In a notice to California Governor Gavin Newsom and other state officials, the Trump Administration's Department of Health and Human Services (HHS) found that California violated the federal Weldon Amendment by discriminating against certain health plans and insurers through its policy of requiring abortion coverage in plans subject to California state health insurance regulation (Notice of Violation: OCR Transactions Nos. 17-274771 and 17-283890 (Jan. 24, 2020)). (HHS is also one of the primary federal regulatory agencies responsible for administering the Affordable Care Act's preventive health services rules, which include a contraceptives coverage mandate (see Practice Note, Contraceptives Coverage Under the ACA).) According to HHS, California must either reverse its policy or risk restrictions on its receipt of HHS funds.

The dispute underlying HHS's notice arose in 2013, when two California religiously affiliated universities stopped offering coverage for elective abortions through the universities' health plans. A year later, California's Department of Managed Health Care (DMHC) issued a series of letters informing several major California health insurers that they must cover abortion without exclusion or limitation in all products offered in California.

(As background, the DMHC is the state agency that:

HHS's letter detailed the DMHC's efforts to enforce its 2014 letters, consistent with the Knox-Keene Act. According to HHS, the DMHC's actions essentially forced plans and insurers doing business in California to either:

In response, the health insurers removed abortion-related coverage exclusions and limitations from their policies. According to HHS, these changes "forced over 28,000 people out of plans that up until that time had chosen to not cover elective abortions."

Two California religious entities submitted complaints to HHS, asserting that the state's actions led them to lose health plan coverage that was consistent with their moral and religious objections to elective abortion. HHS's Office for Civil Rights opened an investigation of the religious entities' complaints (which have also been the topic of recent litigation in federal and state courts).

In its notice, HHS found that California's policy of mandated abortion coverage discriminated against health plans and insurers operating in the state that would otherwise limit or exclude abortion coverage. As a result, HHS concluded that California's policy violated the federal Weldon Amendment, which prohibits HHS appropriations from states (and other entities) that discriminate against health care entities that do not provide, pay for, provide coverage of, or refer for abortions. (Regarding the federal Weldon Amendment, see Legal Update, HHS Final Rules Expand Enforcement of Federal Conscience Protections for Health Care Entities: Anti-Discrimination Protections Under the Final Regulations.)

HHS's notice also claimed that the DMHC generally did not make available exemptions from its policy of requiring abortion coverage, though such exemptions were permitted under the Knox-Keene Act (in the DMHC's discretion).

In the notice's conclusions and remedies section, HHS determined that California's Weldon Amendment violations implicated HHS funding made available under federal 2020 appropriations legislation (as well as funds for 2018 and 2019) (see generally Legal Update, Legislation Repeals ACA Cadillac Tax and Health Insurer Fee). Within 30 days, California must inform HHS whether it will continue to enforce the 2014 letters or instead take corrective action and comply with the Weldon Amendment. If the former, HHS will address the matter through its funding arm. This may result in restrictions on California's receipt of HHS funds, which are made available to California in the form of grants and cooperative agreements.

This development caught our eye for its possible impact on insured health plan arrangements and health insurers that operate in California and are subject to the DMHC's regulatory oversight. According to HHS, the DMHC regulates more than 96% of the commercial and public health plan enrollment in California – a market that covers more than 26 million individuals. Depending on how California replies to the notice, the issue could result in plan coverage and related notice implications regarding abortion coverage.

In a footnote, HHS noted that its notice of violation does not rely on the agency's May 2019 final regulations on protecting statutory conscience rights in health care – which were vacated in full by a November 2019 district court ruling that applies nationwide (see Legal Update, District Court Vacates HHS Final Rules on Federal Conscience Protections).