on or after January 1, 2014, at which time “eligible organization” accommodation is available

Background: Important Dates for Contraceptive Mandate

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Does not apply to grandfathered plans- Plans that were in existence on March 23, 2010 that have not

undergone significant changes since that date Employers with less than 50 full-time employees

- Includes full-time equivalents- Controlled group level- Do not have to offer coverage- Not actual exception to contraceptive mandate

• Must comply with contraceptive mandate if coverage is offered “Religious employer” exemption and “eligible

organization” accommodation- Interpreted by the government to apply employer-by-

employer

Exceptions to Contraceptive Mandate

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Although previously more narrowly defined, the current definition of “religious employer,” effective August 1, 2013, is simply- An employer that is organized and operates as a

nonprofit entity and is a church, integrated auxiliary, convention or association of churches, or the exclusively religious activities of any religious order

Exceptions to Contraceptive Mandate: Exemption

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“Eligible organization”- (1) Opposes providing some or all of the

contraceptive services required to be covered by the mandate on account of religious objections

- (2) Organized and operates as a nonprofit entity - (3) Holds itself out as a religious organization- (4) Self-certifies that it satisfies the criteria in

items (1) through (3) – form available on DOL website

Exceptions to Contraceptive Mandate: Accommodation

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Accommodation for fully insured plans- Provide self-certification to insurance issuer- Insurance issuer provides separate payments for

contraceptive services without cost on the plan or participants

Accommodation for self-insured plans- Provide self-certification to third party administrator (“TPA”)- TPA becomes “plan administrator” with respect to

contraceptive services- TPA must provide separate payments or arrange for

separate payments for contraceptive services- Reimbursement through adjustment to federal exchange

user fees

Exceptions to Contraceptive Mandate: Accommodation

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Disagreement About the Accommodation- Catholic Health Association initially expressed

concerns about the mandate, but has accepted the accommodation as a reasonable compromise

- U.S. Conference of Catholic Bishops continues to believe that the accommodation is inadequate to address the 1st Amendment concerns of religious employers and notes that it does not provide any protection for for-profit businesses that oppose the mandate

Exceptions to Contraceptive Mandate: Accommodation

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Numerous law suits (Becket Fund counts 75+)- Many religious organizations’ cases were

dismissed or held in abeyance until final rules came out, but are now being refiled

- Preliminary injunctions granted in a clear majority of for-profit cases• Already lots of exceptions—why not one more?• Most influential reason for denying injunction is that

for-profit business can’t exercise religion.

Religious Freedom Challenge:Current Litigation

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Religious Freedom Challenge:Appellate Decisions

Preliminary injunction wins in 10th, 8th, 7th , and D.C. circuits (9th circuit has some favorable precedent)

Preliminary injunction losses in 3rd and 6th circuits

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Standing: religious organizations more likely to be held capable of “exercising religion.”

Religious orgs. can raise church autonomy claims Government accommodation strengthens its argument that

it has infringed religious freedom no more than necessary. But new exception for religious employers also suggests

that exceptions are manageable, so why not one more. Church groups are arguing that the new rules distinguishing

between integrated auxiliaries and other religious nonprofits violate the establishment clause.

What are considered exclusively religious activities of a religious order? Can government draw these distinctions?

Religious Freedom Challenge:Issues for Accommodated

Orgs

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Proposed legislation- Repealing the Affordable Care Act- Changing definition of full-time employees- Delaying employer mandate further- Exempting certain types of employers (e.g.,

educational institutions) from employer mandate- Creating broader religious exceptions to

contraceptive mandate- Limiting application of HRSA guidelines?

Proposed Legislation

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PHSA § 2713 limits other preventive services requirements- Coverage without cost-sharing required for “evidence-

based items or services that have in effect a rating of “A” or “B” in the current recommendations of the United States Preventive Services Task Force”

- Certain recommendations excluded by the statute—“for the purposes of this Act, and for the purposes of any other provision of law, the current recommendations of the United States Preventive Service Task Force regarding breast cancer screening, mammography, and prevention shall be considered the most current other than those issued in or around November 2009.”

Proposed Legislation

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For now, take the position that RFRA precludes the contraception coverage requirement- Viability may depend on jurisdiction- Also may depend on breadth of violation and record

of religious opposition- Nontrivial risk of penalties, particularly if Supreme

Court resolves RFRA claims adversely. - Consider taking steps to limit penalty exposure by

establishing “reasonable cause”- In the interim, organization may need to file Form

8928

Compliance Options

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Establish/shore up integrated auxiliary status- 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

Compliance Options

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Establish / shore up integrated auxiliary status- Must be “internally supported,” meaning that EITHER:

• It does not offer admissions, goods, services, or facilities for sale, other than incidentally, to the general public (unless charges are nominal or an insubstantial portion of cost), OR

• It does not receive more than 50% of its support from: governmental sources, public solicitation of contributions, receipts from the mission-related sale of admissions, goods,

performance of services, or provision of facilities.

Compliance Options

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Compliance Options

More than 50%

UBTI

Investments Royalties

Church gifts Other income?

Gov’tfunding

Public solicitations

Mission-related fees, sales, rentals

Option 1: Face Inward

• 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.

Two Paths to Internal Support & Integrated Auxiliary Status

Option 2: Keep “bad” support < 50%

Must total below 50% of support

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Strategies for attaining integrated auxiliary status- 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

Compliance Options

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Accept accommodation- Self-certification 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 regarding their for-profit subsidiaries, which may not be eligible for the exemption.

Compliance Options

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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?

Compliance Options

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DisclaimerThis 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, CharteredAll Rights Reserved.

Joanne C. Younjyoun@capdale.com(202) 862-7855

Michael W. Durhammdurham@capdale.com(202) 862-5031

Questions?