By: HUB’s EB Compliance Team

The Department of Health and Human Services (“HHS”) Office of Civil Rights (“OCR”) released final rules under Affordable Care Act (“ACA”) Section 1557 (the proposed version of these rules were covered here). The good news for plan sponsors is that it appears most self-funded plans will not be covered by these rules and insured plans will likely rely on their carrier for compliance. Therefore, most plans will not need to distribute the notices and taglines, in addition to other Section 1557 compliance requirements. However, given the nuanced treatment of group health plans under the rules, it is not clear whether OCR would take the same view.

A Brief Review (Again)

Section 1557 is a nondiscrimination provision of the ACA designed to prevent discrimination on the basis of race, color, national origin, sex, age, or disability by certain health programs or activities that receive “federal financial assistance” (a technical term). Also included were protections for individuals who speak languages other than English in the form of providing access to language assistance. These protections have largely been the focus of the changes since the 2016 final rules. The new rules are the latest iteration.

Applicability

The rules themselves state, as noted in these HHS FAQs, that the final Section 1557 rules do not apply to employers or employment discrimination, including in the context of providing health benefits. On the surface, this would seem to exempt group health plans from compliance with the rules. Of course, the fact that Section 1557 does not apply does not mean an employer can discriminate since other antidiscrimination laws, like Title VII, do apply to benefit plan design. Therefore, employers must be careful when considering certain coverage exclusions such as gender transition services. You can read more about these issues here.

However, even the actual effect of ACA Section 1557 is a bit more nuanced. While an employer generally is not subject to Section 1557, the health plan still could be if it receives federal financial assistance. Additionally, if an employer itself is a covered entity under ACA Section 1557, then all its operations, including its group health plan, are subject to ACA Section 1557. After parsing through the rules, it seems that the most likely candidates are as follows:

  1. Plans of Health Care Entities Receiving Federal Financial Assistance: If an employer is a health care entity, like a hospital, and receives federal financial assistance, including by receiving Medicare payments, for example, then all its operations are subject to ACA Section 1557.
  2. Plans of Indirect Recipients of Federal Financial Assistance: The rules provide that “indirect” recipients of federal financial assistance are also subject to the rules if the recipients assist a covered entity in carrying out its health program or activity and are paid by the covered entity using funds received as part of the federal financial assistance. This is a fact-specific inquiry, but it is one area where the reach of Section 1557 could significantly expand.
  3. Fully-Insured Plans: If an insurer receives money from CMS, including in the form of premium tax credits for individual policies purchased through the ACA Exchanges, then it is subject to Section 1557. However, for employers with insured plans, it will be the insurer, not the employer, that is responsible for compliance. Therefore, employers will fully-insured plans should not need to worry about these rules with respect to their health plan.
  4. Self-Funded Plans Using a Third Party Administrator (“TPA”) or Pharmacy Benefit Manager (“PBM”): Under the new final rules, TPAs and PBMs could be subject to Section 1557 if some other part of their business receives federal financial assistance. For example, the TPA arm of an insurance carrier that receives federal financial assistance would be subject to these rules in its TPA operations. However, the Section 1557 rules are clear that TPAs/PBMs are not responsible for plan design decisions by employers. Therefore, it appears that, while the TPA/PBM would need to comply with Section 1557 in its operations, it would not be responsible for a discriminatory plan design, as long as the TPA/PBM did not originate the discriminatory design. In other words, if the employer directed the TPA/PBM to administer a discriminatory design, then the TPA/PBM would not be liable. Of course, discriminatory benefit designs could subject the employer to liability under other similar laws, like Title VII.
  5. Self-Funded Plans Receiving Medicare Part D Retiree Drug Subsidy (“RDS”): This is a nuanced determination. Technically, the RDS is paid to the plan sponsor. Therefore, for a single employer plan, the plan would not be receiving the assistance. However, if a plan is a multiemployer plan (i.e. a plan jointly administered by employers and unions), the RDS would presumably be paid to the trust holding plan assets. This would make the plan subject to Section 1557. The preamble to the Section 1557 seems to agree with this reading where it says, “Entities that receive Federal financial assistance from the Department for an [Employer Group Waiver Plans] or RDS plan would be subject to this rule, though we note that employers and other plan sponsors are not subject to this rule with regard to their employment practices…. This includes when the Federal financial assistance received is for their employee health benefits.”
  6. Self-Funded Direct Contract Employer Group Waiver Plans (“EGWPs”): An EGWP is an employer plan that provides Medicare benefits like a Medicare Advantage (Part C) and/or Prescription Drug (Part D) plan. The analysis for these plans would seem to be similar to those receiving the RDS.

However, given the rule’s nuanced treatment of group health plans, the above conclusions are somewhat unclear. Additional guidance clarifying the application of Section 1557 to group health plans would be helpful.

The final rule also provides that a recipient of federal financial assistance may be exempt from complying with Section 1557 due to religious or conscience exemptions. The rule includes an administrative process to seek an assurance of exemption in writing. A temporary exemption is granted while HHS decides the request. There is also an administrative appeal process if the exemption is denied.

Staggered Application Dates

While the final rules are technically “effective” on July 5, 2024, the rules set for a staggered series of dates by which affected entities must comply:

  • November 2, 2024
    • Appoint a Section 1557 Coordinator
    • Prepare and distribute a notice of nondiscrimination
  • May 1, 2025
    • Identifying and mitigating risk that patient decision and support tools improperly discriminate in violation of the rules
  • July 5, 2025
    • Adopt policies and procedures to comply with Section 1557
    • Conduct training on those policies and procedures
    • Prepare and make available a notice of availability of language assistance and auxiliary aids and services
  • First day of the first plan year on or after January 1, 2025
    • Rules prohibiting discrimination in health coverage (if the plan was not already subject to the existing Section 1557 rules)
    • Rules requiring benefit designs to provide the most integrated settings appropriate to the needs of individuals with disabilities

Conclusion

Given the apparently limited application of the Section 1557 to group health plans, it seems unlikely that most employers will need to comply. However, the application of the rules to indirect recipients of federal financial assistance could result in a significant expansion of the rules. Additionally, plan sponsors in any of the more limited situations identified above (RDS or EGWPs receiving the assistance to the plan) should review the rules closely with experienced benefits counsel to see if they apply. Hopefully additional clarification will be provided prior to the requirement to issue a notice of nondiscrimination. OCR has indicated that they will provide a model notice.

In addition, these rules have already been challenged in court and there is always the possibility of further change if there is a change in Presidential administrations. Therefore, sponsors of plans where Section 1557 will apply should keep an eye out for litigation developments related to the rules.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.