In litigation under the nondiscrimination requirements of Affordable Care Act Section 1557, a federal district court in West Virginia denied a health insurer's motion to dismiss participants' claims involving coverage of gender-confirming care (Fain v. Crouch, (S.D. W. Va. June 28, 2021)). Section 1557 generally prohibits certain types of discrimination under health programs or activities that receive federal financial assistance.

The plaintiffs in this litigation include transgender individuals who were covered participants under the state's health insurance programs, which were offered by a health insurer that was one of the litigation's defendants. (Besides Medicare and Medicaid coverage options, the health insurer also offers coverage to private, employer-sponsored health plans.) The participants alleged that the insurer's coverage violated nondiscrimination requirements under ACA Section 1557 by excluding coverage for gender-confirming care that included hormone replacement therapy and surgical care (a double mastectomy) to treat gender dysphoria. ACA Section 1557 prohibits discrimination, including on the basis of sex, under "any health program or activity, any part of which is receiving [f]ederal financial assistance, including credits, subsidies, or contracts of insurance…." (42 U.S.C. § 18816).

At issue in the case was whether the health insurer was a health program or activity subject to Section 1557. Under Obama-era implementing regulations finalized in 2016, the term "health program or activity" applied to health insurers that received federal financial assistance and were principally engaged in providing or administering health insurance coverage (see Article, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Applicability to Insurers and Employer-Sponsored Group Health Plans). However, Trump administration regulations finalized in June 2020:

(Practice Note, June 2020 Final Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities.)

Based on the 2020 regulations, the health insurer asserted that because the participants' plans did not receive federal funding, the plans were not subject to Section 1557. The health insurer therefore asked the district court to dismiss the Section 1557 claim against it.

Denying the health insurer's motion to dismiss, the district court concluded that:

The court applied the two-step Chevron deference analysis in addressing whether deference was owed to the 2020 final regulations. Under this analysis:

Under the Chevron analysis, the court considered whether Section 1557 prohibited the health insurer (which undisputedly accepted federal financial assistance through the Medicare Advantage coverage it offered) from discriminating against the participants under their plan. Addressing the underlying question of whether the health program was a "health program or activity" for Section 1557 purposes, the court concluded that it was. The court reasoned that the health insurer, as an entity within the health system generally, had authority to design plan benefits and act as a gatekeeper to health services received by participants. The court also observed that Section 1557's reference to "contracts of insurance" indicated that Section 1557 applies to health insurers.

The court rejected the health insurer's two arguments in favor of a narrower interpretation. For example, the insurer posited that "health program or activity" referred only to individual health plans, and that if Congress had intended a broader meaning it would have used language such as "health insurance issuer" or "health maintenance organization" (HMO). Dismissing this argument, the court reasoned that Congress's chosen language meant that it intended the term "health program or activity" to apply broadly.

As a result, the court held that participants had stated a claim on which relief could be granted.

Health insurers will not be pleased by the outcome of this case, which essentially sidesteps Trump administration final rules that significantly reduced Section 1557's applicability. Complicating the next steps in this litigation, the Biden administration has indicated in another Section 1557 case that its review of the Trump-era final regulations may result in changes to those regulations. Presumably, this will mean returning the regulations to a version that more closely resembles the May 2016 Obama administration rules. Notably, the district court concludes that the health insurer must comply with Section 1557 not only regarding the particular plans at issue in the litigation—but as to its entire portfolio. That will be no small compliance burden for this insurer (The Health Plan of West Virginia), which offers a wide array of coverages throughout the state of West Virginia.