It has been almost a year since the U.S. Supreme Court held that employee health plans of closely held, for-profit companies with owners who have sincerely held religious objections do not have to pay for all forms of contraception as mandated pursuant to the ACA. Burwellv. Hobby Lobby. (See our June 2014 ELB for more). However, the debate over employer provided, cost-free contraception coverage did not end there.
A little background is necessary: the ACA requires covered employers’ group health plans to provide preventive care and screenings for women without any cost sharing. Although the ACA did not specify the types of preventive care that must be covered, the HHS issued a mandate in 2011 that required most health insurance policies to provide women with cost-free coverage for all contraceptive medications that had been approved by the Food and Drug Administration (FDA), including four that could prevent a fertilized egg from implanting in a woman’s womb. Hobby Lobby and several other closely held corporations demonstrated that they held a sincere religious belief that life begins at conception and that these four types of contraception are akin to an abortifacient. On June 30, 2014, the Supreme Court found that the HHS regulations violated the Religious Freedom Restoration Act which “prohibits the Federal Government from taking any action that substantially burdens the exercise of religion unless that action constitutes the least restrictive means of serving a compelling government interest.” Accordingly, the Court held that closely held corporations with sincerely held religious beliefs such as Hobby Lobby did not have to pay for all forms of contraception.
Since this ruling, the controversy over cost-free contraception has continued. The National Women’s Law Center (NWLC) contends that there have been widespread violations of the ACA requirements to provide women with contraceptive and preventative wellness services at no cost. In a May 2015 report, the NWLC identified three major areas of noncompliance:
- Some plans fail to provide coverage for all FDA- approved methods of birth control, or that the plans impose out of pocket costs on them.
- Some plans cover only generic birth control.
- Some plans impose costs on the services associated with birth control methods.
On May 11, 2015, the Obama administration issued guidance reaffirming that insurance companies must cover all birth control methods approved by the FDA, without a co-pay (with limited exceptions, such as those recognized by the Supreme Court in Hobby Lobby). See http://www.dol.gov/ebsa/pdf/faq-aca26.pdf. This new guidance is intended to close loopholes and clarify that plans and insurers must cover (at no cost) at least one form of contraception in each of the full range of methods (18 currently) that the FDA has approved. The guidance further provides that plans/insurers may not limit “sex- specific recommended preventive services based on an individual’s sex assigned at birth, gender identity or recorded gender.” Again, such coverage for the recommended preventive service must be provided without cost sharing.
Based on this new guidance, employers are encouraged to review the relevant provisions of their health plans to ensure compliance.
Not the car –the tax! The controversial “Cadillac tax” does not kick in until 2018, but savvy employers are already taking action to avoid its impact. The 40% excise tax is aimed at businesses with “generous” health benefits – those that provide coverage in excess of $10,200 for individuals and $27,500 for families. A survey of employers shows that over half say they are on pace to trigger the Cadillac tax, but only 2.5 % say they expect to face it and pay it. The others are making changes to avoid it before 2018. The most cited action these employers are taking is to move to a high-deductible or consumer-driven type plan. Other actions employers are considering include reducing benefits, shifting more costs to employees, dropping higher-cost plan options, adopting wellness incentives, and adding more “affordable” plan options.
On February 3, 2015, the IRS and Treasury Department issued guidance on the Cadillac Tax (Notice 2015-16, http://www.irs.gov/pub/irs-drop/n-15-16.pdf) and accepted comments through May 15, 2015. The comments from industry and business groups reflected several concerns, including potential conflicts with the ACA.
The American Benefits Council pointed out in its comments to the IRS that the 40 percent tax forces employers to choose between offering coverage that qualifies with the ACA’s “employer mandate” provisions, or offering coverage that is not subject to the Cadillac tax, which would leave workers and their families facing higher out of pocket costs. “ERIC,” the ERISA Industry Committee has already responded to this request and pointed out that the implementation of the Cadillac tax will cause a significant upheaval in employee benefits, forcing many employers to significantly change virtually every aspect of plan design and systems operations. ERIC recommends that the IRS provide a two year transition period allowing employers to restructure the necessary benefit changes, systems testing, and employee communications. ERIC also urges the IRS to narrow the definition of the types of benefits subject to the tax, and to create a safe harbor that treats plans fairly across the country. And the National Business Group on Health (NBGH) expressed deep concerns over the Cadillac Tax’s anticipated impact. NBGH specifically asked the IRS to exclude on-site health clinics, wellness programs, and self-insured limited scope dental and vision coverage from the applicable coverage of the tax.
Congressman Joe Courtney, a Democrat from Connecticut, has introduced the Middle Class Health Benefits Tax Repeal Act to repeal the Cadillac Tax. As support for this repeal, the Congressman has cited studies indicating that the tax will hit markets around the country disproportionately, as well as the fact that most employers expect the tax to adversely affect their health plans, leading to the anticipated changes cited above.
As we head into the summer, we are also anxiously awaiting the Supreme Court’s decision in King v. Burwell, which will affect the future of all of these and other ACA issues employers are facing. We will continue to keep you advised of developments in this area.