Last month, the U.S. Department of Health and Human Services (“HHS”) issued a proposed rule implementing section 1557 of the Affordable Care Act (“ACA”), which essentially prohibits discrimination on the basis of race, color, national origin, sex, age or disability in certain health programs and activities. While the rule does not apply directly to most employer-sponsored plans, it may potentially apply indirectly.

Covered Entities

Under the proposed rule the nondiscrimination requirements would apply to:

  • all health programs or activities of a covered entity if any part receives Federal financial assistance administered by HHS (including subsidies provided by the Federal government to individuals through the Marketplace for remittance to the covered entity);
  • all health programs or activities administered by HHS, including the Federally-facilitated Marketplace; and
  • all health programs or activities administered by any entity established until Title I of the ACA, including a state-based Marketplace.

A health program or activity includes:

  • the provision or administration of health-related services or health-related insurance coverage;
  • the provision of assistance in obtaining health-related services or health-related insurance coverage; and
  • all of the operations of an entity principally engaged in providing or administering health services or health insurance coverage.

Impact on Employer-Sponsored Group Health Plans

Since the proposed rule would extend to all the operations of a covered entity, it appears that a health insurance issuer participating in the Marketplace would be required to comply with the nondiscrimination provisions with respect to (1) its own employer-sponsored group health plan (even if self-insured); (2) all its health plan products, including those plans offered outside the Marketplace (such as other group policies); and (3) an employer-sponsored self-insured group health plan for which serves as the third party administrator.

The proposed rule does not offer any specific guidance on how a covered health insurance issuer’s required compliance would apply to its services as a third party administrator for a self-funded group health plan. The preamble to the proposed rule merely includes a footnote stating that HHS will engage in a case-by-case inquiry where a covered entity that is acting as a third party administrator is legally separate from an issuer receiving Federal financial assistance for its insurance plans and evaluate whether such entity is appropriately subject to Section 1557. This means that insurers participating in the ACA Marketplaces that also offer coverage to employers in the group market, and those who act as TPAs for self-funded plans, may need to apply these rules to their group insurance coverages and even to the plans for which they serve as TPAs. This is a potentially very broad-sweeping rule that could change what employer plans have to cover.

New Standard for Sex Discrimination

Under the proposed rule, HHS has interpreted sex discrimination broadly to include discrimination based on sexual orientation, sexual stereotyping and gender identity. Specifically, this means individuals cannot be denied health care/ coverage based on their sex, including their gender identity and must be treated consistent with their gender identity. However, it also means that sex-specific health care cannot be denied or limited only because the individual identifies as belonging to another gender.

According to HHS, a covered entity’s explicit categorical exclusions from coverage of all health services related to gender transition would be facially discriminatory. Confusingly, however, HHS has also stated that the proposed rule does not require coverage for any particular benefit or service. HHS is specifically seeking comment on whether religious organizations should be exempt and the scope of any such exemption.

Other Requirements

In addition to codifying existing nondiscrimination requirements, the proposed rule requires covered entities to provide language assistance services free-of-charge to individuals with limited English proficiency.

With respect to individuals with disabilities, a covered entity must also provide auxiliary aids and services, including alternative formats for written information and sign language interpreters. Under the proposed rule, a covered entity with more than 15 employees would also be required to designate an employee responsible for coordinating its nondiscrimination efforts and establish a grievance procedure.

Notice Requirements

To ensure that individuals are aware of their rights, covered entities will be required to post a notice (within 90 days of the effective date of such requirement) that includes information on all the above requirements and how to file a discrimination complaint with the Office of Civil Rights.

The notice must be translated (and include taglines) in the top 15 languages spoken by individuals with limited English proficiency nationally. A sample notice is provided in the proposed rule and HHS has indicated that it will provide sample taglines and translations in the top 15 languages.

Next Steps

The public comment period is open through November 9, 2015. The proposed effective date is 60 days after rule is finalized. In the absence of any transitional relief, covered entities will have a very brief window to come into compliance. For that reason, covered entities (and perhaps employers who use a third-party administrator or purchase group insurance) may want to consider reviewing their health plans now for potential problem areas and identify potential remedies.