ACA News & Publications

ACA Pathways: HHS Issues Proposed Rule on ACA Section 1557 Nondiscrimination Rules

June 12, 2019

The Department of Health and Human Services (HHS) recently issued a proposed rule to revise the Section 1557 nondiscrimination regulations under the Affordable Care Act (ACA) that were issued back in May 2016 (Final Rule).

ACA Section 1557 is the first federal civil rights law to broadly prohibit discrimination on the basis of sex in federally-funded health programs. Specifically, ACA Section 1557 applies to:

  • Any health program or activity that receives funding from HHS (such as hospitals that accept Medicare or doctors who receive Medicaid payments);
  • State-based and federally facilitated Exchanges and issuers that participate in those Exchanges; and
  • Any health program that HHS itself administers.

This proposed rule was issued in response to a federal court injunction on December 31, 2016, blocking enforcement of the Section 1557 nondiscrimination provisions related to gender identity or abortion. It represents a significant shift from the Obama administration's interpretation of Section 1557 protections. The proposals will not take effect until the rule is finalized.

Summary of Proposed Rule

The proposed rule would revise the Section 1557 Final Rule to amend provisions related to gender identity and language access protections. According to HHS, the proposed rule is intended to maintain basic nondiscrimination protections on the basis of race, color, national origin, disability, age, and sex, while revising certain provisions of the current Section 1557 regulation that the federal court has said are likely unlawful. Specifically, the proposed rule:

  • Eliminates the "definitions" section of the regulations, effectively removing gender identity and termination of pregnancy from being included as "sex discrimination." These definitions were preliminarily enjoined by the federal court in 2016, which found that they were unlawful and exceeded Congress's mandate. Under the proposed rule, HHS would enforce Section 1557 by returning to the government's longstanding interpretation of "sex" under the ordinary meaning of the word Congress used. HHS also proposes to ensure that the Section 1557 and Title IX regulations include language Congress enacted that protects religious entities, and that prevents Title IX from requiring performance of, or payment for, abortions.
  • Eliminates the requirement that regulated health companies distribute nondiscrimination notices and "tagline" translation notices in at least 15 languages in "significant communications" to patients and customers. According to HHS, these notices have cost the healthcare industry billions of dollars (a cost which is ultimately passed on to consumers and patients), and data does not show that the notices have yielded the intended benefit for individuals with limited English proficiency. However, the proposed rule retains the requirement to take reasonable steps to ensure meaningful access to its programs or activities by individuals with limited English proficiency.
  • Returns to the previous enforcement structure for each underlying civil rights law as provided by Congress, and would remove portions of the Final Rule that are duplicative of, or inconsistent with, longstanding regulations implementing Title VI, Title IX, Section 504 and the Age Act. In addition, the proposed rule would revise the Final Rule's interpretation of Section 1557 as applying to all operations of an entity, even if it is not principally engaged in health care. Instead, the proposed rule would apply Section 1557 to the health care activities of entities not principally engaged in health care only to the extent that they are funded by HHS. For example, the proposed rule would generally not apply to short-term limited duration insurance, because providers of those plans are not principally engaged in the business of health care, and those specific plans do not receive federal financial assistance.
  • Adds a requirement that Section 1557 be enforced consistent with the ACA's health care conscience protections (Section 1303 concerning abortion and Section 1553 concerning assisted suicide); health care conscience laws set forth in the Church, Coats-Snowe, Weldon, Hyde, and Helms Amendments; the Religious Freedom Restoration Act; and the First Amendment to the U.S. Constitution.

Impact To Employers

According to the preamble to the Final Rule, an employer that receives federal funding and provides an employee health benefit program to its employees is liable for discrimination under Section 1557 only in three defined circumstances:

  • If the employer is principally engaged in providing or administering health services or health coverage and receives federal funding, the employer would be subject to Section 1557 in its provision or administration of employee health benefit programs to its employees. (For example, if a hospital provides health benefits to its employees, it will be covered by Section 1557 not only for the services it offers to its patients or other beneficiaries, but also for the health benefits it provides to employees.)
  • If an entity receives federal funding, the primary objective of which is to fund an employee health benefit program, that entity's provision or administration of the health benefit program will be covered by Section 1557, regardless of the business in which the entity is engaged.
  • If an employer is not principally engaged in providing or administering health services or health insurance coverage, but operates a health program or activity (that is not an employee health benefit program) that receives federal funding, the employer will be covered for its provision/administration of an employee health benefit program, but only with regard to employees in the health program or activity. (For example, when a state receives federal funding for its Medicaid program, the state will be governed by Section 1557 in the provision of employee health benefits for its Medicaid employees, but not for its transportation department employees, assuming no part of the state transportation department operates a health program or activity.)

In summary, unless the primary purpose of the federal funding is to fund employee health benefits, Section 1557 would not apply to an employer's provision of employee health benefits, if the provision of those benefits is the only health program or activity operated by the employer. This is the case regardless of whether the employee health benefit program is self-insured or fully-insured by the employer.

Employers Indirectly Receiving Federal Funding

The Final Rule also addresses situations involving employers that do not directly receive federal funding for employee health benefits, such as employers sponsoring self-insured plans that are administered by health insurance issuers offering coverage through an Exchange. The Final Rule does not exclude third-party administrators (TPAs) providing administrative services to self-insured plans. However, it does adopt specific procedures to govern the processing of complaints in these cases.

The Final Rule recognizes that TPAs are generally not responsible for the benefit design of the self-insured plans they administer, and that ERISA (and likely the contracts into which TPAs enter with the plan sponsors) requires plans to be administered consistent with their terms. As a result, OCR will determine whether responsibility for the decision or other action alleged to be discriminatory rests with the employer or the TPA:

TPA Liability Where the alleged discrimination is related to the plan administration by a TPA that is a covered entity, OCR will process the complaint against the TPA liability because the TPA is responsible for the decision or other action being challenged in the complaint. For example, OCR will proceed against the TPA in cases where a TPA:
  • Denies a claim because the individual's last name suggests that he or she is of a certain national origin; or
  • Threatens to expose an employee's transgender or disability status to his or her employer.
Employer Liability OCR will typically address the complaint against that employer in cases where:
  • The alleged discrimination relates to a self-insured plan's benefit design (for example, a plan that excludes coverage for all health services related to gender transition); and
  • OCR has jurisdiction over a claim against an employer under Section 1557 because the employer is separately subject to Section 1557 (for example, the employer is a hospital that receives federal funding and provides health benefits to its employees).
However, if OCR does not have jurisdiction over an employer responsible for benefit design, it typically will refer or transfer the matter to the Equal Employment Opportunity Commission (EEOC) and allow that agency to address the matter.

For More Information
For more information about this ACA Pathways or about any other health care reform-related provisions, please contact your Burnham Benefits consultant or Burnham Benefits at:

Burnham Benefits

Burnham Benefits does not engage in the practice of law and this publication should not be construed as the providing of legal advice or a legal opinion of any kind. The consulting advice we provide is intended solely to assist in assessing its compliance with the Patient Protection and Affordable Care Act and other applicable federal and state law requirements, and is based on Burnham Benefit’s interpretation of federal guidance in effect as of the date of this publication. To the best of our knowledge, the information provided herein, and assumptions relied on, are reasonable and accurate as of the date of this publication. Furthermore, to ensure compliance with IRS Circular 230, any tax advice contained in this publication is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.

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