Employers and health plans should be aware that two recent federal decisions have recognized that the non-discrimination provision in the Affordable Care Act prohibits discrimination on the basis of gender identity. Plans cannot categorically exclude coverage for procedures to treat gender dysphoria.

In Boyden v. Conlin, the U.S. District Court for the Western District of Wisconsin found that the state’s exclusion of gender reassignment-related procedures from the state employees’ health insurance coverage constitutes sex discrimination in violation of Section 1557 of the Affordable Care Act (the “ACA”) and Title VII of the Civil Rights Act. Section 1557 of the ACA prohibits discrimination and the denial of benefits under a health program or activity, any part of which is in receipt of federal financial assistance, on the basis of race, color, national origin, sex, age or disability. The plaintiffs, two transgender women employed by the State of Wisconsin, also alleged that the exclusion violated the Equal Protection Clause of the Fourteenth Amendment.

This case involved the exclusion of “procedures, services, and supplies related to surgery and sex hormones associated with gender reassignment” from the health insurance coverage. Pursuant to the exclusion, the health plan did not cover hormone therapy involving gender reassignment surgery, or the surgery itself. Defendants argued that the exclusion did not discriminate on the basis of sex because the plan excludes coverage for all cosmetic treatments for psychological conditions, and because the exclusion simply prohibits coverage for gender reassignment procedures, not because plaintiffs are transgender. The court disagreed, finding that the case constituted a “straightforward case of sex discrimination” because the exclusion treated people differently based on their natal sex. The court also found that the exclusion implicated “sex stereotyping by limiting the availability of medical transition … thus requiring transgender individuals to maintain the physical characteristics of their natal sex.”

The court also found liability against the state on plaintiffs’ Equal Protection Clause claim. In applying heightened scrutiny review, the court concluded that the state failed to show that the exclusion was the product of cost concerns or concerns about the safety and efficacy of gender reassignment surgery and hormone therapy. Because the state could not put forth evidence of a genuine reason for the exclusion, the court found in favor of plaintiffs on the Equal Protection Claim.

Two days after the decision in Boyden, in Tovar v. Essentia Health, the District Court for the District of Minnesota held that Section 1557 prohibits discrimination on the basis of gender identity. In that case, plaintiffs alleged that Essentia Health and HealthPartners Inc. violated Section 1557 by sponsoring or administering a plan that categorically excluded coverage for all health services and surgery related to gender reassignment. Section 1557 incorporates four federal civil rights statutes that prohibit discrimination on the basis of: race, color and national origin (Title VI); sex (Title IX); age (ADEA); and disability (Rehabilitation Act). Concluding that Title IX’s prohibition against sex discrimination should be read as coextensive with Title VII, and noting that courts have recognized a cause of action under Title VII for sex discrimination based on gender identity and gender-transition status, the court determined that “sex discrimination encompasses gender-identity discrimination.” The court thus concluded that Section 1557 prohibits gender identity discrimination and denied defendants’ motion to dismiss.

The court also declined to stay the action pending resolution of Franciscan Alliance, Inc. v. Burwell, in which the Northern District of Texas issued a nationwide injunction enjoining enforcement of the Department of Health and Human Services (HHS) regulations providing that Section 1557’s prohibition of sex discrimination encompasses gender identity discrimination. The Minnesota court concluded that a stay was not warranted because its conclusion that Section 1557 prevents discrimination based on gender identity is based on the plain reading of the statute and does not rely on the Franciscan Alliance decision.

Employer Takeaways

These two cases are the latest in a series in which plaintiffs allege that their employer sponsored health plans are designed in a manner that discriminates based on gender identify in violation of Section 1557 of the ACA and Title VII of the Civil Rights Act. While an earlier decision (Baker v. Aetna Life Insurance Co., 228 F. Supp. 3d 764 (N.D. Tex. 2017)) by the Northern District of Texas declined to find a cause of action for gender identity discrimination under Section 1557, these decisions are in line with the current trend to allow gender identity discrimination claims to be pursued under Section 1557. Therefore, while HHS continues its current policy of non-enforcement of allegations of gender identity discrimination under Section 1557, employers should be aware of provisions in their group health plans that exclude coverage for transgender benefits and litigation risks that these provisions may pose.

