Pension & Benefits News Employer-sponsored plan’s exclusion for sex reassignment treatment plausibly violated ACA’s non-discrimination provision
Wednesday, October 3, 2018

Employer-sponsored plan’s exclusion for sex reassignment treatment plausibly violated ACA’s non-discrimination provision

By Pension and Benefits Editorial Staff

An employer and its third-party administrator (TPA) will face claims that they violated the Patient Protection and Affordable Care Act (ACA) by denying health insurance coverage for an employee’s son’s gender reassignment treatment based on the plan’s categorial exclusion for "services and/or surgery for gender reassignment." Mostly denying the defendants’ motion to dismiss, a federal court in Minnesota ruled that the ACA prohibits gender identity discrimination and the defendants had adequate notice of such a prohibition. But while the employee’s son established that he had statutory standing to proceed against the TPA, the employee did not possess Article III standing since she had been reimbursed for out-of-pocket expenses and could not seek damages based on her own emotional distress caused by a deprivation of her son’s civil rights.

Denied coverage. The employee worked for Essentia Health and received health insurance through its self-funded medical plan, which was administered by HealthPartners, Inc. In 2014, her teenage son became a beneficiary of the plan, and later that year was diagnosed with gender dysphoria—a condition in which an individual’s gender identity differs from the gender assigned at birth. She sought coverage for his medications and gender reassignment surgery, but her requests were denied based on the plan’s categorical exclusion for "services and/or surgery for gender reassignment."

Claims against employer and TPA. She subsequently incurred out-of-pocket expenses for medication she purchased without coverage, but the defendants later decided to cover it and reimbursed her. At Essentia’s request, HealthPartners also removed the exclusion from the plan starting on January 1, 2016. Meanwhile, the employee and her son brought this lawsuit asserting that the defendants violated Section 1557 of the ACA by designing and sponsored a health care plan that contained a discriminatory categorical exclusion for all health services related to gender transition and denying the son’s coverage for medically necessary care.

ACA prohibits gender identity bias. The court rejected the defendants’ assertion that gender identity bias is not included within Section 1557’s prohibition against discrimination and the denial of benefits on the basis of race, color, national origin, sex, age, or disability "under any health program or activity, any part of which is receiving Federal financial assistance." Notably, Section 1557 expressly incorporates four federal civil rights statutes: Title VI, Title IX, the ADEA, and the Rehabilitation Act. And while Title VII is not expressly incorporated, courts often look to Title VII when construing Title IX.

Therefore, the court reviewed U.S. Supreme Court guidance in Price Waterhouse and Oncale, as well as on-point federal cases recognizing Title VII claims for sex discrimination based on gender identity and gender-transition status. Moreover, numerous courts have held that Section 1557’s non-discrimination requirements do encompass gender identity bias. With this backdrop, the court denied the defendants’ motion to dismiss on that basis, ruling that gender identity discrimination is prohibited under Section 1557.

Adequate notice. The court also rejected the defendants’ assertion that the Section 1557 claims still failed since they did not have notice that the ACA prohibited gender identity discrimination until the U.S. Department of Health and Human Services (DHHS) issued the final agency rule concerning the non-discrimination requirements. Section 1557 had been in effect since 2010, when Congress passed the ACA, and its plain language incorporated Title IX and its prohibition on sex discrimination. By way of the reasoning and Supreme Court precedent, the defendants had adequate notice.

TPA could be held liable. The court also rejected HealthPartners assertion that, as a TPA, it could not be held liable for administrating a plan whose discriminatory terms were under the sole control of the employer. Contrary to this argument, ERISA specifically carves out room for TPAs to comply with other federal laws. Because nothing in Section 1557 suggested that TPAs are exempt from the nondiscrimination requirements, HealthPartners could be held liable.

Employee didn’t have Article III standing. However, the employee lacked standing to pursue her claim against HealthPartners since she had been reimbursed out-of-pocket expenses and could not seek damages based on her own emotional distress caused by a deprivation of her son’s civil rights. Though the Eighth Circuit’s prior opinion in these proceedings found that she suffered a potential injury based on unreimbursed expenses, at that point the record was silent as to whether she had been fully reimbursed for her son’s medication expenses. As the record made clear that her expenses had been redressed, she did not have Article III standing. “This is the correct legal result—but not the fair and just one,” lamented the court.

Son had statutory standing. Allowing the son’s claim to proceed, the court rejected HealthPartners assertion that he lacked statutory standing because he was not within the class of plaintiffs authorized to bring suit. Because Section 1557 incorporates anti-discrimination provisions and the son had an interest in not being discriminated against based on his gender identity, his interest fell within the zone of interests meant to be protected by the statute. Additionally, the harm that he suffered—being denied access and receiving delayed access to medically necessary care—was proximately caused by the TPA’s designing and providing the discriminatory provisions in the plan.

Motion to stay denied. Finally, the court denied the defendants’ request to put the plaintiffs’ lawsuit on hold pending resolution of Franciscan Alliance, Inc. v Burwell, where a district court had issued a nationwide injunction enjoining enforcement of the DHHS rule providing, in relevant part, that Section 1557’s prohibition against sex discrimination encompassed gender identity. A stay was not warranted since the court’s conclusion that Section 1557 prohibits gender identity discrimination relied solely on the plain, unambiguous language of the statute and not on the DHHS regulation at issue in Franciscan Alliance.

SOURCE: Tovar v. Essentia Health (D. Minn.), No. 16-cv-00100-DWF-LIB, September 20, 2018.

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