By: HUB’s EB Compliance Team

As threshold matter, 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.

Race, color, religion, sex, and national origin are considered protected classes, which means individuals have legal protections from discrimination based on these traits. Until June 15, 2020, the question regarding whether sex discrimination under Title VII included sexual orientation and transgender status remained unanswered.  In Bostock v Clayton County, GA, the Supreme Court answered this question, as we discussed here.  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 reasoned 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.

The Supreme Court’s ruling in Bostock creates a new set of questions regarding scope and reach of Title VII. More specifically, the question many employers are grappling with is whether Title VII’s sex discrimination provisions also apply to the health insurance and prescription drug plan design.

What we Know about Title VII and Employee Benefits

Title VII applies to an employee’s compensation, terms, conditions, or privileges of employment. Retirement, pension, health insurance, and other fringe benefits are part of an employee's compensation, terms, conditions, or privileges of employment. While Title VII does not require an employer to provide employee benefits, if an employer provides benefits to its employees, it must do so on a non-discriminatory basis. While employer benefit programs are generally administered by third parties (typically, an insurer or third-party administrator), employers that offer a group health plan that discriminates based on a protected class violates Title VII regardless of whether a third party was involved. In other words, employers may outsource the administration but not the liability.

The Supreme Court in Manhart (1972) and Norris (1983) ruled that pension contributions and benefits plans cannot treat men and women differently. For example, an employer may not:

  • Require women to make larger contributions to a pension plan to receive the same monthly benefits as men to account for the fact that women generally live longer than men on average.
  • Offer retirement benefits options that pay women lower monthly benefits than men who have made the same contributions based on the fact that women generally live longer than men and would, as a result, generally receive payments for a longer period of time.

Similarly, Title VII prohibits employers that provide benefit to employees' spouses from discriminating based on the sex of the spouse. For example, in Newport News Shipbuilding & Dry Dock Co. the Court ruled that an employer that provides hospital benefits for employees and employees' spouses cannot provide greater benefits for female employees than it provides for the female spouses of male employees. At least one District Court has held that an employee can state a sex discrimination claim by alleging that the employer provides health insurance coverage for male employees married to female spouses but not male employees married to male spouses.

These cases illustrate the employer’s obligation to ensure that the offer of benefits is made on a nondiscriminatory basis. However, the question remains whether Title VII also requires employers to ensure the plan design and coverages do not violate the protections of Title VII.

The Remaining Question and Where we are Today

Currently, there are several active lawsuits premised, in part, on the proposition that Title VII prohibits employers from denying coverage for gender affirming and gender dysphoria medical, surgical, and pharmaceutical treatments, in addition to other claims.  These suits generally allege that denial of these medical, surgical, and pharmaceutical treatments for transgender plan participants is prohibited under the sex discrimination provisions of Title VII because the same medical and pharmaceutical services are covered for non-transgender and gender dysphoria claims. While these cases continue to make their way through the courts, employers are faced with determining whether they should make coverage changes to their health plans.

In some cases, carriers have made the decisions for employers.  For example, one national health insurance carrier has removed all transgender transition and gender dysphoria medical exclusions from its full-insured programs.  The carrier explained that the overall cost of these medical services not substantial and the cost of defending the exclusions would be exorbitant.

Mental Health Parity and Gender Dysphoria

Moreover, as employers assess their options and make these important decisions, they must also consider their obligations under the Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA). MHPAEA generally applies to group health plans and health insurance issuers that provide coverage for mental health and/or substance use disorder benefits in addition to medical/surgical benefits.

Under MHPAEA group health plans and issuers may not impose a lifetime or annual dollar limit on mental health or substance use disorder benefits that is lower than the lifetime or annual dollar limit imposed on medical/surgical benefits. MHPAEA also requires group health plans and health insurance issuers to ensure that financial requirements (such as copays and deductibles), and quantitative treatment limitations (such as visit limits), applicable to mental health or substance use disorder benefits are generally no more restrictive than the requirements or limitations applied to medical/surgical benefits. The MHPAEA regulations also require plans and issuers to ensure parity with respect to nonquantitative treatment limitations (such as medical management standards).

Group health plans that deny mental health services and pharmaceutical treatments for gender dysphoria but would provide the same coverage for non-gender dysphoria claims may fail to satisfy the MHPAEA obligations.

What This Means for Employer Group Health Plans

Employers with fully-insured plans will rely on how their insurance carrier chooses to address these issues. Bear in mind that fully-insured plans are generally subject to Section 1557 of the ACA, which already provides many protections on the basis of sex, including gender identity and sexual orientation. However, Section 1557 has more limited application than Title VII which applies to almost all employers with 15 or more employees (there are limited exceptions for organizations that meet the religious exception criteria).

On the other hand, self-insured plans generally have more control over whether their plans cover these medical services, so long as their third-party administrator/administrative services only provider will allow such flexibility. Plan exclusions are not without risk of potential lawsuits from impacted employees, investigations by the Department of Labor or other governmental entities, as well as negative publicity from the exclusions. Indeed, as noted above, there is active litigation in at least three states on the application of Title VII and group health plan design and coverages. Because this is a complex and evolving area of the law, employers with self-insured plans who currently have, or are considering these types of exclusions should consult with counsel qualified to advise on these matters.

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

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 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 organization’s particular needs.