Background

Section 1557 is the non-discrimination provision of the Affordable Care Act (ACA). Section 1557, which has been in effect since 2010, is intended to prevent discrimination in certain health programs or activities that receive federal financial assistance. In May of 2024, the Department of Health and Human Services’ (HHS) Office of Civil Rights (OCR), the agency responsible for the implementation and administration of Section 1557, issued final regulations governing Section 1557 (the 2024 Final Rule). The 2024 Final Rule is not OCR’s first bite at this apple. In fact, the 2024 Final Rule represents OCR’s third attempt to establish regulations under Section 1557:

• In May 2016, OCR released the first set of final regulations (the 2016 Regulations). The 2016 Regulations included protections against discrimination “on the basis of sex,” including sex stereotyping, gender expression, gender identity, and pregnancy termination. The 2016 Regulations were challenged by a group of states and religiously affiliated healthcare entities, and in 2019, a federal district court in Texas vacated much of the 2016 Regulations, a decision that was affirmed by the Fifth Circuit Court of Appeals in 2022.
• In June 2020, OCR released the second set of final regulations (the 2020 Regulations). The 2020 Regulations significantly curtailed the reach of the 2016 Regulations, excluding the prohibitions against sex stereotyping, gender expression, and gender identity. The 2020 Regulations were largely nullified by the US Supreme Court’s decision in Bostock v. Clayton County.
• In August 2022, OCR released a Notice of Proposed Rulemaking (NPRM) soliciting comments on proposed rules under Section 1557. OCR received more than 85,000 comments on the NPRM.

The 2024 Final Rule is based on the NPRM and comments received in response to it. While the Rule applies broadly to nearly every healthcare industry sector, this article addresses its impact on employer-provided group health plans.

Scope of the 2024 Final Rule

Under the 2024 Final Rule, a “covered entity” receiving federal financial assistance is prohibited from discriminating on the basis of “race, color, national origin, sex, age, disability, or any combination thereof” concerning the provision or administration of health benefits. For this purpose, a “covered entity” includes any health insurance issuer, broker, pharmacy benefit manager, or third-party administrator receiving federal financial assistance, including Medicare payments, grants, loans, credits, subsidies, and contracts. The preamble to the 2024 Final Rule states that most employer-provided group health plans are not covered entities. However, because the 2024 Final Rule will apply to most service providers, the rule will indirectly affect employer-provided group health plans.

Protections Under the 2024 Final Rule

The 2024 Final Rule clarifies OCR’s position on certain open issues affecting employer-provided group health plans, notably:

• Transgender Care. Section 1557 and the journey to the Final 2024 Rules have been largely driven by litigation surrounding coverage of gender-affirming care. On the heels of Bostock, the 2024 Final Rule attempts to establish that the federal prohibition against discrimination on the basis of “sex” includes gender identity. The 2024 Final Rule specifies that sex discrimination includes discrimination on the basis of “sex characteristics, including intersex traits … sexual orientation; gender identity; and sex stereotypes.” This means that covered entities are prohibited from denying, limiting, or otherwise excluding gender-affirming care or placing stricter restrictions or more significant cost-sharing requirements on services performed for gender-affirming care as those imposed on the same services when performed for other medical diagnoses.

The 2024 Final Rule attempts to ward off challenges to the prohibition against categorical exclusions of gender-affirming care by preempting those challenges. The 2024 Final Rule explicitly states that, to the extent states have laws prohibiting gender-affirming procedures, Section 1557 preempts such laws. The state of Florida has already challenged this preemption provision.

• Pregnancy and Abortion. The 2024 Final Rule also clarifies that “sex discrimination” includes discrimination related to pregnancy and pregnancy-related conditions. The 2024 Final Rule does not address abortion. However, in the preamble, OCR affirms that Section 1557’s protections include discrimination in abortion coverage. However, the 2024 Final Rule does not require the coverage of abortion and is not intended to override any state-specific laws regarding abortion. Under Section 1557, a decision not to provide abortions is discriminatory only if the decision is applied differently based on prohibited classifications.

Conscience Exemption

Throughout the 2024 Final Rule, OCR specifies that Section 1557 should not be construed to affect federal laws regarding conscience or religious protection. Covered entities can either rely on the federal protections for religious freedom and conscience laws or apply for a “conscience exemption” from the OCR. Because the 2024 Final Rule directly governs covered entities, not plan sponsors, employers seeking a conscience or religious exemption from Section 1557 may not be able to rely on the 2024 Final Rule as the basis of such exemption.

The Path Forward

Generally, the 2024 Final Rule is effective as of the first day of the first plan year beginning on or after January 1, 2025. However, the 2024 Final Rule will likely have the same challenging road as its predecessors. Litigation involving prior Section 1557 legislation remains pending in more than one federal district court. And, on May 6, 2024, mere days after the 2024 Final Rule was passed, the state of Florida filed a lawsuit on behalf of a religious medical group seeking an injunction against the 2024 Final Rule.

While it may seem the 2024 Final Rule is the last word on the topic, until the legal challenges are resolved, one would be wise to contact a knowledgeable ERISA attorney with questions.