On a threshold issue in its equal protection analysis, the Fourth Circuit rejected the states' argument that the exclusions should be subject to rational basis review, rather than the more rigorous intermediate scrutiny review, because they discriminated on the basis of diagnosis/procedure, rather than transgender identity/sex.

Starting with the premise that gender identity is a protected characteristic, the Fourth Circuit concluded that gender dysphoria was a proxy for transgender identity because gender dysphoria is "a diagnosis inextricable from transgender status." Even though the disputed exclusions facially applied to everyone, the court reasoned, the exclusions only affected transgender individuals, because they were the only individuals who would seek those procedures as treatment for gender dysphoria. As a result, the court concluded that a plan exclusion barring coverage for gender dysphoria treatments amounted to an exclusion prohibiting coverage for treatments based on an individual's transgender identity. From here, the Fourth Circuit concluded that the exclusions discriminated on the basis of sex. The court reasoned that a determination regarding coverage for the gender-affirming surgeries could not be made without reference to the individual's sex assigned at birth. For example, the court observed, a plan's third-party administrator could not make a coverage decision involving the exclusion without knowing whether a vaginoplasty was to treat gender dysphoria (that is, whether the individual was assigned male at birth).

Accordingly, the court concluded that the exclusions discriminated on the basis of sex and transgender identity, and therefore were subject to intermediate scrutiny. The court held that the exclusions did not survive intermediate scrutiny review because (under the applicable test) the state could not provide an "exceedingly persuasive justification" for its classification. Under existing precedent, for example, the state could not rely on the cost of gender dysphoria treatment as a justification for drawing a distinction between classes of people.

In analyzing the West Virginia Medicaid claim under Section 1557, the Fourth Circuit addressed the district court's reliance on 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 Practice Note, June 2020 Final Regulations Under ACA Section 1557: Nondiscrimination in Health Programs and Activities: Supreme Court Bostock Ruling on Title VII and Transgender Status). The Fourth Circuit cited its own prior holding that courts use Title VII caselaw as guidance when interpreting Title IX's prohibition on sex discrimination (one of the grounds incorporated into Section 1557).

The Fourth Circuit disagreed with the state's argument that Bostock was limited to Title VII claims brought by gay or transgender employees fired by their employers, noting that nothing in the opinion "suggest[ed] the holding was that narrow."

The state also argued that Title IX caselaw has generally interpreted "sex" to mean binary sex (male and female) and separate from gender identity. The court reasoned, however, that the Bostock decision assumed that sex meant binary sex. As a result, the Fourth Circuit concluded that even if Title IX's definition of "sex" was limited to binary sex, the exclusion in West Virgina's Medicaid program still discriminated on that basis.

Several justices filed dissenting opinions, in which they disagreed with the majority's conclusion that the exclusions violated the Equal Protection Clause. In the dissents' view, the exclusions were based on diagnosis and did not use gender dysphoria as a proxy for transgender identity. One justice also reasoned that state health plan coverage for "emerging treatments" should be a legislative, rather than judicial, decision. Another justice faulted certain evidentiary decisions made by the North Carolina district court.