Section 1557 and the SCOTUS Decision—Implications for Employer-Sponsored Group Health Plans

Employers’ minds are swirling with what to do following recent developments in changes to the Patient Protection and Affordable Care Act (ACA) Section 1557 and the recent United States Supreme Court (SCOTUS) decision. On June 12, 2020, the Office for Civil Rights (OCR) of the U.S. Department of Health and Human Services (HHS) issued a final rule under Section 1557 of ACA (2020 final rule) that rescinds certain protections afforded to LGBTQ individuals. Three days later, SCOTUS issued a decision finding workplace discrimination based on gender identity and sexual orientation is forbidden under Title VII of the Civil Rights Act of 1964 (Title VII). Read on for background information, resulting changes and the effect on employer-sponsored group health plans.

Section 1557 and the SCOTUS Decision—Implications for Employer-Sponsored Group Health Plans

ACA Section 1557 Final Rule

In 2016, HHS issued a final rule implementing ACA Section 1557 prohibiting discrimination in health programs on the basis of race, color, national origin, sex, age or disability. Health program or activity was defined broadly to include the provision or administration of health-related services or health-related insurance coverage. HHS revised the 2016 final rule for a number of reasons including to better comply with the mandates of Congress, address legal concerns, remove costly and unnecessary regulatory burdens, reduce confusion, and “clarify the scope of Section 1557 in keeping with pre-existing civil rights statutes and regulations prohibiting discrimination on the basis of race, color, national origin, sex, age, and disability.”

Preparing Your Organization for the Next Crisis

The 2020 final rule no longer:

  • Requires nondiscrimination protections related to gender identity, gender expression, sex stereotyping and termination of pregnancy
  • Requires certain health plans and insurers to cover gender reassignment surgery
  • Maintains specific grievance procedures to address discrimination complaints
  • Requires the distribution of nondiscrimination notices and foreign language assistance taglines
  • Relies on the meaning of “sex” to include sexual orientation or gender identity. HHS relies on the plain meaning to mean biological sex only.

How does this affect employers providing employer-sponsored health insurance?

The 2020 final rule narrows the application of the nondiscrimination requirements to apply to health insurers only for programs and activities that receive federal financial assistance from HHS and to HHS programs and activities only if they are provided and administered under Title I of the ACA.

•     Providing health insurance is not considered a “health program or activity” for purposes of Section 1557.

•     Employer-sponsored group health plans that do not receive federal financial assistance and are not principally engaged in the business of providing health care are not considered covered entities subject to Section 1557.

The same analysis applies to employer-sponsored health plans not covered by ERISA, as well as excepted benefits.

The 2020 final rule is effective August 18, 2020.

What does this mean for employers?

  • Employers offering employee benefit health programs that were subject to the 2016 final rule can roll back some of their notice obligations.
  • Covered entities should review and identify desired changes to grievance procedures.
  • Communications regarding health and welfare benefits can be revised to remove the nondiscrimination notices and foreign language assistance taglines.
  • Applicable group health plans must provide healthcare and coverage to all individuals regardless of race, color, national origin, sex, age or disability.
  • Employers can maintain more expansive benefit and nondiscrimination policies and practices than what federal or state law requires.

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U.S. Supreme Court Decision—Bostock v. Clayton County

On June 15, SCOTUS, in an historic 6-3 decision combining three cases, Bostock v. Clayton County, held that workplace discrimination based on gender identity and sexual orientation is prohibited under Title VII, meaning federally mandated equal treatment for LGBTQ employees. Although Bostock specifically addresses the hiring and firing of LGBTQ employees, it also has employee benefit implications.

Background

For employers with 15 or more employees, Title VII bans discrimination on the basis of race, color, religion, sex and national origin in hiring, firing, compensation, and other terms, conditions or privileges of employment. Terms and conditions of employment include employer-sponsored health care benefits.

What did SCOTUS say?

  • Sexual orientation and gender identity are captured within Title VII’s prohibition against discrimination “on the basis of sex.” “An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex.”
  • Justice Gorsuch made clear the focus of the decision is on Title VII. The court did not look to other federal or state laws prohibiting sex discrimination.

What actions should employers take now?

  • Employment policies and procedures should be evaluated to ensure that sexual orientation and gender identity are not forms of discrimination in the workplace.
  • Ensure that managers implement investigation policies and procedures and discipline employees who violate such policies and procedures.
  • Implement additional training for managers.
  • Consider all federal and state laws protecting LGBTQ employees before making changes to health coverage.
  • Review employee assistance programs for offerings specific to the needs of LGBTQ employees.

The ruling took effect immediately, so quick action should be taken to implement changes to provide equal benefits. Remember—You can always maintain nondiscrimination policies and practices broader than what federal or state law requires.

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What is the impact of the SCOTUS decision on the Section 1557 rules?

The Section 1557 2020 final rule is not directly impacted by SCOTUS’ Bostock decision, but legal challenges to the 2020 final rule are already underway.

On June 22, the first lawsuit was filed in the U.S. District Court for the District of Columbia by a coalition of LGBTQ groups and clinics seeking to block the 2020 final rule that would roll back nondiscrimination protections for sexual orientation and gender identity. It argues that the 2020 final rule eliminating nondiscrimination protections for LGBTQ patients allows for discrimination and causes confusion regarding legal obligations. The lawsuit cites Bostock, saying it casts doubt on the viability of the 2020 final rule.

Stay tuned to the International Foundation for future developments.

Amanda Wilke, CEBS

Amanda Wilke, CEBS
Information/Research Specialist at the International Foundation

Resource:
Fact Sheet: HHS Finalizes ACA Section 1557 Rule, US Department of Health and Human Services, June 12, 2020

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