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Third-Party Administrators May Be On The Hook For Affordable Care Act’s Anti-Discrimination Rules – Employee Benefits & Compensation


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In a significant decision under the Affordable Care Act (ACA), a
federal district court in Western Washington recently ruled that a
third-party plan administrator (TPA) violated the ACA’s
anti-discrimination rule when administering a self-insured health
plan that excluded gender-affirming care. The case, C.P. v.
Blue Cross Blue Shield of Illinois
, No. 20-cv-6145, 2022 WL
17788148 (W.D. Wash. Dec. 19, 2022), involved a transgender youth
who sought coverage for gender-affirming care through the health
plan sponsored by their mother’s employer. The employer’s
plan was self-insured, meaning the health coverage was paid out of
the employer’s general assets instead of insurance. Applying
the plan rules, which expressly excluded gender-affirming care, the
TPA denied coverage. In doing so, the TPA simply applied the plan
terms as required by the federal Employee Retirement Income
Security Act (ERISA). The TPA was neither the health care provider
nor the health insurer.

The mother and her transgender child brought suit on behalf of
themselves and a class of individuals who were similarly denied
coverage by the TPA based on a gender-affirming care exclusion. The
plaintiffs claimed that the TPA’s denial violated Section 1557
of the ACA. Section 1557 prohibits discrimination “on the
basis of sex” by “any health program or activity, any
part of which is receiving Federal financial assistance, including
credits, subsidies, or contracts of insurance…”. The
plaintiffs sought an order preventing the TPA from administering
and enforcing health plans that exclude coverage for
gender-affirming care, and an order requiring the TPA to reprocess
claims previously denied based on similar exclusions.

The TPA argued it was not liable because: (1) it was not a
covered entity under Section 1557; (2) it was merely administering
another organization’s self-insured plan, as it was required to
do under ERISA; (3) there was no medical consensus regarding
gender-affirming care; and (4) the Religious Freedom Restoration
Act protected the plan because the employer was a religious
organization, and the exclusion was based on sincerely-held
religious beliefs. The court rejected these arguments.

The decision is significant for several reasons:

1. The decision potentially expands the scope of
“covered entities” under Section 1557.
are subject to Section 1557 if they operate “a health program
or activity, any part of which is receiving Federal financial
assistance.” The court concluded the TPA fit the definition of
a health program or activity, expressly concluding that Department
of Health and Human Services (HHS) rules to the contrary were not
binding.1 The court reasoned that because the TPA
received federal funding for some portion of its business,
it “received Federal financial assistance” for purposes
of Section 1557. These conclusions are noteworthy because they
could effectively extend the coverage mandates of Section 1557 not
only to some TPAs, but to all sponsors of self-insured plans that
use those TPAs, even if the plan sponsor does not receive federal
funding and would not otherwise be subject to Section 1557.

2. The decision extends Section 1557 violations to TPAs
applying rules of self-insured plans, as ERISA requires.

ERISA mandates that TPAs apply the terms of ERISA-governed health
plans. Consistent with this mandate, the TPA applied the
gender-affirming care exclusions under the plan, which was subject
to ERISA, to deny coverage in this case. This application, the
court ruled, violated Section 1557’s anti-discrimination
provision, regardless of the ERISA mandate. The court concluded
that ERISA could not be read to invalidate or impair Section 1557,
nor could ERISA insulate the TPA from liability.

3. Medical consensus is irrelevant when coverage is
denied on the basis of sex.
The court concluded the
alleged lack of medical consensus on gender-affirming care was not
relevant in this case because the TPA denied coverage on the basis
of the lead plaintiff’s transgender status, not because of
medical necessity.

4. The Religious Freedom Restoration Act (RFRA) does not
insulate TPAs from private action.
Finally, the TPA argued
that because the employer was a religious organization, RFRA
insulates the TPA from liability. However, this argument failed
because the court concluded RFRA applies to government actions or
lawsuits where the government is a party; RFRA does not apply to a
matter between private individuals.

Ultimately, the court concluded that the TPA was a covered
entity that discriminated against the plaintiffs in violation of
Section 1557 by denying them services for gender-affirming care
under the group health plans that covered them.

What Should Plan Sponsors and Plan Administrators Do Now?

  • Review the terms of your group health plan to determine if the
    plan excludes gender-affirming care.

  • If your plan contains such an exclusion, work with employee
    benefits counsel to determine how this recent case might impact
    your plan and your business.

  • Stay tuned for additional developments, as the law regarding
    Section 1557 of the ACA is far from settled.


1. These HHS regulations have been the subject of
significant litigation spanning multiple administrations.
Enforcement of certain portions of two sets of regulations have
been enjoined by federal district courts and a third set of
proposed rules has not yet been adopted. In this case, the federal
district court concluded that the regulations, even those portions
other courts had not enjoined, were not binding, focusing instead
on the plain language of the ACA.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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