In what it characterizes as a "significant deregulatory action," the Trump Administration's HHS has re-proposed implementing regulations that would substantially revise and repeal aspects of the agency's current final regulations under Section 1557 of the Affordable Care Act (ACA) (Section 1557) (42 U.S.C. § 18116; see related press release and fact sheet). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability under any health program or activity that receives federal financial assistance (including grants, loans, credits, and subsidies) (see Practice Notes, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557) and Affordable Care Act (ACA) Overview). Specifically, Section 1557 incorporates the grounds for prohibited discrimination under:

HHS's re-proposed regulations would substantially replace the Section 1557 final regulations that HHS issued in May 2016 (see Legal Update, ACA Nondiscrimination Rules, Now Final, Target Insurers and TPAs). The re-proposed regulations reflect a Trump Administration directive to minimize the ACA's economic burden on plan sponsors, health insurers, and other entities (Executive Order 13765 (Jan. 20, 2017); see Legal Update, Trump Administration Orders Delay of ACA Implementation).

HHS's re-proposed Section 1557 regulations would eliminate several provisions under the May 2016 final regulations that HHS now considers inconsistent with Section 1557 and its four underlying civil rights laws. In re-proposing its Section 1557 regulations, HHS indicated that the May 2016 final regulations:

According to HHS, its May 2016 final regulations also improperly extended provisions that applied under certain of the four underlying civil rights laws to all forms of discrimination prohibited under Section 1557. In taking this approach, HHS indicated, the May 2016 final regulations conflicted with other agencies' regulations interpreting Title VI, Title IX, Section 504, and the Age Act.

The re-proposed regulations would include the following two subparts:

Numerous provisions of the May 2016 final regulations would be replaced to address Section 1557's purpose, nondiscrimination rules, scope, enforcement mechanisms, and meaningful access requirements for individuals with limited English proficiency (LEP) (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Meaningful Access for Individuals with Limited English Proficiency). The re-proposed regulations would eliminate the definitions section of the May 2016 final regulations (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Key Defined Terms). However, the re-proposed regulations would not alter a provision about submitting assurances of compliance with Section 1557 (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Section 1557 Compliance Assurances Required). Other provisions (for example, rules addressing accessibility of buildings and facilities) would be retained but redesignated.

HHS's May 2016 final regulations defined discrimination "on the basis of sex" for Section 1557 purposes (under Title IX) to include discrimination based on sex stereotyping, gender identity, and termination of pregnancy. However, HHS's interpretation became the subject of litigation and a district court later issued a nationwide preliminary injunction barring HHS from enforcing the prohibition on discrimination based on gender identity and termination of pregnancy (Franciscan Alliance, Inc. v. Burwell, 227 F. Supp. 3d 660 (N.D. Tex. 2016); see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Nationwide Injunction of Some Section 1557 Requirements). The district court reasoned that the meaning of sex for Title IX purposes means biological and anatomical differences between males and females as determined at birth. In briefs filed in this litigation, the Department of Justice (DOJ) indicated – on HHS's behalf – that the final regulations' prohibitions on the basis of gender identity and termination of pregnancy (which HHS characterized as a "novel legal theory") conflicted with Section 1557 and were therefore unlawful under the Administrative Procedure Act (APA). HHS reasoned that "sex" for Title IX purposes, as reflected in Congressional activity, does not include sexual orientation or gender identity (SOGI).

In re-proposing its regulations, HHS favorably cited a recent DOJ memorandum concluding that Title VII's prohibition on sex discrimination:

As a result, the re-proposed regulations would repeal the definition of "on the basis of sex" under the May 2016 final regulations.

Under the re-proposed regulations, HHS would entirely repeal provisions in the May 2016 final regulations requiring:

This change includes provisions under the final regulations requiring covered entities to mail individuals notices about nondiscrimination and the availability of language assistance services (in 15 languages) in (or with) significant publications larger than a postcard or brochure.

In re-proposing the Section 1557 regulations, HHS conducted an independent assessment and concluded that regulatory costs for the May 2016 final regulations are significantly larger than originally expected. Regarding Section 1557's notice and tagline requirements, for example, HHS indicated that the agency's prior cost estimates failed to reflect the recurring compliance costs of providing the notices and taglines. These include costs of paper, ink/toner, and additional postage for required initial or subsequent mailings of the notices and taglines.

