After addressing the legal standards for Section 1557 discrimination claims, the Ninth Circuit assumed that the case law interpreting the Rehabilitation Act also generally applies to Section 1557 claims for disability discrimination against a health insurer. Citing ACA statutory and regulatory requirements involving required coverage of essential health benefits (EHBs), the Ninth Circuit concluded that the ACA—unlike the Rehabilitation Act—allows a claim for discriminatory benefit design (see Practice Note, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA: Essential Health Benefits). In doing so, the Ninth Circuit rejected the insurer's argument that its compliance with a particular state's EHB benchmark plan also meant that the plan satisfied Section 1557's nondiscrimination requirements. The court characterized the EHB standards as only a minimum, and observed that Washington State's insurance commissioner had not even required Section 1557 compliance in establishing that state's EHB plan.

Rejecting another of the insurer's arguments, the Ninth Circuit reasoned that the presence of a categorical exclusion for gender transition (under the Section 1557 implementing regulations governing this litigation) did not necessarily mean that categorical exclusions for treatments of other conditions would not be recognized (see Practice Note, Nondiscrimination in Health Programs and Activities Under the ACA (Section 1557): Discrimination Involving Transgender Individuals and Transition-Related Services).

However, the Ninth Circuit agreed with the district court that the participants' complaint, in its current form, failed to state a viable Section 1557 claim. The participants argued that the insurer's categorical coverage exclusion for hearing loss treatment other than cochlear implants was a form of prohibited proxy discrimination. Proxy discrimination occurs when a defendant discriminates based on seemingly neutral criteria that are so closely affiliated with a disfavored group that discrimination on the basis of that criteria is effectively facial discrimination against the disfavored group. (In this regard, the Ninth Circuit offered the example of discrimination against individuals with gray hair as a proxy for age discrimination.) In this case, the participants argued that hearing loss was a proxy for hearing disability.

Rejecting this argument, the Ninth Circuit observed that the proxy discrimination identified by the participants was overinclusive because excluding certain hearing loss treatments affects at least some nondisabled individuals. This is because although all individuals with a hearing disability have hearing loss, at least some individuals with hearing loss are not disabled. The participants alleged no facts:

The Ninth Circuit also concluded that the asserted proxy discrimination was underinclusive because it excluded hearing disabled individuals who require or will require treatment associated with cochlear implants. The court suggested that if cochlear implants serve the needs of most individuals with a hearing disability, that would tend to undercut a proxy discrimination claim.

Consequently, the Ninth Circuit:

Relatedly, the Ninth Circuit (citing Schmitt) affirmed dismissal of a Section 1557 health discrimination case against another health insurer, but reversed the district court's decision not to allow amendment and remanded with instructions to grant the plaintiffs leave to amend (E.S. v. Regence Blueshield, (Mem) (9th Cir. July 14, 2020)).