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Final Regulations Broaden the Affordable Care Act’s Rules for Discrimination on the Basis of Sex

on Tuesday, 14 May 2024 in Labor & Employment Law Update: Sarah M. Huyck, Editor

On April 26, 2024, the Department of Health and Human Services published a final rule expanding the prohibition of discrimination in health care programs or activities under Section 1557 of the Affordable Care Act (“ACA”). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs and activities (“covered entities”). The final rule ends (at least for now) the complicated back-and-forth application of Section 1557, though we anticipate it will be subject to challenge.

What constitutes discrimination “on the basis of sex”?

The final rule clarifies that discrimination “on the basis of sex” specifically includes discrimination based on sexual orientation, gender identity, sex characteristics, pregnancy, and sex stereotypes. While the final rule does not require covered entities to cover particular health services (e.g., surgical treatment for gender dysphoria), the final rule prohibits the exclusion of categories of services in a discriminatory manner. 

It is not clear how courts will interpret a covered entity’s exclusion of coverage, leaving employers exposed to potential risk. For example, the Fourth Circuit recently held (even before publication of the final rule) that the exclusion of coverage for gender affirming care by a state-sponsored group health plan violated the nondiscrimination protections of Section 1557 of the ACA on its face. In Kadel v. Folwell,[1] the state’s group health plan excluded benefits related to “sex changes or modifications and related care.” The Fourth Circuit reasoned that a determination regarding coverage for gender-affirming surgeries could not be made without reference to the individual’s sex assigned at birth, thereby discriminating on the basis of an individual’s transgender identity.

What is a “covered entity”?

The new regulations return to the broader definition—originally set forth in the 2016 regulations—of health programs and activities, to clarify that any health programs and activities that receive federal financial assistance are “covered entities” subject to the rule. Application of the rule will accordingly extend to hospitals, health clinics, health insurance issuers, state Medicaid agencies, federal and state Marketplaces, and third-party administrators that receive federal financial assistance. While application of the final rule does not expressly extend to employers, those sponsoring fully-insured group health plans will certainly feel its impact. 

When does the rule go into effect?

The final rule is effective July 5, 2024, but covered entities must comply with the nondiscrimination requirements for purposes of plan design by the first day of the plan year beginning on or after January 1, 2025. While the primary burden of the new rule will fall on “covered entities,” employers should carefully consider their coverage decisions.  Even self-funded plans should consider the rule’s application, as third-party administrators may be less inclined to administer a non-compliant plan. 

[1]  2024 WL 1846802 (4th Cir. Apr. 29, 2024).

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