The Ball Dropped on New Year’s Eve for Some ACA Section 1557 Nondiscrimination Rules

Some employers may want to reconsider their approach to gender transition benefits after a federal court enjoined the U.S. Department of Health and Human Services (HHS) from enforcing its 2016 nondiscrimination regulations under Section 1557 of the Affordable Care Act (ACA), which were generally set to take effect on January 1, 2017, to the extent those regulations prohibit discrimination on the basis of “gender identity” and “termination of pregnancy.”

The regulations, using language from HHS regulations under Title IX of the Education Amendments of 1972, define “sex discrimination” as including discrimination “on the basis of pregnancy, false pregnancy, termination of pregnancy, or recovery therefrom, childbirth or related medical conditions, sex stereotyping, and gender identity” (emphasis added). The regulations thus prohibited categorical exclusions on health care services related to gender dysphoria, while still permitting neutral nondiscriminatory application of criteria used to make medical necessity or coverage determinations. And, although HHS declined to include a religious exemption, the regulations state that to the extent application of any requirement violates the Religious Freedom Restoration Act of 1993, application of that requirement is not required.

On December 31, 2016, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas issued a preliminary nationwide injunction in a case brought by eight states and three healthcare providers challenging the regulations’ interpretation of discrimination “on the basis of sex.” The judge agreed with the plaintiffs that HHS had exceeded its authority by interpreting “sex discrimination” as including gender identity. Judge O’Connor also agreed that the regulation violated the Religious Freedom Restoration Act by requiring (1) healthcare professionals and facilities to provide gender transition services against their medical judgment and religious beliefs; and (2) the provision of insurance coverage for gender transition services and abortions.

Under the injunction, which applies on a nationwide basis and regardless of the religious affiliation, HHS is enjoined from enforcing the regulations’ prohibition against discrimination on the basis of gender identity or termination of pregnancy. The remaining provisions of the regulations—including the prohibitions on discrimination on the basis of disability, race, color, age, national origin, or sex other than gender identity and the regulations’ language assistance and notice requirements—took effect on January 1, 2017.

Practical Impact

The regulations apply to “covered entities,” which include group health plans of an employer that receives funds from HHS (i.e., a hospital, governmental or quasi-governmental organization); any health program or activity any part of which received funding from HHS (such as hospitals that accept Medicare and Medicaid); health program or activities that HHS itself administers (such as Medicare Parts A, C, and D); health insurance marketplaces and all plans offered by issuers that participate in those marketplaces; and health plans sponsored by employers who are not covered entities but who receive federal funds (e.g., prescription drug subsidies). Many third-party administrators fall under the definition of “covered entity” so the regulations impact self-insured group health plans through their relationships with their third-party administrators.

Because the injunction was issued at the final hour, many of those entities subject to the regulations had already made necessary changes to their group health plans in order to comply by the January 1, 2017 deadline. Those entities will need to decide whether it makes business sense to suspend, alter, or reverse those changes pending any subsequent legal developments.

Furthermore, the ACA Section 1557 injunction does not apply to the sex discrimination rules issued by the Office of Federal Contract Compliance Programs (OFCCP) under Executive Order 11246. The OFCCP rules, which were effective on August 15, 2016, prohibit federal contractors from discriminating against employees and applicants on the basis of race, color, religion, sex, sexual orientation, gender identity, or national origin with regard to medical benefits (among other things). The executive order underlying these OFCCP rules could be overturned by a new executive order. However, the general guidelines implementing these prohibitions on discrimination date back to 1970 and are well-established under case law. If the OFCCP rules are overturned, federal contractors can consider based on the language in the executive order whether to suspend, alter, or reverse changes made to comply with the OFCCP rules.