In a significant decision under the Affordable Care Act (ACA), a federal district court in Western Washington recently ruled that a third-party plan administrator (TPA) violated the ACA’s anti-discrimination rule when administering a self-insured health plan that excluded gender-affirming care. The case, C.P. v. Blue Cross Blue Shield of Illinois, No. 20-cv-6145, 2022 WL 17788148 (W.D. Wash. Dec. 19, 2022), involved a transgender youth who sought coverage for gender-affirming care through the health plan sponsored by their mother’s employer. The employer’s plan was self-insured, meaning the health coverage was paid out of the employer’s general assets instead of insurance. Applying the plan rules, which expressly excluded gender-affirming care, the TPA denied coverage. In doing so, the TPA simply applied the plan terms as required by the federal Employee Retirement Income Security Act (ERISA). The TPA was neither the health care provider nor the health insurer.
The mother and her transgender child brought suit on behalf of themselves and a class of individuals who were similarly denied coverage by the TPA based on a gender-affirming care exclusion. The plaintiffs claimed that the TPA’s denial violated Section 1557 of the ACA. Section 1557 prohibits discrimination “on the basis of sex” by “any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance…”. The plaintiffs sought an order preventing the TPA from administering and enforcing health plans that exclude coverage for gender-affirming care, and an order requiring the TPA to reprocess claims previously denied based on similar exclusions.
The TPA argued it was not liable because: (1) it was not a covered entity under Section 1557; (2) it was merely administering another organization’s self-insured plan, as it was required to do under ERISA; (3) there was no medical consensus regarding gender-affirming care; and (4) the Religious Freedom Restoration Act protected the plan because the employer was a religious organization, and the exclusion was based on sincerely-held religious beliefs. The court rejected these arguments.
The decision is significant for several reasons:
1. The decision potentially expands the scope of “covered entities” under Section 1557. Entities are subject to Section 1557 if they operate “a health program or activity, any part of which is receiving Federal financial assistance.” The court concluded the TPA fit the definition of a health program or activity, expressly concluding that Department of Health and Human Services (HHS) rules to the contrary were not binding. The court reasoned that because the TPA received federal funding for some portion of its business, it “received Federal financial assistance” for purposes of Section 1557. These conclusions are noteworthy because they could effectively extend the coverage mandates of Section 1557 not only to some TPAs, but to all sponsors of self-insured plans that use those TPAs, even if the plan sponsor does not receive federal funding and would not otherwise be subject to Section 1557.
2. The decision extends Section 1557 violations to TPAs applying rules of self-insured plans, as ERISA requires. ERISA mandates that TPAs apply the terms of ERISA-governed health plans. Consistent with this mandate, the TPA applied the gender-affirming care exclusions under the plan, which was subject to ERISA, to deny coverage in this case. This application, the court ruled, violated Section 1557’s anti-discrimination provision, regardless of the ERISA mandate. The court concluded that ERISA could not be read to invalidate or impair Section 1557, nor could ERISA insulate the TPA from liability.
3. Medical consensus is irrelevant when coverage is denied on the basis of sex. The court concluded the alleged lack of medical consensus on gender-affirming care was not relevant in this case because the TPA denied coverage on the basis of the lead plaintiff’s transgender status, not because of medical necessity.
4. The Religious Freedom Restoration Act (RFRA) does not insulate TPAs from private action. Finally, the TPA argued that because the employer was a religious organization, RFRA insulates the TPA from liability. However, this argument failed because the court concluded RFRA applies to government actions or lawsuits where the government is a party; RFRA does not apply to a matter between private individuals.
Ultimately, the court concluded that the TPA was a covered entity that discriminated against the plaintiffs in violation of Section 1557 by denying them services for gender-affirming care under the group health plans that covered them.
What Should Plan Sponsors and Plan Administrators Do Now?
 These HHS regulations have been the subject of significant litigation spanning multiple administrations. Enforcement of certain portions of two sets of regulations have been enjoined by federal district courts and a third set of proposed rules has not yet been adopted. In this case, the federal district court concluded that the regulations, even those portions other courts had not enjoined, were not binding, focusing instead on the plain language of the ACA.
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