Notably, the plans in both Boyden and Tovar included categorical exclusions for services and/or surgeries related to gender reassignment or transition. These categorical exclusions often are a red flag. By contrast, in Baker, the plan did not categorically exclude gender reassignment procedures; there, the insurance company denied the plaintiff’s request for breast augmentation surgery as not medically necessary. The Baker court found in favor of defendants on both the Section 1557 and Title VII claims. Thus, employers are advised to review their plans to ensure that services to treat gender dysphoria and related conditions are made available to their covered employees.

While Section 1557 imposes significant nondiscrimination requirements on “Covered Entities” (as discussed in the article above), most employers are not “Covered Entities” as defined under the final rule (“non-covered employers”). The impact of Section 1557 on non-covered employers depends on whether their respective group health plans are insured or self-insured and the level of involvement in the plans by insurance issuers that are “Covered Entities” under the final rule.

Non-Covered Employers with Fully Insured Group Health Plans

Nearly all health insurance issuers are Covered Entities under Section 1557 because they offer individual policies on a federal or state Health Insurance Marketplace or otherwise receive federal funds. Non-covered employers that sponsor fully insured group health plans will be subject to Section 1557 through the underlying insurance policy (provided that the insurer offering the policy participates in an exchange or otherwise receives federal financial assistance).

As a Covered Entity, a health insurance issuer must provide special notices to plan participants, make available appropriate translations and auxiliary aids and services, and ensure that the covered benefits offered under the insurance policy are nondiscriminatory. Plan sponsors of fully insured group health plans should expect to see changes to enrollment documents, plan participant communications, and other notices from the health insurance issuer.

One of the most significant changes being made by insurance issuers to comply with Section 1557 is the elimination of any exclusion for benefit coverage of transgender health services under the insurance policy. The final rule makes clear that sex discrimination includes discrimination based on an individual’s sex, including gender identity (as well as pregnancy, childbirth, and related medical conditions, and sex stereotyping). Specifically, Covered Entities may not deny or limit coverage for health services that are ordinarily or exclusively available to persons of one gender because the person’s sex assigned at birth, gender identity, or recorded gender is different than the one to which the services are ordinarily or exclusively available. The final rule concludes that broad coverage exclusions or limitations related to gender transition are per se discriminatory and therefore unlawful. For example, many group health plans currently have explicit exclusions of coverage for all care related to gender dysphoria or gender transition, with all treatment related to transition categorized as cosmetic or experimental. Such explicit coverage exclusions under a fully insured group health plan generally are now prohibited.

Non-Covered Employers with Self-Insured Group Health Plans

If a health insurance issuer acts as a third-party administrator for a non-covered employer’s self-insured group health plan, the issuer is directly subject to Section 1557 and must administer the plan in compliance with the nondiscrimination rules. This means that if the third-party administrator is providing claims services, it must comply with the nondiscrimination rules in making any claims determinations. The non-covered employer, however, is not required to comply. Therefore, any plan coverage design decisions made by the non-covered employer in its capacity as plan sponsor are not subject to the Section 1557 nondiscrimination protections.

Nevertheless, the Section 1557 final rule clarifies that even though HHS lacks jurisdiction over a non-covered employer, HHS has the power to refer any complaint of discrimination to the EEOC and that it intends to do so. Few courts have held that discrimination based on gender identity constitutes a form of sex-based discrimination. However, the EEOC has taken the position that sex discrimination includes discrimination on the basis of gender identity and has already begun investigating allegations of gender identity discrimination in a health program or activity. From a risk perspective, a non-covered employer with a self-insured group health plan may wish to review the plan’s benefit design and determine if any changes should be made. If there is an explicit exclusion for coverage of transgender health care, a non-covered employer may choose to remove the exclusion from the plan to minimize the possibility of an EEOC investigation as it relates to the employer’s group health plan.

Employment Discrimination

Finally, non-covered employers should be reminded of other nondiscrimination rules that might apply to them. For example, Section 1557 borrows from various antidiscrimination laws that apply to the employer directly, such as the requirement to provide auxiliary aids and services under the Americans with Disabilities Act. Although non-covered employers may not be required to comply with Section 1557, they are still required to abide by the various antidiscrimination laws and an employment discrimination complaint could arise through a referral to the EEOC in relation to an employer’s group health plan.

