While the Patient Protection and Affordable Care Act (“ACA”) has been largely left to health care lawyers to dissect and review, the “contraceptive mandate” has gained wide media publicity and many employers are interested in how these particular regulations will affect them.

First, some background: one of the ACA’s many mandates was that employers must offer individual and group health plans for certain preventive services to a plan participant with zero cost-sharing. In August 2011, there were additional preventive services added, one of which required contraception coverage to women. This requirement is largely referred to as the “contraceptive mandate” and it encompasses all FDA-approved contraceptive methods. The requirement that private, non-grandfathered health insurance plans provide coverage for preventive services, including contraceptive coverage, is currently in effect for plan or policy years beginning on or after August 1, 2012. The law exempted certain non-profit religious employers that offered insurance to their employees from the requirement, and others that did not qualify for the exemption have a one-year temporary safe harbor, until Aug. 1, 2013, to comply.

The regulation first exempted from the mandate only churches, synagogues, mosques, and other strictly worship-related institutions whose sole function was serving those who share their religious beliefs.  A flurry of lawsuits followed once the contraceptive mandate was instituted, initiated by non-profit entities like hospitals and colleges, non-qualifying religious institutions, and for-profit companies who religiously objected to providing such services for employees.

On February 1st, the Internal Revenue Service, Department of Labor, and the Department of Health and Human Services issued new proposed rules that sought to reach a compromise with these objectors:

New definition of “religious employer”:

Included in the proposal is a clarification of the definition of “religious employer.” The simple definition of religious employer for purposes of the exemption would now follow the Internal Revenue Code. This proposed change is to clarify that a house of worship would not be excluded from the exemption because it provides charitable social services (like a soup kitchen) to persons of different religious faiths or employees persons of different faiths.

Accommodations for religious institutions and non-profit organizations:

Additionally, under the proposed rule, religious-affiliated non-profit organizations and religious institutions (that previously did not qualify) would not be forced to pay for employee contraceptives. Instead, they would notify their insurer of their objection, and the insurer automatically would be required to notify the employees that it will provide the coverage without cost sharing or other charges through separate individual health insurance policies.

For religious-affiliated workplaces that self-insure, the third party administrator would be expected to work with an insurer to arrange no-cost contraceptive coverage through separate individual health insurance policies.

The cost of providing this separate coverage would be shouldered by the insurance companies. It is possible the companies will recoup some of the costs through lower health care expenses as a result of fewer births. It should be noted that the proposed rules do not address objections by profit-making companies owned by religious individuals or families.

The validity of the contraceptive mandate may ultimately be decided by the Supreme Court. The Department of Justice has been defending against the numerous lawsuits across the country with mixed results, signaling that the Circuits have their own views on its constitutionality.

We’ll keep you updated on how this plays out; it presents a fascinating clash of employment law, freedom of religion, and health care concerns that all employers should know about.