As an example of the excessive costs of the Section 1557 notice and tagline requirements, HHS referenced a health insurer that distributes more than 42 million explanations of benefits (EOBs) for one of its insured health plans to enrollees each year. The health insurer in this example:

Other health plans and a trade association of pharmacy benefit managers (PBMs) also reported having to spend several million dollars per plan to comply with Section 1557's notice and tagline requirements, as implemented. According to HHS's reevaluation, the cost of Section 1557's notice and taglines requirement ranged from $147 million (low-end) to $1.34 billion dollars (high-end) (before accounting for electronic delivery). Overall, HHS indicated that its re-proposed regulations would result in roughly $3.6 billion in savings in the first five years after the regulations are finalized. The majority of these savings would result from repealing the final regulations' mandatory notices rules.

HHS also concluded that the costs of the notice and tagline requirements are not warranted because (among other reasons) they were confusing, expensive, and overlap with other requirements under federal and state law involving language access. HHS found little evidence (in a discussion citing health plan call volume reports) that individuals actually sought language assistance after the notice and tagline requirements became effective.

The re-proposed regulations would re-interpret the meaning of covered health programs or activities for Section 1557 purposes by distinguishing health care from health insurance. HHS views its re-interpretation as more consistent with the definition of "program or activity" under the Civil Rights Restoration Act of 1987 (CRRA) (Pub. L. No. 100-259 (1988)). As re-proposed, the Section 1557 regulations would cover all of the operations of an entity that:

However, for entities that are not principally engaged in the business of providing health care, the re-proposed regulations would apply to the entity's operations only to the extent that the operations receive federal financial assistance.

Under the re-proposed regulations, a health insurer that is principally or otherwise engaged in the business of providing health insurance is not considered to be principally engaged in the business of providing health care. By contrast, a general Section 1557 nondiscrimination prohibition in health insurance under the May 2016 final regulations applies to all insurers that receive federal financial assistance, regardless of whether the insurers' products are offered:

(See Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Applicability to Health Insurers.)

Under the re-proposed regulations, if an entity (such as a health insurer) receives federal financial assistance but is not principally engaged in the business of providing health care, the regulations would not apply to the components or activities of those entities that do not receive federal financial assistance. As a result, if the insurer receives federal financial assistance from HHS for a health program or activity but is not principally engaged in the business of providing health care, the re-proposed regulations:

According to HHS, the re-proposed regulations do not apply to self-funded group health plans under the Employee Retirement Income Security Act of 1974 (ERISA) to the extent that the plan:

The re-proposed regulations also would narrow the situations in which insurers of plans on the ACA's health insurance exchanges would be subject to Section 1557.

In re-proposing its regulations, HHS noted that some of the agency's prior Section 1557 subregulatory guidance may be inconsistent with HHS's updated interpretations of Section 1557 and Title IX (and requirements to comply with court orders). HHS therefore suspended its guidance issued before the re-proposed regulations, to the extent that guidance conflicts with its current regulatory interpretations. For example, this includes prior HHS guidance indicating that any information printed on an 8.5" by 11" sheet of paper was considered significant and therefore subject to the tagline notice provisions under the May 2016 final regulations (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Tagline Requirement).

Plan sponsors, health insurers, third-party administrators, PBMs, and related entities will likely welcome the reduced regulatory compliance burden under HHS's re-proposed regulations, assuming the regulations are finalized in substantially similar form. (The deadline for submitting comments concerning the re-proposed regulations will be announced when the regulations are published in the Federal Register.) HHS's new interpretations under the re-proposed regulations are not entirely a surprise – the agency telegraphed its intent to modify or eliminate its May 2016 final regulations in recent litigation in the Section 1557 space (see Legal Update, ACA Section 1557 Litigation Casts Doubt on Status of Current 1557 Regulations). HHS hopes that its re-proposed regulations will "minimize litigation risk" under Section 1557. However, if the administration's track record involving other health plan regulatory changes is any indicator, it's likely that we will continue to see litigation in the Section 1557 space (see Legal Update, First Circuit Lets Challenge to ACA Contraceptives Rules Proceed; Other Health Plan Litigation Moves Forward: Health Plan Litigation Round-Up). For now, HHS's May 2016 final regulations remain in effect although, as noted above, HHS has suspended aspects of its prior subregulatory guidance under Section 1557.