ORIGINALLY PUBLISHED ON 6/18/20.

UPDATED 8/18/20: On August 17, 2020, a federal judge temporarily blocked certain provisions of the HHS Final Rule from going into effect. These provisions, which would have rolled back healthcare protections for transgender individuals, were scheduled to take effect on August 18, 2020. The judge found that the Final Rule was contrary to the recent Supreme Court decision in Bostock v. Clayton County, which held that Title VII prohibited employment discrimination based on sexual orientation and gender identity. Further, the judge temporarily blocked the repeal of the 2016 Rule’s expanded protections against gender identity discrimination, meaning that the 2016 Rule will temporarily remain in effect. The Final Rule will be put on hold until the case is concluded.

UPDATED 8/6/20 with additional guidance on California and New York insurance laws that prohibit insurers from discriminating based on sexual orientation, gender identity, or transgender status.

UPDATED 7/21/20: On July 20, 2020, a coalition of 23 state attorney generals filed a lawsuit challenging the Trump Administration’s Final Rule interpreting Section 1557 of the Affordable Care Act (ACA). The lawsuit alleges that the Final Rule is undermines ACA protections for LGBTQ+ individuals, communities of color, individuals with disabilities, and women. The lawsuit asks the court to find the Final Rule unlawful and void. The case is currently pending in federal court in the Southern District of New York.

On June 12, 2020, the Department of Health and Human Services (HHS) released the new Final Rule (“Final Rule”) interpreting Section 1557, which makes significant changes to the current regulations that were adopted in 2016 (“2016 Rule”). Section 1557 is the primary anti-discrimination provision of the Affordable Care Act (ACA), which prohibits discrimination on the basis of race, color, national origin, sex, age, or disability for certain health programs and activities. The Final Rule makes the following changes to the 2016 Rule:

  • Significantly limits which entities and which health care activities are subject to Section 1557 non-discrimination protections;
  • Eliminates explicit protections for discrimination based on gender identity, sex stereotyping, and terminations of pregnancy;
  • Provides an explicit religious exemption to Section 1557; and
  • Eliminates the notice and “taglines” requirements, which required covered entities to post and disseminate detailed notices of nondiscrimination, information on disability-access services, and translation services in non-English languages.

The main changes made by the Final Rules are discussed in further detail below.

Limits Application of Section 1557

The Final Rule drastically limits the application and scope of Section 1557 by eliminating the definition of “covered entities” under the 2016 Rule. Under the Final Rule, Section 1557 applies to programs or activities administered under Title I of the ACA and to entities:

  • principally engaged in the business of providing healthcare (e.g. hospitals, nursing facilities, physical therapists, etc.) and receiving federal financial assistance from HHS; and
  • entities that are not principally engaged in the business of providing healthcare but only to the extent those activities are funded by HHS.

Under the prior 2016 Rule, Section 1557 applied to entities that received federal financial assistance and provided or administered health services, insurance coverage, or assistance to individuals obtaining services or coverage. Insurers who received any federal financial assistance (such as premium tax credits, Medicaid, CHIP, or Medicare Advantage) had to comply with Section 1557 across all of their activities, not just for the products in which they received financial assistance. This meant that employer-sponsored group health plans could be subject to Section 1557 if the plan was offered by an insurer who received any federal funding.

The Final Rule limits the application of the rule to entities principally engaged in the business of providing healthcare, which would not include insurers, self-insured group health plans, church plans, excepted benefits, or short-term plans. The Final Rule also applies to entities not principally engaged in healthcare, but only to the extent those activities receive federal funding from HHS. Therefore, Section 1557 now only applies to these entities if they receive federal financial assistance and, even then, only to that entity’s specific activities that receive federal funding.

This change may result in significantly limiting Section 1557 non-discrimination protections under employer-sponsored group health plans. This is because insurers no longer have to comply with Section 1557 for the group health plans that they offer simply because they receive federal funding in a different line of business. Employers may want to check in with their carriers to see whether the new rule change will affect their plan offerings or protections.

Eliminates Explicit Protections for Gender Identity, Sexual Orientation, and Abortion Under Section 1557

Section 1557 prohibits discrimination on the basis of sex. The 2016 Rule defined “sex” to include “gender identity,” “sex stereotyping,” and “termination of pregnancy,” thereby expanding Section 1557 anti-discrimination protections to transgender individuals and individuals who terminated pregnancies.

The Final Rule eliminates the definition section of the 2016 Rule entirely, thereby eliminating the expanded definition of “sex” and the explicit protections for transgendered individuals and individuals who terminated pregnancies. Although the Final Rule does not adopt an alternative definition of “sex,” HHS has made it clear that it will interpret “sex” to mean “biological sex.” 

Gender Identity  

Under the Final Rules, insurers will no longer be required to cover gender transition services and will no longer be prohibited from denying claims or imposing benefit restrictions because an individual is transgendered. Further, covered entities will no longer be required to treat individuals consistent with their gender identity (as far as it relates to Section 1557, though other federal laws or state laws may still apply).