Takeaways

Although only Covered Entities are required to comply with the Section 1557 final rule, non-covered employers should be aware of the breadth of the final rule and how it affects them. Clearly, in developing the final rule, HHS intended for the nondiscrimination protections to apply to the greatest number of plan participants possible. To manage risk, non-covered employers may wish to review the design and operation of their group health plans to ensure that the plans do not discriminate against individuals, specifically with regards to transgender benefits, and to be aware that group health plan design and administration may be the basis of an employment discrimination complaint or EEOC investigation.

A version of this article originally appeared in the Take 5 newsletter Five Key Issues Impacting Health Care Employers.”

In May 2016, the U.S. Department of Health and Human Services (“HHS”) published a final rule implementing Section 1557 of the ACA. Section 1557 prohibits discrimination in the health programs and activities of “Covered Entities” on the basis of race, color, national origin, sex, age, or disability. Section 1557 also imposes detailed and specific notice and disclosure requirements on Covered Entities, including, among other things, the requirement to provide information about the use of auxiliary aids and services, the adoption of grievance procedures, and access for individuals with limited English proficiency. Covered Entities are also required to include specific nondiscrimination protections in the design of group health plans.

A “Covered Entity” is one that receives “federal financial assistance” for a health program or activity from HHS. If any part of a health program or activity receives federal financial assistance from HHS, then all of that entity’s programs and activities are subject to the nondiscrimination provisions of the final rule.

While the nondiscrimination provisions of the final rule went into effect on July 18, 2016, and “Covered Entities” subject to the final rule were required to comply with the notification and grievance procedures by October 16, 2016, entities are still struggling to determine if they qualify as “Covered Entities” subject to the final rule.

Is it only federal financial assistance from HHS that matters for this determination?

In general, Section 1557 of the ACA applies to all health programs and activities, any part of which receives federal financial assistance from any federal agency. However, the requirements in the final rule specifically apply only to recipients of federal financial assistance from HHS.

What does federal financial assistance include?

“Federal financial assistance” includes Medicare Parts A, C, and D and Medicaid payments, grants, loans, subsidies, contracts of insurance, and other types of assistance. Such assistance also includes premium tax credits and advance payments of premium tax credits and cost-sharing reductions for health insurance coverage purchased through the federal and state Health Insurance Marketplaces.

Importantly, HHS does not consider Medicare Part B payments to be federal financial assistance.

What are some examples of “Covered Entities”?

HHS defines “Covered Entities” that are subject to the final rule to include:

  • every health program or activity that receives HHS funding;
  • every health program or activity administered by HHS, such as the Medicare Part D program; and
  • the Health Insurance Marketplaces and all plans offered by issuers that participate in those marketplaces.

“Covered Entities” may include entities that receive federal financial assistance through their participation in Medicare or Medicaid (e.g., hospitals, nursing facilities, and home health agencies) or through grants or subsidies from HHS agencies (e.g., health clinics, community health centers, and health-related schools), state Medicaid agencies, state public health agencies, health insurance issuers that participate in the Health Insurance Marketplaces, Medicare Advantage plans and Prescription Drug Plan sponsors, and physician practices receiving Medicaid payments or other payments from HHS (e.g., meaningful use incentive payments).

What about entities that do not receive funding directly from HHS?

A wide array of entities that provide health-related services do not receive funding directly from HHS but do receive payment for their services through other HHS-funded organizations. The “Covered Entity” status for these entities is more complex and must be examined closely.

By definition, a “recipient of federal financial assistance” is an entity to which such funding is extended directly or through another recipient. However, it is important to look to the entity that Congress intended to assist or subsidize with certain funds when determining whether a downstream entity is a recipient of federal financial assistance.

Nonetheless, whether a downstream entity is covered under the final rule remains far from clear, as HHS offers only limited guidance. HHS makes some distinctions in the final rule. For example, an issuer participating in a Health Insurance Marketplace receives federal financial assistance, but a health care provider that contracts with such an issuer does not become a recipient of federal financial assistance by virtue of that contract. Similarly, physicians who contract to provide health services to hospitals or clinics that receive federal financial assistance do not become recipients of federal financial assistance by virtue of those contracts. However, HHS has confirmed that providers that receive reimbursement from a Medicare Advantage plan are subject to the final rule, regardless of whether payments from the plan go directly to the provider or to the patient.

