While many of us were in our party hats waiting for the ball to drop, a federal judge in Texas was issuing a decision in Franciscan Alliance v. Burwell granting a nationwide injunction prohibiting HHS from enforcing a portion of the nondiscrimination rules under Section 1557 of the Affordable Care Act. As we have previously posted, Section 1557 prohibits certain health programs and activities from discriminating on the basis of disability, race, color, age, national origin, or sex. In the regulations issued under Section 1557, HHS interpreted sex discrimination to include discrimination based on gender identity. The regulations prohibited group health plans sponsored by “covered entities” from having blanket exclusions for gender transition services. This regulation was set to be effective for plan years beginning on or after January 1, 2017.

In this decision, the court ruled that HHS exceeded its authority under the Administrative Procedures Act by interpreting “sex” to be broader than biological sex. Further, the court found that the regulations also likely violated several of the plaintiffs’ religious liberties under the Religious Freedom Restoration Act. In light of these findings, the court issued an injunction prohibiting HHS from enforcing the prohibition against discrimination on the basis of gender identity. The court also enjoined HHS from enforcing any prohibition on discrimination based on the termination of pregnancy, even though the preamble to the regulations is clear that the rule is not intended to take away existing protections, ACA provisions that reject an abortion coverage mandate, or state laws governing abortion.

For the past several months, we have worked with clients to determine if they were covered entities and, if so, what changes were necessary to make sure their group health plans complied with Section 1557. In light of this injunction, HHS will not be able to penalize employers who choose not to offer gender transition benefits in their group health plans. However, an employer who chooses not to offer gender transition benefits may still face a lawsuit by plan participants under Title VII. There is currently a lawsuit pending against the Public Library of Cincinnati by a transgender employee whose claims for gender reassignment surgery were denied by the library’s plan.

Further, it is important to note that the rest of Section 1557, including the language transition service requirements, notice, grievance procedures, etc., is still enforceable (at least for now). HHS issued a notice to make sure the public knew that it would still be enforcing the rest of Section 1557. Happy New Year!