Even though the Final Rule eliminates protections for gender identity, courts have ruled in favor of individuals who alleged gender identity discrimination based on the plain text of Section 1557, and not on the 2016 Rule’s expanded definition. Thus, the elimination of the explicit protections for gender identity may not necessarily mean that individuals cannot sue for gender identity discrimination.

Termination of Pregnancy

The Final Rule eliminates the protection against discrimination based on a termination of pregnancy and provides for an “abortion exemption,” which would not require any covered entity subject to Section 1557 to pay for abortion-related benefits or perform or pay for an abortion.

Sexual Orientation

The Final Rule also amends 10 additional regulations (separate from the Section 1557 regulations) that protect against sexual orientation and gender identity discrimination in order to “conform them” with the changes made by the Final Rule. These separate regulations include nondiscrimination provisions under the Centers for Medicare and Medicaid (CMS) related to the marketing, administration, enrollment, and delivery of HHS funded or administered programs by States, Exchanges, agents, brokers, insurers, qualified health plans, Programs for All-inclusive Care of Elderly (PACE) programs, and Medicaid programs.

Adopts an Explicit Religious Exemption to Section 1557

The Final Rule adds explicit abortion and religious exemptions for entities subject to Section 1557 by stating that Section 1557 must comply with a series of “healthcare conscious laws,” the Religious Freedom Restoration Act, and the First Amendment. The 2016 Rule did not provide for such an explicit exemption but did provide entities with an exemption if the application of Section 1557 violated any applicable federal statutory protections for religious freedom and conscience.

What’s Next

One day after HHS released the Final Rule, the U.S. Supreme Court issued the landmark decision in Bostock v. Clayton County, Georgia, which found that employers are prohibited from discriminating against employees based on their sexual orientation and gender identity under Title VII of the Civil Rights Act. Prohibited discrimination can include an employer failing or refusing to hire, discharging, or otherwise discriminating against an employee with respect to their compensation, terms, conditions or privileges of employment based on their sexual orientation or gender identity.

The Bostock decision does not overturn Section 1557’s elimination of transgender protections, but it will likely bolster arguments by parties challenging the new Final Rules. In light of the Bostock decision, employers should also be cognizant that group health plan provisions excluding services based on an individual’s sexual orientation or gender identity could possibly be grounds for discrimination under Title VII, since this could be seen as employment discrimination based on their sex.

Impact on Employers

For employers with fully insured plans:

Under the Final Rules, insurers no longer have to comply with Section 1557 for the group health plans they offer simply because they receive federal funding in a different line of business. This may result in insurers offering plans with less protections for transgender individuals and abortions. However, as noted above, insurers may be subject to state insurance laws that require them to cover certain benefits for transgender individuals or abortions.

Both California and New York have passed insurance laws that require fully insured plans written out of those states to provide certain medical treatment for transgender individuals.

  • In California, insurers are prohibited from denying, cancelling or limiting insurance based on gender identity, expression, or transgender status and are prohibited from arbitrarily excluding coverage for gender affirmation services including (but not limited to) hormone therapy, mental health services, and surgical services. See the Department of Managed Health Care Letter on Gender Nondiscrimination Requirements. California Insurance Commissioner has reaffirmed that California insurers must comply with these non-discrimination provisions irrespective of the new Section 1557 Final Rule.
  • On April 29, 2020, New York announced final regulations that cement New York Insurance Law circular letters that outline coverage for gender dysphoria, non-gender specific services, and for the HIV-prevention preexposure prophylaxis (PrEP). The final regulations prohibit New York State-regulated health insurers from denying, limiting, or excluding coverage based on an individual’s sexual orientation, gender identity or expression, or transgender status.

Employers who are concerned with transgender discrimination in their group health plans should review their plan’s covered benefits and any applicable exclusions and negotiate any needed changes, as appropriate.

For employers with self-insured plans:

If employers are not engaged in the business of providing healthcare and their plans do not receive federal financial assistance from HHS, their group health plans will not be subject to Section 1557. While employers cannot control whether certain facilities will harass or deny care for their transgender employees, self-insured employers can take the following steps to provide support to these employees:

  • Review the benefits and requirements under their plans to make them more inclusive;
  • Work with their carriers and third-party administrators (TPAs) to ensure that they have protections and coverage for transgender individuals in their plans;
  • Ensure that they communicate to their TPA (or whoever assists with the claims approval/denial process) that services for transgender individuals are accepted and processed;
  • Review their networks and see if there are specific providers that welcome transgender individuals; and
  • Review their employee assistance programs (EAPs), mental health programs, and family planning benefits to ensure those benefits also cover transgender individuals.

Additional Resources:

Disclaimer: This content is intended for informational purposes only and should not be construed as legal, medical or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable. This information and any questions as to your specific circumstances should be reviewed with your respective legal counsel and/or tax advisor as we do not provide legal or tax advice. Please note that this information may be subject to change based on legislative changes. © 2020 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Emerald Law – Emerald is a Client Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Emerald enjoys stand-up comedy, live music and writing non-fiction.