On June 12, 2020, the US Department of Health and Human Services (HHS) finalized a rule to be effective August 18, 2020 under Section 1557 of the Affordable Care Act (ACA) that removes protections against discrimination based on sex stereotyping and gender identity afforded by an Obama-era 2016 rule. Three days after the final 1557 rule was issued, the US Supreme Court also separately ruled that workplace/employment discrimination based on gender identity and sexual orientation violates Title VII of the Civil Rights Act of 1964. It remains to be seen if HHS will revise or withdraw any portions of the final rule in response to the Court’s ruling, but that seems unlikely at least for now. While the Court’s ruling does not immediately and directly impact the final 1557 rule, it is likely to at least be relevant in expected future litigation related to healthcare benefits, health insurance and religious exemptions.
Health program discrimination based on gender identity and sexual orientation is narrowed
Section 1557 of the ACA contains anti-discrimination provisions which include prohibitions on sex discrimination that apply to certain health care providers and insurers receiving federal funding. Section 1557 specifically provides that an individual shall not, on the grounds of race, color, national origin, sex, age, or disability “be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any health program or activity, any part of which is receiving Federal financial assistance … or under any program or activity that is administered by an Executive agency or any entity established” under Title I of the ACA. HHS believes that the final rule conforms Section 1557 to the plain reading of the Section 1557 text and the civil rights laws, and accordingly, the final rule will continue to prohibit discrimination under health programs based on race, color, national origin, disability, age and sex. Notably, however, HHS states in the final 1557 rule that discrimination “on the basis of sex” does not encompass discrimination on the basis of gender identity. So although nothing in the final rule prohibits a healthcare provider from offering or performing sex-reassignment treatments and surgeries, or an insurer from covering such treatments and procedures, either as a general matter or on a case-by-case basis, HHS states there is no legal requirement to do so under Section 1557. See HHS’ press release and fact sheet on the final rule for additional details.
Specifically, the final 1557 rule will no longer:
The rule also confirms that entities not principally engaged in providing health care (such as most health insurers) are regulated only to the extent their health care activities (rather than their entire operations) are funded by HHS. The rule also does not apply to employer-sponsored group health plans that do not receive funding from HHS, and are not principally engaged in the business of providing health care. This means Section 1557 will generally not apply to self-funded group health plans. Of course, state and local governments and church plans that are not subject to ERISA should be mindful of state nondiscrimination laws that may require employers to extend benefits on the same terms to same-sex and opposite-sex spouses and may prohibit a fully insured employer plan from denying or limiting health coverage for gender-transition items or services.
Workplace/employment discrimination based on gender identity and sexual orientation is forbidden
On June 15, 2020, the US Supreme Court separately ruled that workplace/employment discrimination based on gender identity and sexual orientation is forbidden under Title VII. In other words, the Court held that for purposes of Title VII, on the basis of sex” includes gender identity. The Court emphasized that its holding is limited to employees discharged for being homosexual or transgender and does not address group health coverage and other employment policies (such as sex-segregated bathrooms, locker rooms, or dress codes) or the impact of employers’ religious convictions. Future cases will explore the full implication of this ruling and its application to other statutes that prohibit discrimination “because of” or “on the basis of” sex. We expect to see healthcare benefits, health insurance and religious exemptions emerge as an intense battleground in future cases under the Court’s holding and the 1557 rule.
Even though the final 1557 rule removes certain protections for sex stereotyping and gender identity, reliance on that rule may become less important for disputes involving employment-based coverage. Rather, now that the Supreme Court has said Title VII protects transgender individuals from discrimination, employees can presumably now challenge employment-based benefit exclusions under Title VII pursuant to the Supreme Court holding. Accordingly, sponsors of employee health benefit plans, particularly self-funded ERISA plans not subject to state insurance laws and exempt from certain ACA requirements, might consider a review of their health plan benefit designs to ensure that benefit offerings do not discriminate on the basis of gender identity, sexual orientation, or any characteristic tied to a participant’s sex. For example, employee benefit plans might be found to discriminate under a legal challenge if a health or welfare plan:
Plan sponsors are encouraged to consult with legal counsel regarding how this guidance and other regulations impact their employer-sponsored health and welfare plans. Plan sponsors may also want to revise communications regarding health and welfare benefits to remove nondiscrimination statements and required taglines (in non-English languages) that may have been added previously pursuant to the rule.
Please contact your Conner Strong & Buckelew account representative toll free at 1-877-861-3220 with any questions. For a complete list of Legislative Updates issued by Conner Strong & Buckelew, visit our online Resource Center.