By: HUB’s EB Compliance Team

There used to be a baseball and football stadium in Pittsburgh, PA called Three Rivers Stadium. It was named for the three rivers that run through the city, or more accurately two rivers (the Monongahela and the Allegheny) that merge together to form a third (the Ohio). The confluence of these rivers is similar to how employers must look at the Affordable Care Act (“ACA”) Section 1557 Nondiscrimination Rules in light of the Supreme Court decision in Bostock v Clayton County, GA.  

Section 1557

In a previous piece we discussed the recent changes to the Section 1557 rules. For many employers, the big “win” was the removal of the onerous notice and tagline requirements. We’re not going to cover that here (since it was covered in that prior piece), but will instead focus on the nondiscrimination provisions.

Previous iterations of 1557 precluded health plans issued by “covered entities” (as defined in those rules) from discriminating “on the basis of sex.” This specifically included sex stereotyping and gender identity. Likewise, “covered entity” was defined broadly and included not only those who directly received funding from the Department of Health and Human Services (“HHS”), but plans issued by those who received such funding. The effect of this expansive definition meant that Section 1557 applied to all fully-insured plans by virtue of insurance carriers receiving funds from HHS.

The final rules eliminate the previous definition section, which has the combined effect of narrowing the meaning of covered entity to now only include those who directly receive funding from HHS, and removing the protections based on sex stereotyping and gender identity.

The nondiscrimination provisions of the old rule meant practically that plans of covered entities couldn’t exclude access services typically associated with one gender on account of the participant presenting as the opposite gender or having been the opposite gender at birth. In other words, 1557 had required plans of covered entities to cover transgender services. Likewise, while plans of covered entities weren’t explicitly mandated to cover gender affirmation surgery, they were hard pressed to find a basis to exclude these services from plan coverage while still complying with Section 1557.

In theory the revised nondiscrimination provisions mean plans may be able to exclude services on the basis of gender identity as well as gender affirmation surgery. However, plans may face challenges with implementing these changes as a result of the Bostock decision under Title VII of the Civil Rights Act that was issued only three days after the final Section 1557 regulations were issued.

Title VII

Title VII of the Civil Rights Act of 1964 generally prohibits employers from:

(1) failing or refusing to hire or to discharge any individual, or otherwise discriminating against any individual with respect to compensation, terms, conditions, or privileges of employment, because of the individual's race, color, religion, sex, or national origin; or

(2) limiting, segregating, or classifying employees, or applicants for employment, in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his/her status as an employee, because of such individual's race, color, religion, sex, or national origin.

Historically, courts across the country have been inconsistent and, in many cases, divided on whether “sex” included protections for individuals on the basis of sexual orientation and/or transgender status. 

Bostock v Clayton County, GA

To settle this divide, the Supreme Court weighed in and answered this question. More specifically, the Supreme Court addressed whether an employee may be terminated or face other adverse employment action on the basis of the employee’s sexual orientation and/or transgender status. The Supreme Court consolidated three separate cases under the heading of Bostock v. Clayton County, GA. In one case, a male skydiving instructor was terminated after telling a client that he was gay. In another, a male employee was terminated after encouraging other employees to join an Atlanta gay softball league. And in a third, the employee was terminated after, as part of her transgender process, she attended work as a female and had previously been employed as a male.

The Supreme Court held that an employer who intentionally fires an individual homosexual or transgender employee in part because of that individual’s sex violates Title VII, even if the employer is willing to subject all male and female homosexual or transgender employees to the same rule. The Court’s basic rationale was that an employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex.

Section 1557, Title VII, and Bostock

While the Supreme Court has clarified that Title VII protects employees on the basis of sexual orientation and transgender status, the revised Section 1557 take the exact opposite view. More specifically, (as discussed above) Section 1557 no longer requires  employer health plans to include medical transgender services. However, Title VII may require such coverage (although this is unclear). 

Title VII makes it illegal to discriminate on the basis of a protected class which, after Bostock, includes sexual orientation and transgender status. Title VII applies to the terms and condition of employment, including employee benefits and compensation. Therefore, Title VII requires that employers provide benefits programs that do not discriminate on the basis of any protected class. 

What is clear under Title VII is that employers may not charge homosexual or transgender employees more than other employees for the same coverage. It is less clear is whether employers need to update their policies and schedules of benefits to ensure that coverage is not excluded or denied for services on the basis of an employee’s sexual orientation and/or transgender status (among other protected classes). Further rulemaking or litigation will hopefully provide greater clarity in this area.

What this all Means

What does this mean for employers? On the employment side, employers should review their employee handbooks and consider updating and delivering training to the organization that includes information and explanations regarding the scope of Title VII with respect to sex discrimination, harassment, and retaliation. Employers should work with experienced employment counsel on these issues.

With regard to benefits, it may make sense for employers to be sure that their benefits programs do not discriminate on the basis of any protected class including those identified in Bostock – sexual orientation and transgender. Employers should consult with employment and benefits counsel on their specific risks associated with policies or benefits programs that may be considered discriminatory.

If you have any questions, please contact your HUB Advisor. You can also view more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.