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Court Holds That Health Insurer’s TPA Activities Are Subject to ACA Section 1557



C.P. v. Blue Cross Blue Shield of Ill., 2022 WL 17788148 (W.D. Wash. 2022)

In a class action lawsuit brought by a transgender individual and his parent, a federal trial court has held that an insurer, acting as a third-party claims administrator (TPA) for self-insured health plans, violated Affordable Care Act (ACA) Section 1557 when it administered discriminatory plan exclusions of coverage for gender-affirming care. As background, Section 1557 prohibits discrimination in certain health programs and activities on the basis of race, color, national origin, sex, age, or disability. HHS regulations issued in 2016 interpreted Section 1557 as applying to all operations of health insurers that receive federal financial assistance. Regulations issued in 2020, however, repealed significant portions of the 2016 regulations and narrowed their scope so that entities not “principally engaged in the business of providing healthcare” (such as most health insurers) are regulated “only to the extent” that they receive federal financial assistance (see our Checkpoint article). The insurer in this case does not receive federal financial assistance for its administration of self-insured plans but does receive such assistance in connection with other products (e.g., Medicare supplemental coverage).

The court held that under the plain language of Section 1557, the insurer’s TPA activities constitute the operation of a health program or activity. It explained that Section 1557’s phrase “any health program or activity, any part of which is receiving federal financial assistance” includes “all the operations of a business” principally engaged in providing health programs and activities. The court concluded that the insurer’s administration of the gender-affirming care exclusions was discrimination “on the basis of sex” contrary to Section 1557. The insurer argued that under the 2020 regulations, Section 1557 does not apply to its TPA activities because those actions are not “healthcare activities” and because it does not receive any federal financial assistance for them, but the court rejected those arguments, explaining that the 2020 regulations are clearly contrary to the statute and appear to be arbitrary, capricious, and contrary to law. Other arguments were also rejected, including that the insurer was obligated under ERISA to administer the exclusion as written and that it was not subject to Section 1557 when administering a plan of a religious organization exempt from the rules under the Religious Freedom Restoration Act.

EBIA Comment: Court decisions continue to demonstrate the uncertainty surrounding Section 1557’s application to employer-sponsored health plans. As we wait for regulations proposed in 2022 to be finalized (see our Checkpoint article), it is interesting that this court has already rejected the 2020 regulations based on a plain reading of the statute’s text. For more information, see EBIA’s Health Care Reform manual at Section XXXIV.A (“Section 1557 Nondiscrimination: Grounds Prohibited Under Federal Laws”) and EBIA’s Group Health Plan Mandates manual at Section XXI.M.1 (“Interaction of Title VII and Section 1557”). See also EBIA’s Self-Insured Health Plans manual at Section XIII.D.5 (“Section 1557 Nondiscrimination: Nondiscrimination in Health Programs and Activities”).

Contributing Editors: EBIA Staff

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