Although the policies governing whether group health plans must cover gender reassignment and gender-affirming care continues to change, employers should be aware that they run the risk of violating state and federal laws if they exclude or limit this coverage under their plans. Below, we explore the question of whether plans are required to provide this coverage and best practices for employers to comply.

Current State of the Law on Coverage of Gender Affirming Care

The question of whether an employer-sponsored group health plan is required to cover gender reassignment surgery and other gender-affirming care is complicated and depends on which laws apply to the plan. The distinction of whether a plan is fully insured or level funded/self-insured is key in determining whether federal and/or state law applies, and thus, determines what coverage the plan must provide.

State Insurance Laws

Fully insured group health plans are subject to federal law and the insurance laws of the state they are written out of, but not necessarily the insurance laws of the state in which an individual resides. Currently, twenty-four (24) states including California, New York, and Washington, D.C. explicitly prohibit insurers from discriminating based on sexual orientation, gender identity, or transgender status. This means plans written out of states with these protections should offer coverage for gender-affirming care to comply with state law, though the extent of such coverage depends on how each state’s law is written, how carriers interpret that law, and how carriers design their plans to comply. Plans written out of other states may also provide such coverage, though carriers are not legally required to do so. As we further discuss below, employers should be aware that prohibition of gender-affirming care may violate federal law.

Federal Non-Discrimination Protections Under ACA Section 1557

Unlike fully insured plans, self-insured and level funded group health plans are not subject to state insurance laws. They are, however, subject to certain federal laws, including the Affordable Care Act (ACA). Section 1557, the primary anti-discrimination provision of the ACA, prohibits discrimination based on race, color, national origin, sex, age, or disability for certain health programs and activities. In the last few years, the question of whether Section 1557’s protections apply to discrimination based on sexual orientation or gender identity has been in flux.

The Department of Health and Human Services (HHS) under the Obama administration interpreted Section 1557 as prohibiting discrimination based on sexual orientation and gender identity, as outlined in the regulations released in 2016 (“2016 Rule”). In 2020, under the Trump administration, HHS released a new Final Rule interpreting Section 1557 (“2020 Rule”), which eliminated explicit protections for discrimination based on gender identity and sex stereotyping. In addition, the 2020 Rule significantly limited the application of Section 1557 to certain entities, essentially removing Section 1557 non-discrimination protections for most employer-sponsored group health plans that previously applied under the 2016 Rule.

Since the 2020 Rule was released, several developments have curtailed the implementation of the 2020 Rule restrictions. In June 2020, the United State Supreme Court issued a decision in Bostock v. Clayton County, which held that Title VII of the Civil Rights Act prohibited employment discrimination based on sexual orientation and gender identity. Following the decision, HHS released a Notice in May 2021 informing the public that, consistent with Bostock, HHS would interpret and enforce Section 1557 to prohibit discrimination on the basis of sexual orientation and gender identity. Further, there is ongoing litigation that challenges the 2020 Rule’s provision that limits the application of Section 1557.

The Biden administration is expected to issue a new rule that will again provide explicit protections under Section 1557 against discrimination based on gender identity and sex stereotyping, though no rule has been released as of the date of this writing.

Impact on Employers

Based on these recent developments, employers with group health plans that exclude coverage for gender reassignment surgery and other gender-affirming care run the risk of violating Section 1557 and other state insurance laws that may apply. Further, employers who exclude this care run the risk of a potential lawsuit for employment discrimination based on sexual orientation and gender identity under Title VII.

Employers may want to take the following steps to comply:

For employers with fully insured plans: Though insurance carriers should be following applicable federal and state laws and incorporating the required coverage under group health plans, some carriers may interpret the law differently and limit the scope or requirements for coverage. Employers who are concerned with discrimination in their group health plans should review their plan’s covered benefits and any applicable exclusions and negotiate any needed changes with their carrier, as appropriate.

For employers with self-insured and level funded plans: 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 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 to 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. © 2021 Sequoia Benefits & Insurance Services, LLC. All Rights Reserved

Emerald Law — Emerald is a Senior 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.