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Issues for Employer Group Health Plans: Nondiscrimination Bias of Sexual Orientation and Gender Identity

October 1, 2020

Section 1557 of the Affordable Care Act (ACA) generally prohibits health care discrimination based on race, color, age, sex, disability and national origin. The U.S. Department of Health and Human Services (HHS) recently ruled that Section 1557 applies to health plans only if they receive financial assistance from HHS or are sponsored by health care providers. As a result, it seemed that most employer-sponsored health plans, which generally do not receive direct federal assistance, would be exempt from the nondiscrimination provisions in Section 1557 of the ACA.

While this was good news for employers, the situation became muddled just three days later, when the Supreme Court issued a landmark decision in Bostock v. Clayton County, Georgia. The Bostock decision held that the prohibition on sex discrimination in Title VII of the Civil Rights Act includes discrimination on the basis of sexual orientation and gender identity. Title VII typically governs employment issues such as hiring, firing, promotions, and harassment, not compensation or benefits. Although the Court’s decision did not directly address the Section 1557 nondiscrimination provisions, it may spill over into Section 1557 as well as other nondiscrimination laws. 

Since this area of law is still developing, employers that sponsor group health plans should be wary of relying on the new HHS Section 1557 rules. While the Bostock decision did not invalidate the new HHS rules, the decision did call into question HHS’s reasoning and opened this area to legal challenges. Indeed, two transgender women sued HHS shortly after the Bostockdecision, arguing that they suffered discrimination based on their transgender status, and asked the court to vacate the new HHS rules.

In addition to the ongoing legal challenges at the federal level, the Michigan Department of Insurance and Financial Services (DIFS) issued a bulletin in response to the Bostock decision confirming that it interprets sex discrimination to include discrimination based on sexual orientation and gender identity. Fully insured health plans in Michigan are subject to DIFS rules and must comply with this interpretation. However, the DIFS guidance does not apply to self-funded group health plans or insured plans outside Michigan.

As a result of all these changes, employee benefit plans should be cautious about benefits that discriminate based on characteristics related to a participant’s sex, including gender identity or sexual orientation. For instance, if an employee benefit plan does not cover gender affirmation surgery or gender dysphoria treatment, or if the plan covers opposite-sex spouses but not same-sex spouses, it could be open to a participant lawsuit.

Employers should review their plan documents to ensure that they do not specifically exclude services such as these examples, or otherwise create issues related to sex discrimination. This review should include insurance policies and other coverage agreements with health insurers and third-party administrators. Therefore, employers should also coordinate with their insurer or third-party administrator to review the coverage provided under the plan.

If you are an employer maintaining a group health plan, we recommend contacting your primary Varnum attorney or any member of the Employee Benefits Practice Team to review your plan and coverage agreements.

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