Litigation Involving Section 1557 Nondiscrimination Rules Continues

Lawsuits involving the Affordable Care Act Section 1557 nondiscrimination requirements are making their way through the courts. Some allege violations of the statute, while others challenge the agencies’ interpretation of the statutory requirements. As background, Section 1557 prohibits discrimination in “any health program or activty” on the basis of race, color, national origin, sex, age, or disability. HHS regulations issued in 2016 broadly applied these prohibitions to all health programs and activities funded by HHS, including Exchange insurers—even with respect to plans and services these insurers offered outside an Exchange or, in some instances, as third-party administrators for employer group health plans (see our Checkpoint article). The regulations’ interpretation of the statutory requirements was broad as well, prohibiting discrimination based on gender identity and termination of pregnancy. Legal actions followed, resulting in comprehensively revised regulations in 2020. The 2020 regulations repealed significant portions of the 2016 regulations (including the protections based on gender identity and termination of pregnancy) and narrowed their applicability so that entities not “principally engaged in the business of providing healthcare” (such as most health insurers) are regulated “only to the extent” they receive federal financial assistance (see our Checkpoint article).

In ongoing challenges to the 2020 regulations, courts have blocked enforcement of the rules removing gender identity and termination of pregnancy from the nondiscrimination protections (see our Checkpoint article), and HHS has announced that it will interpret Section 1557 as applying to discrimination based on sexual orientation and gender identity (see our Checkpoint article). And at least one court has applied Section 1557’s requirements to an insurer’s entire operations because the insurer’s Medicare plan received federal financial assistance (see our Checkpoint article). Here are highlights of two additional cases:

• Kadel. A group of individuals covered under a state employees’ group health plan alleged that the plan discriminated against transgender enrollees in violation of Section 1557 by categorically denying coverage for gender-dysphoria treatments such as counseling, hormone therapy, and surgical care. A federal court allowed the case to go forward, despite the plan’s argument that it could not be sued because it was entitled to sovereign immunity as a governmental entity. An appellate court has now affirmed, concluding that Section 1557 conditions a state’s receipt of federal financial assistance (which the plan admitted receiving) on its waiver of sovereign immunity.
• Boston Alliance. A group composed largely of health care facilities and advocacy organizations alleged that HHS arbitrarily repealed provisions of the 2016 regulations including the definition of “on the basis of sex,” the prohibition of categorical coverage exclusions for transgender-related care, the requirement that covered entities “treat individuals consistent with their gender identity,” the prohibition of “association discrimination,” and the requirement to provide certain notices of prohibited discrimination and taglines regarding language-assistance services. The challengers also objected to the 2020 regulations’ incorporation of Title IX’s religious and abortion exemptions, the narrowing of the scope of covered entities, and changes to the unified enforcement scheme. The court dismissed the claims regarding enforcement, association discrimination, and the notice and taglines requirement for failure to adequately allege an injury caused by those provisions. However, the claims regarding Title IX’s abortion exemption, the scope of covered entities, and the categorical coverage exclusions for transgender-related care will continue to trial.

EBIA Comment: Section 1557’s application to employer-sponsored health plans remains in flux. Plan sponsors, insurers, and TPAs should monitor developments (new proposed regulations are anticipated in Spring 2022) and be mindful of plan provisions that could invite costly legal challenges. 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.