An entity acting as a third-party administrator for an employer’s employee health benefit plan may not be a “Covered Entity” if the entity is legally separate from an issuer that receives federal financial assistance for its insurance plans. Nonetheless, if an issuer that receives federal financial assistance also provides third-party administrator services, the final rule would apply to those third-party administrator services.

As a general rule of thumb, downstream entities contracting with a recipient of federal financial assistance may not qualify as a “Covered Entity” by virtue of the contract alone. Entities unsure of their status should consider whether they are the intended recipient of the federal financial assistance when making this determination. Entities also should be aware that a “Covered Entity” may include provisions regarding compliance with Section 1557’s nondiscrimination requirements in its contracts with downstream entities. Finally, HHS has reserved the right to engage in a case-by-case inquiry to evaluate whether an entity is appropriately subject to Section 1557. A highly fact-specific inquiry should be undertaken to determine if an entity that does not directly receive funding from HHS might still be a “Covered Entity” in the eyes of HHS.

Takeaways

Entities operating a health program or activity should determine the source of funding for any such program or activity. Those programs or activities receiving federal financial assistance are subject to the nondiscrimination requirements of Section 1557, which include providing a notice of nondiscrimination to the public, implementing a grievance procedure, designating a civil rights coordinator, and providing language assistance to limited English proficiency speakers and appropriate accommodations to individuals with disabilities.

Employers sponsoring group health plans should read the following article by our colleagues to determine the extent to which the Section 1557 nondiscrimination rules apply to them.

A version of this article originally appeared in the Take 5 newsletter Five Key Issues Impacting Health Care Employers.”

Nathaniel M. Glasser
Nathaniel M. Glasser

On July 18, 2016, the final rule implementing Section 1557 of the Affordable Care Act (“ACA”) went into effect.   Section 1557 prohibits health care providers and other covered entities from refusing to treat individuals or otherwise discriminating on the basis of race, color, national origin, sex, age, or disability in any health program or activity that receives federal financial assistance or is administered by an executive agency.

While the rule does not apply to employment, it derives many of its standards from existing federal civil rights laws and the federal government’s current interpretations of those laws.  Covered entities (which include, for example, hospitals, health clinics, health insurance programs, community health practices, physician’s practices, and home health care agencies) should be particularly aware of the protections granted to individuals with these protected characteristics:

  • Sex – Under the rule, prohibited sex discrimination includes differential treatment based upon pregnancy, false pregnancy, termination of pregnancy, or recovery therefrom, childbirth or related medical conditions, sex stereotyping and gender identity. Covered entities should be particularly aware that they must treat individuals consistent with their gender identity; they cannot deny or limit sex-specific health care just because the individual seeking such services identifies as belonging to another gender; and they cannot categorically exclude coverage for health care services related to gender transition.
  • National Origin – Covered entities must take “reasonable steps” – which may include providing language assistance services such as oral language assistance or written translation – to provide “meaningful access” to individuals with limited English proficiency.
  • Disability – Covered entities must take “appropriate steps” to ensure that communications with individuals with disabilities are as effective as communications with others; make all programs provided through electronic and information technology accessible, unless doing so would impose financial or administrative burdens or fundamentally alter the program; and, in most instances, comply with the 2010 Americans with Disabilities Act Standards for Accessible Design when constructing or altering physical facilities.

Now that the final rule has gone into effect, a covered entity has 90 days to post various notices for beneficiaries, enrollees, applicants, and members of the public.  The primary notice requires the covered entity to state its compliance with Section 1557 and the availability of the various accommodations under the rule.  The Director of the Office for Civil Rights of the U.S. Department of Health and Human Services has made available a sample notice that covers the information required by this notice, but covered entities are advised to work with counsel to ensure they are in compliance with the rule.  In addition, covered entities must post a nondiscrimination statement, and any tagline (i.e., short statement indicating the availability of language assistance services) must be posted in at least the top 15 languages spoken by individuals with limited English proficiency of the relevant state(s) (sample translated resources may be found here).  Again, covered entities are advised to work with counsel to ensure compliance with these notice and posting requirements.