In litigation under Section 1557 of the Affordable Care Act (ACA), a Texas district court vacated HHS guidance addressing gender affirming care for minors on the grounds that the guidance was arbitrary and capricious and violated the Administrative Procedure Act (APA) (Texas v. EEOC, et. al., (N.D. Tex. Oct. 1, 2022)).

In 2020, as background, the Supreme Court ruled in Bostock v. Clayton County, GA that the phrase "because of sex" for Title VII of the Civil Rights Act of 1964 (Title VII) purposes prohibits employers from terminating employees on the basis of their sexual orientation or transgender status (140 S. Ct. 1731 (2020)). For more information, see:

In February 2022, the Governor of Texas directed the state's child welfare agency to investigate certain gender affirming care for minors as child abuse. In response, HHS issued guidance in March 2022 stating that:

(HHS Notice and Guidance on Gender Affirming Care, Civil Rights, and Patient Privacy (Mar. 2, 2022) ("March 2022 guidance").)

Gender dysphoria refers to the condition in which an individual experiences distress and anxiety resulting from the incongruence between the individual's gender identity and birth-assigned sex.

In interpreting ACA Section 1557, HHS's March 2022 guidance:

In addition, the March 2022 guidance reminded HIPAA covered entities (including health plans and health providers) and business associates that HIPAA permits, but does not require, disclosure of PHI if the disclosure:

(See HIPAA Privacy, Security, and Breach Notification Toolkit.)

The State of Texas sued HHS, seeking to have the March 2022 guidance declared unlawful and vacated. Texas also challenged June 2021 guidance issued by the EEOC addressing the Bostock ruling's implications under Title VII. The parties asked the court to rule on the dispute without a trial.

In reviewing the March 2022 guidance, the district court concluded that HHS misread the Supreme Court's Bostock decision by conflating a status/conduct distinction in the decision. In Bostock, the Court held that an employer discriminates on the basis of sex, for Title VII purposes, by firing an employee "for being homosexual or transgender" (140 S. Ct. at 1743). Texas argued that this holding was limited to the status of being homosexual or transgender, but not all correlated conduct. HHS, on the other hand, argued that Bostock's holding encompassed conduct associated with those statuses.

Agreeing with Texas, the district court reasoned that:

The district court held that the March 2022 guidance was arbitrary and capricious because HHS failed to explain its decisionmaking in applying the Bostock ruling to gender dysphoria. In reaching this conclusion, the court rejected HHS's argument that the guidance did not adopt a different interpretation of sex than the one articulated by the Supreme Court. The court also reasoned that the guidance misstated the law by implying that gender dysphoria is generally a disability under the ADA and Section 504 of the Rehabilitation Act.

Texas also argued that HHS violated the APA by issuing its March 2022 guidance without notice and comment. The outcome regarding this issue turned on whether the guidance was an interpretive or a substantive rule. HHS argued that the guidance was interpretive because it:

Rejecting these arguments, the court concluded that the March 2022 guidance was a substantive rule. As a result, the guidance needed to comply with the APA's notice and comment requirements.

In the court's view, the March 2022 guidance exceeded the requirements of Section 1557 and was not supported by Bostock. Additionally, the court viewed the guidance as binding on HHS, despite its permissive language. The court pointed to a statement issued by the Secretary of HHS along with the guidance, in which the Secretary labeled the gubernatorial order discriminatory and stated that denying health care to individuals based on gender identity is illegal. According to the court, HHS staff likely would not act contrary to the Secretary's statement, effectively making the guidance binding for HHS staff. Because HHS did not submit the guidance for notice and comment, it violated the APA.

Under the APA, substantive agency rules also must be submitted for publication in the Federal Register. Because the guidance was a substantive rule and HHS did not submit it for publication in the Federal Register, the court held that HHS also violated this APA requirement.

For the above reasons, the district court declared HHS's March 2022 guidance unlawful and vacated the guidance. The court took the same action regarding the EEOC's June 2021 guidance interpreting Bostock for Title VII purposes.

For employer-sponsored health plans, the Texas district court's ruling is but the latest development in an increasingly challenging legal landscape involving coverage of gender dysphoria treatments. These treatments may include puberty-delaying medication, hormone therapy, mastectomy, mammaplasty, vaginoplasty, and vocal therapy.

On the one hand, some participants have begun challenging health plan exclusions for gender dysphoria—which may date back to the 1990s or earlier—under ACA Section 1557, Title VII, the Equal Protection Clause, and other grounds. For example, see Kadel v. Folwell, (M.D.N.C. Aug. 10, 2022) (concluding that a categorical sex-based and transgender-based exclusion of coverage for gender affirming treatments under a state employees' group health plan unlawfully discriminated against covered participants in violation of the US Constitution and Title VII).

On the other hand, some states have begun prohibiting certain gender affirming treatments and—as illustrated by the Texas district court's ruling—are otherwise challenging the Biden administration's actions taken in support of gender affirming care for minors (such as HHS's March 2022 guidance). In August, moreover, the Biden administration re-proposed regulations under ACA Section 1557 that would prohibit covered entities from having or implementing a categorical coverage exclusion or limitation for all health services related to gender transition or other gender affirming care (see Article, August 2022 Re-Proposed Regulations Addressing Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Some Categorical Exclusions Under Plans Would Be Prohibited). Those regulations, if finalized as proposed, will almost certainly become the topic of future litigation.

For more information, see ACA Section 1557 Compliance for Health Coverage Toolkit.