Court Injunction Brings Uncertainty to ACA Section 1557

On December 31, 2016, a U.S. District Court issued a preliminary injunction that has, in essence, put a stay on parts of a federal rule under ACA Section 1557 that extends antidiscrimination protections for transgender individuals and pregnancy terminations. The case, Franciscan Alliance et al v. Burwell, was brought by five states and three religiously-affiliated health care providers who argue that the rule could force them to provide services, such as gender reassignment procedures, that conflict with their personal beliefs. The court decision basically says that HHS exceeded its authority regarding its regulations prohibiting sex discrimination and abortion services.

This decision is of interest to any plans concerned about compliance with ACA Section 1557. The case is complex, and this injunction does not mean that Section 1557 should be put on the back burner. First, remember that it is a preliminary injunction. There is still an opportunity for HHS to appeal the decision to the Fifth Circuit or re-write the regulations; we will have to wait until later in January to find out whether the Trump Administration will move to file an appeal or not. Also, keep in mind that this opinion is not necessarily the last word as there is a case before the U.S. Supreme Court that will decide the definition of sex for purposes of Title IX. Until then, caution is the best course to take.

Scope of the Injunction

The most impact of this injunction will be felt by church plans, but the scope of the injunction is fairly broad and does not appear to be limited to religious or health care organizations. It very well could apply to all types of plans and employers. The decision says that HHS overstepped by issuing regulations regarding prohibition on sex discrimination. What does this mean? We are unsure at this time, but it is possible that the HHS Office of Civil Rights is stayed from enforcement of those provisions, meaning any civil suit will likely be unsuccessful.

Provisions That May Still Be Applicable

Employer plans may still have to comply with the disability, language assistance, and notice requirements of Section 1557 as this injunction does nothing to limit these other aspects of this law. Also, the EEOC still has its position under Title VII that specifically refers to a risk in treating gender identity differently in a benefit plan.

What Should Employers Do?

  • Wait to see what HHS and the Trump Administration do.
  • Have plans been modified to eliminate categorical exclusions related to gender transition or gender identity? If so, it is not a problem to leave those modified plan designs in place for now. Nothing about the injunction makes it “illegal” to extend nondiscriminatory benefits based on gender identity.
  • What if a plan or employer objects to providing transgender benefits? This injunction may give them a little more leeway to stall on making that change. Until the case is settled or we hear from the U.S. Supreme Court, it will be harder for HHS or a private citizen to argue that a categorical exclusion for sex changes or other gender transition benefits is clearly discriminatory under Section 1557 without a valid regulation to point to.
  • Nevertheless, until the regulation is changed or pulled, Section 1557 is still on the books. There is room to interpret the prohibition against discrimination on the basis of sex as prohibiting discrimination with respect to gender identity and gender transition.
  • For church plans intending to rely on the Religious Freedom Restoration Act (RFRA) as exempting them from provisions they deem to be the objectionable aspects of Section 1557, this decision will give them greater comfort because the injunction leaves the regulation in limbo.

Takeaways

This case and its impact on employer plans is complex. Many employers complied in good faith with the regulation and pulled exclusions out of their benefit plans and now have to determine whether (and what) to put back in. Those that did nothing have to decide whether to comply only with the non-sex provisions. For the immediate future, it would be wise to act with caution and perhaps even to wait until we hear more from HHS or get cues from the Trump Administration on what they plan to do regarding this case and a potential appeal of the case.