In litigation under Section 1557 of the Affordable Care Act (ACA), a North Carolina district court concluded that a state group health plan was a "health program or activity" subject to Section 1557's nondiscrimination protections (Kadel v. Folwell, (M.D.N.C. Dec. 5, 2022)). As a result, the plan's coverage exclusion for treatment related to gender dysphoria violated Section 1557.

The plaintiffs in this case were state employees who, as participants in the state's group health plan, asserted that the plan's categorical exclusion for gender affirming care discriminated against them on the basis of sex and transgender status in violation of the Equal Protection Clause, Title VII of the Civil Rights Act, and ACA Section 1557. The employees also brought these claims on behalf of their children, who were covered dependents under the plan and transgender individuals. The plan had denied coverage for treatment for the employees (or their dependents) related to gender dysphoria, citing the plan's exclusion for benefits related to "sex changes or modifications and related care."

(Regarding gender dysphoria, see Article, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Litigation Involving Health Plan Categorical Exclusion Allowed to Proceed. For additional Section 1557 resources, see ACA Section 1557 Compliance for Health Coverage Toolkit.)

In rulings from earlier in 2022, the district court:

(Kadel v. Folwell, (M.D. N.C. Aug. 10, 2022); (M.D.N.C. Oct. 19, 2022).)

In its earlier 2022 rulings, the court relied on a Fourth Circuit decision holding that Title IX's prohibition on sex discrimination must be construed similarly to the Title VII interpretation under the Supreme Court's Bostock ruling. (In Bostock, as background, the Supreme Court interpreted Title VII's prohibition of sex discrimination to include gender identity (see Article, June 2020 Final Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities: Supreme Court Bostock Ruling on Title VII and Transgender Status).)

In its earlier decisions, the district court expressly declined to decide whether the challenged plan exclusion also violated Section 1557. The court reserved judgment because HHS was, at the time revisiting its interpretation of the meaning of "health program or activity" and rewriting its Section 1557 regulations. However, HHS issued its re-proposed regulations under Section 1557 in August 2022 (see Article, August 2022 Re-Proposed Regulations Addressing Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557)). In light of the August 2022 re-proposed regulations (and with supplemental briefing from the parties), the court determined that it could rule on whether the plan's exclusion also violated Section 1557.

In analyzing the employees' Section 1557 claim, the court determined that the only issue it needed to decide was whether the disputed plan was a "health program or activity" for Section 1557 purposes. The court acknowledged that HHS's Section 1557 implementing regulations from 2020 remained in effect and expressly defined the term "health program or activity." However, the court declined to give Chevron deference to those regulations because it concluded that the ACA statute's "health program or activity" language (though not defined under the ACA itself) clearly included health insurance providers and health plans. The court found persuasive a 2021 district court ruling that had reached the same conclusion (Fain v. Crouch, 545 F. Supp. 3d 338 (S.D.W. Va. June 28, 2021); see Legal Update, District Court: Health Insurer Must Comply with ACA Section 1557 Nondiscrimination Rules Regarding Its Entire Portfolio). In Fain, the district court concluded that by applying Section 1557's nondiscrimination protections to "any health program or activity," Congress intended to prohibit discrimination by any entity acting within the health system.

Additionally, the court in Kadel reasoned that:

The court also found persuasive HHS's August 2022 re-proposed regulations, which would apply Section 1557's protections to health insurers that receive federal financial support.

Accordingly, the district court ruled in the employees' favor on their Section 1557 claim.

The scope of entities subject to HHS's Section 1557 implementing regulations has changed over the years depending on which administration issued the regulations. For example, the Biden administration's August 2022 re-proposals—in a departure from both the May 2016 and June 2020 final regulations—would not apply to employers regarding their employment practices, including in providing employee health benefits (Prop. 45 C.F.R. § 92.2(b)). The May 2016 and June 2020 final regulations, by contrast, applied to employment in limited situations. The August 2022 re-proposed regulations would govern many health insurers and would prohibit discrimination in health insurance and other health-related coverage.