Seyfarth Synopsis: A district court in Minnesota recently found an employee could not challenge a plan’s blanket transgender exclusion under Title VII, when the employee was not transgender but her son was. The Court went on to find that a third party administrator could not be sued for the blanket plan exclusion under the Affordable Care Act, when the complaint did not name the correct TPA and when all the TPA was alleged to have done was to follow the plan’s terms.

Existing federal laws have limits when it comes to who can be sued to redress claims of transgender benefits discrimination, so held the District of Minnesota recently in Tovar v. Essentia Health, LLC, et al, No. 16-cv-100 (May 11, 2016). InTovar, plaintiff’s health-coverage was provided under a benefit plan that expressly excluded covering any “services and/or surgery for gender reassignment.” Plaintiff’s son was a plan beneficiary, who was denied coverage when he sought gender affirmation surgery (and related medical treatments).

Plaintiff brought suit against her employer and the alleged third-party administrator of the plan. She alleged the employer violated Title VII (and Minnesota anti-discrimination laws) by “excluding coverage for gender reassignment services or surgery” in its benefit plan. She further asserted that the third-party administrator violated Section 1557 of the Affordable Care Act, because as an entity that accepted federal funds, it was obligated to disregard the plan’s exclusionary language and instead award benefits related to transgender related services.

Both defendants moved to dismiss. The Court granted both motions. The Court dismissed the employment discrimination claims, holding that Title VII could only redress a claim against an employee. The Court reasoned that Plaintiff suffered no injury as her benefits were not denied. Only her son was denied care. The Court held that a claim of Title VII discrimination did not extend to alleged discrimination against a child-beneficiary. By holding that an injury against a child-beneficiary was not a cognizable injury under Title VII, the Court set more stringent boundaries of the law than the one advocated by the current administration.

The Court dismissed the Section 1557 claim for lack of standing because the evidence in the record demonstrated that the alleged TPA was not in fact the TPA, so any injury was neither traceable to it, nor redressable by it. The Court also noted that even if the alleged TPA actually administered the plan, the TPA was authorized only to interpret the plan, and could not violate the Act by simply following the terms of the plan. The Court stressed that the TPA had a fiduciary obligation to follow the terms of the plan. The Court went on to note that the plan sponsor is the appropriate target in a claim against a blanket transgender benefit exclusion as it is the entity that drafted the challenged plan language. It is unclear from the facts whether the plan sponsor had sufficient contact with the federal government to allow it to be sued under Section 1557.

The Court’s reasoning regarding Section 1557 is in line with the subsequently issued final rules of the Department of Health and Human Services regarding Section 1557. In these rules, HHS ruled that a covered third-party administrator will violate Section 1557 if it administers a plan in a discriminatory way, not if it simply follows the language of the plan.  Note that this is different from the standard under ERISA, under which a fiduciary is only required to follow the terms of the plan to the extent they don’t violate applicable law.

Whether the Tovar Court would have found the blanket exclusion violated Title VII if the claim was brought by an employee plan-participant (instead of a beneficiary), is a question left for another day. What is certain is that the EEOC has taken the position that such conduct would clearly state a cognizable injury under Title VII, and HHS regulations clarify that entities that receive Federal financial assistance (including Medicare) violate the ACA if they retain blanket plan exclusions of transgender related care. Perhaps for this very reason, the employer in Tovar amended the at-issue plan to prospectively remove the blanket exclusion.