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Enforcement Status of ACA Section 1557 Regulations

While some of us were donning our party hats and getting ready to ring in the new year, a nationwide preliminary injunction came down from the US District Court for the Northern District of Texas in Franciscan Alliance, Inc. v. Burwell, enjoining the Department of Health and Human Services (HHS) Office of Civil Rights (OCR) from enforcing the provisions of the Affordable Care Act’s (ACA’s) nondiscrimination regulations that prohibit discrimination on the basis of gender identity and termination of pregnancy.

Section 1557 of the ACA prohibits certain federally funded healthcare programs and activities (“covered entities”) from discriminating on the basis of race, color, national origin, sex, age, or disability. The final regulations define “on the basis of sex” to include discrimination based on gender identity, sex stereotyping, and pregnancy (including termination of pregnancy, childbirth, or related medical conditions). Under the final regulations, covered entities may not

  • deny, cancel, limit, or refuse health coverage;

  • deny a claim;

  • impose additional cost sharing; or

  • employ discriminatory marketing or benefit designs based on an individual’s belonging to any of these protected classes.

While the final regulations generally became effective on July 8, 2016, the provisions of those regulations that required changes to plan benefit design (including covered benefits, benefit limitations or restrictions, and cost-sharing mechanisms) did not apply until the first day of the first plan year beginning on or after January 1, 2017.

In response to these regulations, eight states and three religiously affiliated or oriented private healthcare provider organizations sued the Secretary of HHS. The plaintiffs argued that HHS exceeded its authority under the Administrative Procedure Act (APA) in drafting the regulations to interpret discrimination “on the basis of sex” to include “gender identity” and “termination of pregnancy,” and that this was a substantial burden on the providers’ exercise of religion, in violation of the Religious Freedom Restoration Act (RFRA). The court agreed, holding that the definition of sex discrimination in the regulations to include gender identity went beyond Congress’s intent, and that the failure to include religious and abortion exemptions to the portion of the regulations prohibiting discrimination based on “termination of pregnancy” was arbitrary and capricious in violation of the APA and likely the RFRA.

So what does this mean for covered entities? At a minimum, this is not a complete reprieve—the Equal Employment Opportunity Commission (EEOC) will continue to interpret Title VII’s sex discrimination prohibition to include gender identity, which is not changed by this order. A similar Department of Labor (DOL) regulation issued by the Office of Federal Contract Compliance Programs (OFCCP) that applies to federal contractors is also not affected.

In addition, while the court determined that a nationwide injunction was appropriate because the regulations affect “healthcare providers and states across the country,” the injunction only applies to those provisions of the regulations that prohibit discrimination on the basis of gender identity and termination of pregnancy.

The Section 1557 regulations also require covered entities to provide auxiliary aides and services for individuals with limited English proficiency (including qualified translators and qualified interpreters) and individuals with disabilities in a manner consistent with the regulations under the Americans with Disabilities Act (ADA) (including, for example, modifications to websites, assistive listening devices, note takers, etc.).

Covered entities are still required to provide notice of their nondiscrimination policies and procedures in all significant participant publications and communications and in taglines for individuals with limited English proficiency. Certain covered entities are also required to adopt grievance procedures to address the concerns of individuals who believe such covered entities have discriminated against them in violation of the final regulations.

Before US President Donald Trump was sworn into office, the OCR stated that it would continue to enforce those provisions of the federal regulations that were not affected by the court’s order. It is unclear whether HHS will appeal the decision under the new administration, which has already taken steps to repeal the ACA.

In the interim, the National Women's Law Center (NWLC) issued a press release on January 27, 2017 noting that four institutions have changed their policies barring insurance coverage for maternity care for employees’ dependents after the OCR investigated sex discrimination complaints brought by the NWLC under Section 1557. Challenges to the Section 1557 regulations similar to those in Franciscan Alliance are currently pending in the US District Court for the District of North Dakota.

Copyright © 2017 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

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About this Author

Allison Fepelstein, Morgan Lewis, health lawyer, welfare attorney, ACA
Associate

Allison J. Fepelstein advises clients on health and welfare plans, helping them stay in compliance with applicable requirements under ERISA, the Internal Revenue Code, the Affordable Care Act, COBRA, and HIPAA. She also prepares and reviews plan documents and related materials. In addition, Allison reviews and negotiates services agreements with third parties. Before joining Morgan Lewis, Allison served in the US Department of Labor’s (DOL) Office of Health Plan Standards and Compliance Assistance. There she helped develop and issue regulatory, interpretive, and...

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