Every month, the International Foundation releases the Legal and Legislative Reporter, a compilation of new employee benefits–related case summaries. Below is a summary we thought you’d be interested in. Content provided by Morgan, Lewis & Bockius LLP.

The U.S. District Court for the Western District of Washington grants the plaintiffs’ motion for summary judgment because the defendant violated Section 1557 of the Affordable Care Act (ACA) by discriminating against the plaintiffs on the basis of sex.

The plaintiffs include a child, by and through his parents, and his mother, who are enrolled in a self-funded health plan sponsored by his mother’s employer. The defendant is an insurance company that acts as a third-party claims administrator for the plan. The plan is subject to the ACA and the Employee Retirement Income Security Act of 1974 (ERISA).

The plaintiff child is a seventeen-year-old transgender male whose assigned sex at birth was female and who has been living as a male since approximately 2015. The plaintiffs claim that the defendant violated the antidiscrimination provision of the ACA when it administered discriminatory exclusions of gender-affirming care under the plan.

The plaintiff child has gender dysphoria and filed a claim for hormone therapy. The defendant initially approved this claim, but later informed the plaintiff mother that it had done so mistakenly because the treatment was actually not covered by the plan. As a result, the initial claim for the hormone therapy was approved by the defendant, but indicated that future claims for hormone therapy would not be. When the plaintiffs filed a claim for a second hormone therapy treatment and chest reconstruction, the defendant denied the claim, stating that the plan did not cover transgender services. Notably, although the plan purports to not cover such claims, it does cover hormone treatment, mastectomies and chest reconstruction in other contexts. Ultimately, the plaintiff child received treatment for his gender dysphoria by paying out of pocket.

The plaintiffs filed suit individually and on behalf of others that are similarly situated, and the court certified the plaintiffs as a class. In the amended class certification, the class includes all individuals who have been, are or will be participants and beneficiaries in an ERISA self-funded group health plan during the class period, where the plan excludes gender affirming care services, and who were, are or will be denied preauthorization or coverage of gender affirming care treatment and services. The plaintiffs, as a class, argue that the defendant violated Section 1557 of the ACA, which is the antidiscrimination provision.

The plaintiffs seek a declaration that the defendant violated this provision, an order enjoining the defendant from administering plans that exclude gender affirming care, and an order requiring the defendant to reprocess its claims to provide coverage when previously denied only because of the plan’s exclusion of gender affirming care. The plaintiff mother also brings claims for emotional distress damages, attorney fees, costs and expenses, as well as a claim for financial harm.

In response to these claims, the defendant argues that it is not subject to the antidiscrimination provision of the ACA, and even if it was, its third-party administration of the plan’s exclusions was not discriminatory. Lastly, the defendant contends that its actions were protected by the Religious Freedom Restoration Act since the plan was sponsored by a religious employer.

To make a claim under Section 1557 of the ACA, the plaintiffs must show (1) that the defendant operates a health program or activity that receives federal funding in some way, (2) the plaintiffs were subject to discrimination, denied benefits or excluded from coverage in the defendant’s provision of the program, and (3) that the latter occurred on the basis of sex.

First, the court concludes that the defendant engages in activities that constitute the operation of a health program or activity because this includes the administration of health insurance. Additionally, although the defendant does not receive federal financial assistance for administering the plan, it does receive financial assistance in its other capacities. Second, the court finds that the parties do not dispute that the plaintiff child’s claim for gender affirming surgery was denied (as were the claims of other class members) and that the plaintiff mother was denied benefits under the plan. Therefore, this element is met. Third, Section 1557 prohibits sex discrimination based on transgender status. As such, because the plaintiff child was denied coverage for gender dysphoria, a diagnosis directly tied to his transgender identity, that denial constituted discrimination on the basis of sex in contravention of Section 1557. Consequently, the court finds that the plaintiffs’ motion for summary judgment should be granted, so long as the defendant does not establish a valid defense.

Further, the defendant argues that Section 1557 does not apply to third party administrator activities because those do not constitute health care activities and the plan does not receive federal financial assistance. The defendant points to a 2020 Health and Human Services rule, which provides that the health program or activity provision of Section 1557 only applies to entities that are primarily engaged in providing health care and that receive federal financial assistance; if an entity is not primarily engaged in this business, then the requirements apply only to the extent that the entity receives federal financial assistance.

The court concludes that this rule is not entitled to deference. Because this rule is ambiguous, the court placed it in the context of the ACA and Section 1557, and it concludes that Section 1557 was enacted to prohibit discrimination by any entity operating in the health care system, including third party administrators. Therefore, the court rejects the defendant’s defense.

The court also rejects the defendant’s purported defense that it does not receive federal financial assistance. The relevant Section 1557 provision provides that a covered entity is one that is principally engaged in health programs or activities with any part of its operation receiving federal assistance. The defendants are engaged in health programs or activities through its role on insurance contracts, which receive federal financial assistance. It is irrelevant that the plan itself doesn’t receive federal financial assistance, and therefore, the question is whether the defendant receives federal financial assistance in any capacity. 

The court also rejects the defendant’s argument that it did not design the discriminatory exclusion and therefore cannot be held liable. The defendant claims that ERISA requires them to follow the terms of the plan. The court concludes that although ERISA does require plans to be administered in accordance with its written instrument, ERISA should not be interpreted to invalidate or impair any other law, rule or regulation, including Section 1557.  Therefore, because the defendant is covered by Section 1557, it cannot use ERISA as a vehicle to avoid liability. Furthermore, even if the defendant did not have an independent duty to comply with Section 1557, judicial precedent indicates that it would still be liable under this provision based on the plan’s discriminatory terms.

Furthermore, the court also rejects the defendant’s argument that the plan does not discriminate on the basis of sex. The defendant argues that there is not a medical consensus as to the necessity of gender affirmation surgery; however, the court finds that this point is irrelevant because the defendant’s decision to deny the plaintiffs’ claims was based on the plaintiff child’s transgender status, not on the medical consensus on transgender care.

Finally, the court rejects the defendant’s claim that it is entitled to summary judgment pursuant to the Religious Freedom Restoration Act (RFRA) because the protections afforded by RFRA are not appropriate in this case. Consequently, the court concludes that the defendant is not entitled to summary judgment on any of its defenses. While the court briefly addresses the plaintiff mother’s claims for emotional distress damages, it finds that she is not entitled to these damages because such damages are not recoverable in private actions to enforce the ACA’s antidiscrimination provisions.

Accordingly, the court grants the plaintiffs’ motion for summary judgment on its claims under the ACA.

C.P. v. Blue Cross Blue Shield, No. 3:20-cv-06145-RJB (W.D. Wash., Dec. 19, 2022).

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