Considerations in Complying with ACA Section 1557 Non-discrimination Rules

By Bruce Davis


On May 18, 2016, the Department of Health and Human Services (HHS) released its final rules for Section 1557 of the Affordable Care Act (ACA). Under ACA Section 1557, an individual may not be excluded from participation in, denied benefits of, or be subjected to discrimination under a health plan which is receiving Federal financial assistance if such discrimination is prohibited under Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, the Age Discrimination Act of 1975, or Section 504 of the Rehabilitation Act of 1973. Generally speaking, these laws prohibit discrimination on the basis of race, color, national origin, sex, age, or disability in health-related activities. Further, the final rules under ACA Section 1557 state that discrimination on the basis of sex includes discrimination based on gender identity.

Since these final rules were issued, there has been much discussion about the new health benefits mandate to cover transgender transition services for plan years beginning on or after January 1, 2017. This article not only addresses employer-sponsored coverage of these services, but also speaks to other employer health benefit practices that could, unintentionally, run afoul of Section 1557.

But first, it's important to mention that investigation of potential discriminatory practices under Section 1557 falls to the Office of Civil Rights (OCR) within the HHS. This is the same agency that is currently conducting Phase 2 HIPAA audits of group health plans, employers, business associates and health data clearing houses. It is also important to remember that enforcement of civil rights and anti-discrimination laws involves the Equal Employment Opportunity Commission (EEOC) which is an independent agency. Therefore, it's likely that both the OCR and the EEOC will respond to any complaint about discrimination under ACA Section 1557 based on gender identity.

Is my Health Plan Required to Cover Transgender Transition Services?

In determining whether an employer sponsoring a group health benefits plan would need to cover transgender transition services, consider the following:

1. If the employer's health plan is insured, the carrier is likely a "covered entity" (as defined by ACA Section 1557-not by HIPAA) because they either sell products on the public health insurance exchange (i.e., the Marketplace or, or they sell Medicare Advantage products where there is some federal financial assistance. As a result, one of two things could happen:

a.  If the carrier unilaterally amends the insured contract to cover transgender transition services, then there would be no complaint for OCR or the EEOC to investigate; or            

b.  If the employer asserts its right to exercise control over its insured plan’s design and specifically instructs its carrier to not cover these services, then the employer could be open to claims of discrimination that would be investigated by the OCR/EEOC.

 2. If the employer is a healthcare provider (e.g., a hospital or health system that takes Medicare/Medicaid) and sponsors a self-funded health benefits plan, then the employer is considered a covered entity and subject to ACA Section 1557 non-discrimination rules. In order to avoid a discrimination complaint, the employer will want to consider instructing its TPA to cover transgender transition services and amend their Plan documents accordingly.

 3. If the employer is not a healthcare provider, but sponsors a self-funded health benefits plan and thereby exercises control over its plan design, then the employer must consider:     

a.  If its TPA is also a carrier that is considered a covered entity, the carrier may have taken the position that both its insured and self-funded business is subject to the ACA Section 1557 non-discrimination rules. The employer may not have any choice but to accept an amendment to cover transgender transition services based on the TPA’s position (assuming the employer elects to continue to use that TPA); or

b.  If the TPA is not a carrier, the employer could decide not to amend their plan to cover these services, in which case, they would not be subject to the HHS-issued non-discrimination rules. However, the employer could still be the subject of discrimination claims that would be investigated by the OCR/EEOC.     

 There is no exception, exemption, or special accommodations for religious employers, relating to coverage of transgender transition services. However, if a religious employer objects to covering transgender transition services, they may do so and instruct their carrier or TPA accordingly. However, we believe this should be done only after consulting with legal counsel and considering the potential risk of complaints.

An Example of One Carrier's Position on Covering Transgender Transition Services

In response to the final rules under ACA Section 1557, one prominent Blue Cross Blue Shield Plan announced the following policy with respect to its self-funded clients, regardless of whether the group is grandfathered under ACA or is retiree only:

 "Effective for plan years on and after Jan. 1, 2017, we will cover medical and pharmaceutical services associated with gender transition. For groups who limit or exclude gender transition benefits today, we will add the benefits as appropriate based on your current benefit design.

Benefits may include: gender reassignment surgery, hormone therapy, psychotherapy and counseling, and mastectomy for female-to-male transitions; 
Prior authorization would be required for the surgical services; and
Items that are considered investigational, cosmetic or experimental and not medically necessary will be excluded."

 How Does ACA Section 1557 Impact Other Health Benefit Policies or Cost Containment Strategies?

All employers are concerned about sustaining a competitive, affordable group health plan for their employees. As such, many ideas have surfaced to contain costs, especially in the realm of expensive specialty drugs. Two examples include adopting a closed formulary for specialty drugs and imposing limits on the number of refills for specialty drugs.

It's possible that ACA Section 1557 would apply to certain provisions that are being designed to control health benefit expenses. Here's the reasoning:

1. As pointed out above, ACA Section 1557 prohibits discrimination on the basis of disability;

2. ACA Section 1557 also prohibits the administration of discriminatory health insurance provisions, which include "denying or limiting coverage of a claim or imposing additional cost-sharing or other limitations or restrictions on coverage;"

3. The ADA Amendments Act of 2008 (ADAAA) broadly defines "disability" and extends protections to anyone deemed disabled; and 

4. When issuing the ACA Section 1557 rules, HHS gave examples of potentially discriminatory plan designs and "unlawful practices." These examples include "adverse tiering of HIV prescriptions, formularies, or services that fail to meet recognized treatment guidelines or the standard of care for a certain condition; applying age limits to services found to be effective at all ages; requiring prior authorization for all medications in certain classes; and whether limitations and exclusions are based on clinical guidelines and medical evidence."

 Although a closed formulary for specialty drugs will exclude coverage for certain drugs, there will be covered drugs in each therapeutic class. Therefore, we are not overly concerned about this particular strategy being "disqualified" under ACA Section 1557. However, limiting the number of refills for specialty drugs appears more problematic, considering:

The person taking the drug is chronically ill and as a result, likely to meet the ADAAA definition of disability; and

Limiting the number of refills of their specialty drug will likely cause the disabled member to terminate their employer-sponsored coverage in order to secure    replacement coverage through the Marketplace.

Therefore, employers considering adoption of such provisions should first consult their legal advisors.


The final rules under ACA Section 1557 signal the federal government is poised to take a more active role in investigating employer-sponsored health plans to ensure the design and administrative practices of those plans are not discriminatory, especially with respect to people who are chronically ill and considered disabled. As with the new wellness rules that address EEOC's concerns about ADA and GINA, this area of compliance is evolving. Employers will need to remain vigilant and proceed with caution when making changes that affect members' access to medical services and medicines.

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Please contact Bruce Davis with questions.