On May 24, 2019, the U.S. Department of Health and Human Services (HHS) issued new proposed regulations interpreting Section 1557 of the Affordable Care Act (ACA), which contains the ACA’s anti-discrimination provisions.¹  These proposed regulations substantially change Obama-era HHS regulations interpreting Section 1557 to prohibit discrimination in certain health programs based on gender identity, gender expression, and transgender status.  (Littler’s previous coverage of Section 1557 is available here.) 

Background

In 2016, the Obama administration issued final regulations under Section 1557 stating that discrimination based on “sex” in federally funded health programs would be interpreted to prohibit discrimination based on gender identity, gender expression, and transgender status.  Under the 2016 regulations, health programs and activities that received federal funding, such as physicians, healthcare facilities, laboratories, and community health centers, were required to treat individuals consistent with their gender identity and could not deny anyone treatment based on their transgender status.  Likewise, insurers could not categorically exclude treatment for transgender- or transition-related care, such as gender affirming surgery, hormone therapy, and mental health counseling.  Certain self-funded employee benefit plans receiving federal funding from HHS are also subject Section 1557.

The 2016 regulations were challenged in the Northern District of Texas by Franciscan Alliance, a hospital system in Indiana and Illinois.  In Franciscan Alliance v. Price, the hospital system argued that its employees’ “religious beliefs [would] not allow them to perform medical transition procedures [on transgender individuals] that can be deeply harmful to their patients.”  As a result of Franciscan Alliance’s challenge, the judge found the regulations’ interpretation of sex to include gender identity violated both the Administrative Procedures Act and the Religious Freedom Restoration Act; on December 31, 2016, the 2016 regulations were enjoined on a nationwide basis.²

Instead of appealing the injunction, the government asked that the ruling be stayed and the final regulations be sent back to HHS to review.  After more than two years, HHS issued the new proposed regulations.  While the proposed regulations include general prohibitions against discrimination based on race, color, national origin, sex, age, and disability, the regulations abandoned the position taken in the 2016 regulations that Section 1557 would be interpreted to prohibit gender identity, gender expression, and transgender status as discrimination based on “sex.”  In an FAQ alongside the proposed regulations, HHS explained:

Under the proposed rule, HHS would apply Congress’s words using their plain meaning when they were written, instead of attempting to redefine sex discrimination to include gender identity . . . These redefinitions were preliminarily enjoined because a federal court found they were unlawful and exceeded Congress’s mandate.  The proposed rule would not create a new definition of discrimination ‘on the basis of sex.’  Instead HHS would enforce Section 1557 by returning to the government's longstanding interpretation of ‘sex’ under the ordinary meaning of the word Congress used. 

The proposed regulations were published in the Federal Register on June 14, 2019, which opened the notice and comment period.  The notice and comment period on the proposed regulations expires August 13, 2019.

Conflict with Other Federal Precedent Regarding Section 1557

In direct contrast with the HHS’ proposed regulations, HHS’ FAQ’s, and the decision in Franciscan Alliance v. Price, other district courts that have addressed the question of whether Section 1557 prohibits discrimination based on transgender status have confirmed that it does.  For example, on July 25, 2018, in Flack v. Wisconsin Department of Health Services, the district court granted a preliminary injunction to two plaintiffs who challenged the State of Wisconsin’s Medicaid plan, which contained a categorical exclusion from coverage for all “[t]ranssexual surgery” and related procedures and medications.³  The Flack Court determined that such a blanket exclusion against all transgender- and transition-related procedures, which prevented the two plaintiffs from getting medically necessary treatments, did so on the basis of both their assigned sex at birth and their transgender status.  The Flack Court, therefore, determined the blanket exclusion was discrimination based on sex in violation of Section 1557.

Thereafter, on September 18, 2018, in Boyden v. Conlin, the same judge who decided the Flack case also ruled that the State of Wisconsin’s complete exclusion of “[p]rocedures, services, and supplies related to surgery and sex hormones associated with gender reassignment” from health insurance coverage provided to state employees violated Section 1557 of the ACA.⁴  Two days later, on September 20, 2018, in Tovar v. Essentia Health, a district court in Minnesota similarly found that, irrespective of the status of the HHS’ regulations, the plain language of Section 1557 prohibited discrimination on the basis of gender identity.⁵

Conflict with Interpretations of Title VII    

Notwithstanding the FAQs issued by the HHS claiming it would “enforce Section 1557 by returning the government’s longstanding interpretation of ‘sex’ under the ordinary meaning of the word Congress used,” such interpretation is in direct contrast to case law in some appellate courts interpreting “sex” under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. (Title VII).  

Specifically, Title VII makes it unlawful for an employer to “fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.”  Employer-sponsored benefits plans, like health insurance, are part of an employee’s wages and benefits for purposes of Title VII.

Title VII does not require employers to offer any particular type or category of benefit in a health care plan.  When an employer decides to offer a health care plan covering everything except a few specifically excluded procedures or conditions, however, Title VII requires an employer to make sure the resulting plan provides equally comprehensive coverage for both sexes and does not discriminate based on sex-based characteristics.⁶ 

In the context of transgender- and transition-related procedures, there is no provision in Title VII that explicitly calls out transgender-related conditions or transgender status as “discrimination on account of sex.”  The EEOC and some federal courts, however, (including the U.S. Court of Appeals for the Second, Sixth, and Seventh Circuits), have determined that an intentional act by an employer taken based on an individual’s transgender status is discrimination based on sex and a violation of Title VII.  Other federal courts, including the U.S. Court of Appeals for the Fifth Circuit, have disagreed and found Title VII protection does not extend to transgender status.  This issue currently is pending before the U.S. Supreme Court in R.G. & G.R. Harris Funeral Homes v. Equal Employment Opportunity Commission, in which the Supreme Court will consider whether Title VII’s protections apply to transgender employees and resolve the split in opinion among federal courts.  

As relates to health care plans, the Boyden Court applied these principles to an exclusion in the state employees’ health care plan that refused to cover “[p]rocedures, services, and supplies related to surgery and sex hormones associated with gender reassignment.”  The Boyden Court found the exclusion violated Title VII, in addition to Section 1557:

[t]he Exclusion implicates sex stereotyping [under Title VII] by limiting the availability of medical transitioning, if not rendering it economically infeasible, thus requiring transgender individuals to maintain the physical characteristics of their natal sex.  In other words, the Exclusion entrenches the belief that transgender individuals must preserve the genitalia and other physical attributes of their natal sex over not just personal preference, but specific medical and psychological recommendations to the contrary.

Recommendations for Employers

Regardless of whether the proposed regulations become final in their current iteration, employers should continue to evaluate whether their employer-sponsored benefits plans and programs contain blanket, categorical exclusions from coverage for health services or care related to transgender- or transition-related procedures.  If these plans and programs contain such exclusions, employers should consult with their benefits group, Plan Administrator and counsel to determine how best to ensure compliance with Section 1557 and Title VII.