TPA's Benefits Denial of Gender Affirming Care Violated ACA's Nondiscrimination Rules

Practical Law Legal Update w-038-0443 (Approx. 7 pages)

TPA's Benefits Denial of Gender Affirming Care Violated ACA's Nondiscrimination Rules

by Practical Law Employee Benefits & Executive Compensation

Plan Categorically Excluded Coverage for Gender Affirming Care

The plaintiffs in this class action litigation included a participant in a self-funded ERISA health plan and the participant's dependent, a minor and transgender male (meaning that the dependent has a male gender identity though the sex assigned to him at birth was female). The plan at issue categorically excluded coverage for gender affirming care related to gender dysphoria. (Gender dysphoria is a medical condition in which there is incongruence between a person's gender identity and the sex assigned to the person at birth.) However, the plan covered procedures such as hormone treatments, mastectomies, and chest reconstruction if the care was deemed medically necessary for diagnoses other than gender affirming care (for example, breast cancer).

The plan defined gender affirming health care to include services such as:

Puberty delaying medication (for example, gonadotropin-releasing hormone (GnRH) analogues).
Exogenous endocrine agents that induce feminizing or masculinizing changes (also known as hormone replacement therapy).
Gender-affirming or sex-reassignment surgery or procedures.
Other medical services or preventive medical care to treat gender dysphoria or related diagnoses under clinical standards.

The TPA, which served as the plan's claims administrator, denied the dependent's claim for chest surgery and hormone therapy based on the plan's exclusion for gender affirming care. As a result, the participant:

Paid more than $12,000 out-of-pocket for the dependent to have the disputed procedures.
Sued the TPA for violating Section 1557.

The participant sought a court order:

Prohibiting the TPA from administering or enforcing health plans that exclude coverage for gender affirming care (including services for—or leading to—gender reassignment surgery).
Requiring the TPA to reprocess, and provide coverage for, denied preauthorization denials and claims for gender affirming care without applying the plan exclusions for gender affirming care.

The parties asked the court to rule on the dispute without a trial.

TPA Was Subject to Section 1557's Nondiscrimination Requirements

In analyzing the participant's Section 1557 claim, the district court first addressed whether the TPA operated a "health program or activity" for Section 1557 purposes. The district court noted that the ACA does not define "health program or activity." Citing Ninth Circuit and district court opinions, the court concluded that Section 1557's statutory plain language indicated that a health program or activity includes health insurance contracts and the administration of these contracts (see Schmitt v. Kaiser Found. Health Plan of Wash., 965 F.3d 945 (9th Cir. 2020) and Kadel v. Folwell, (M.D.N.C. Dec. 5, 2022); Legal Updates, Ninth Circuit Gives ACA Section 1557 Plaintiffs Another Chance to Challenge Health Plan's Exclusion for Hearing Loss Treatment and State Group Health Plan Is Subject to ACA Nondiscrimination Rules).

In reaching this conclusion, the court rejected the TPA's argument that the court should give Chevron deference to HHS's 2020 final regulations (issued under the Trump administration) that implemented Section 1557. The TPA argued that under the 2020 final regulations:

Entities principally engaged in the business of health insurance were not viewed as principally engaged in the business of providing health care for Section 1557 purposes.
Applied to such entities' operations only to the extent the operations received federal financial assistance.

Rejecting the TPA's argument, the court observed that the term program or activity, as construed under a related statute that existed at the time of the ACA's enactment, clearly referred to all of an entity's operations. The court further reasoned that:

One of the ACA's overarching policy goals was to expand health insurance coverage.
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—including health plan TPAs.

The district court therefore interpreted Section 1557 to apply to all the operations of the defendant-TPA (including providing or administering health insurance coverage and other health-related coverage). Because the TPA received federal financial assistance for its insured products that offered Medicare and Medicaid coverage, the court concluded that all of the TPA's operations were subject to Section 1557.

Plan Participants Were Subject to Discrimination on the Basis of Sex

The parties did not dispute that the covered dependent was denied the benefits of a health program or activity. Accordingly, the remaining issue was whether the dependent was discriminated against "on the basis of sex." The court concluded that the plan's exclusion discriminated on the basis of sex, reasoning that the exclusion was triggered by a gender dysphoria diagnosis, which could not "be understood without referencing sex or a synonym."

Court Rejects TPA's Defenses

The district court rejected all of the defenses advanced by the TPA (discussed below), holding that none of them applied.

Plan Design Defense

In one argument, the TPA asserted that it should not be liable under Section 1557 because it:

Did not design the plan exclusion that allegedly violated Section 1557.
Was required by ERISA to administer the plan consistent with the plan's terms (see Practice Note, ERISA Fiduciary Duties: Overview: Duty to Follow Plan Documents).

The court rejected this argument, concluding that Section 1557 did not provide an exemption for TPAs that did not draft the plan language in dispute. Though acknowledging ERISA's requirement that plans be administered consistent with plan terms, the court concluded that this requirement did not override the TPA's independent duty to comply with Section 1557.

Medical Consensus and RFRA Defenses

The district court also rejected the TPA's argument that there is no medical consensus concerning gender affirming care, and therefore the exclusion did not discriminate on the basis of sex. According to the court, the TPA denied coverage based not on a medical necessity determination, but on the dependent's transgender status. In addition, the court noted that the dependent's treatments (hormone therapy and chest reconstruction) would have been considered medically necessary under the TPA's own medical necessity policy.

The TPA also argued that the plan was exempt under the Religious Freedom Restoration Act (RFRA), based on the plan sponsor's sincerely held religious beliefs, and therefore could not be liable for administering an exempt plan. Rejecting this argument, the district court reasoned that:

RFRA does not apply to disputes between private parties.
The TPA was not an entity with a sincerely held religious belief.

TPA Violated ACA Section 1557

As a result, the district court concluded that the TPA discriminated against the participant, covered dependent, and the class of plaintiffs by denying them services for gender affirming care under the plan and class of the TPA's policies.

Practical Impact

As with coverage of abortion services post-Dobbs, the enforcement of plan exclusions for gender dysphoria (particularly where minors are involved) is an area where we are seeing distinctions based on which part of the country in which the litigation arises. (Regarding the Supreme Court's ruling in Dobbs v. Jackson Women's Health Org., 142 S. Ct. 2228 (2022), see Abortion and Contraceptives Services for Group Health Plans Toolkit.) Some states have imposed significant restrictions on treatments for gender dysphoria in minors. Moreover, not all courts agree regarding whether Section 1557 extends to claims of gender identity (for example, see Legal Updates, In Gender Dysphoria Litigation, Texas District Court Sets Aside HHS's Interpretation Under ACA Section 1557 and Title IX and District Court: Health Insurer Must Comply with ACA Section 1557 Nondiscrimination Rules Regarding Its Entire Portfolio). This makes for an increasingly challenging legal environment for health plans and TPAs such as the one in this case. The appropriate relief for the TPA's violations in this case will be determined in the future (including, if necessary, through a trial), so it remains to be seen whether the plaintiffs will receive all the relief they requested—which included (as noted above) an order requiring the TPA to reprocess claims that were previously denied claims based solely on plan exclusions for gender affirming care.

For more information on Section 1557 compliance, see:

TPA's Benefits Denial of Gender Affirming Care Violated ACA's Nondiscrimination Rules | Practical Law