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TPA Subject to Nondiscrimination Rules

by | Apr 20, 2023 |

The Federal District Court for the Western District of Washington has ruled, in C.P. vs. Blue Cross Blue Shield of Illinois, that an insurer acting as a third party administrator (“TPA”) is covered by the nondiscrimination rules of Section 1557 of the Affordable Care Act (“ACA”).

Background. ACA Section 1557 directs the U.S. Department of Health and Human Services (“HHS”) to apply existing civil rights laws and regulations to “any health program or activity any part of which is receiving Federal financial assistance.” These laws include Title IX of the Civil Rights Act prohibiting discrimination on the basis of sex in certain federally funded programs. In 2016, HHS issued regulations that redefined discrimination “on the basis of sex” to include gender identity which it defined as one’s internal sense of being “male, female, neither, or a combination of male and female.” However, the regulations were amended in 2020, among other things, to eliminate the gender identity provisions. Then, in 2021, HHS issued a notice that it would again interpret ACA Section 1557 to prohibit sex discrimination on the basis of gender identity, consistent with the U.S. Supreme Court’s holding in Bostock v. Clayton County.

Facts. An employee participated in her employer’s self-funded group health care plan and filed a claim for her child’s gender affirming hormonal treatments. The insurer, which was acting as the TPA for the plan, denied the claim under the plan’s exclusionary provisions. The employee sued the insurer under Section 1557 of the ACA, claiming that it had violated the statute’s nondiscrimination provisions.

District Court. The insurer raised several defenses. First, it claimed that, as a TPA, it was not acting as a “health program or activity.” Next, it said that even if it were a health program or activity, it did not, as a TPA, receive any federal financial assistance. And finally, it said it was not responsible for any discriminatory acts because it was the employer, not the TPA, that had adopted the plan provisions excluding gender affirming coverage.

The insurer also requested that the court give deference to the current “final” HHS regulations which exclude gender affirming treatments from the ACA Section 1557 nondiscrimination requirements.

The court rejected all of the insurer’s arguments. First it ruled that under the plain language of ACA Section 1557, the insurer’s TPA activities constitute the operation of a health program or activity. In particular, it explained: “The phrase ‘any health program or activity,’ is not defined in the ACA but it is clearly broader in scope than only the provision of healthcare. The plain language of Section 1557 indicates that a health insurance contract and the administration of a health insurance contract is a ‘health program or activity.’”

Next, the court ruled that while the insurer does not receive federal financial assistance for its administration of self-funded plans, it receives federal financial assistance for some of its other products including “Medicare supplemental coverage, Medicaid, Medicare Advantage and Prescription Drug insurance coverage, and Medicare/Medicaid dual eligibility.” The court noted that the phrase “receiving federal financial assistance plainly includes all the operations of a business” principally engaged in providing health programs and activities.

The court then ruled that it does not matter whether the insurer provided, or merely followed, the self-funded plan’s exclusionary language because the insurer, as a TPA, has an independent duty to comply with Section 1557. The court observed that, “[t]hird party administrators can be liable under Section 1557 based on discriminatory terms in a self-funded plan… notwithstanding the fact that the [plan sponsor] subsequently adopted the plan and maintained control over its terms.”

Finally, the court found that the 2020 HHS regulations, while “arguably in effect,” are not entitled to deference in this case because they are “contrary to the statutory law, and the rule appears to be arbitrary and capricious…. The statute, not the 2020 Rule, must be followed here.”

The District Court concluded by indicating that it would hold further proceedings to determine the appropriate relief due in the matter.

Employer Takeaway. This decision, if it survives appeal, could have a large impact. It would not only reinstate the gender affirming care rules (which will most likely be reinstated by the current administration, in any event) but also result in a significant expansion of the Section 1557 nondiscrimination rules to entities that previously thought they were exempt from this section of the ACA.