How New Section 1557 Rules Affect Health Plans and Insurers

Section 1557 of the ACA prohibits discrimination based on race, color, national origin, sex, age, or disability by a “covered entity” with respect to its health programs or activities.  A covered entity is any recipient of Federal financial assistance.   The Department of Health and Human Services (HHS) has published a final rule that, among other things, establishes that the provision of health insurance coverage is a health program or activity and clarifies the application of Section 1557 to health insurance issuers, and self-insured group plans including the employers that sponsor them and the TPAs that administer them.

The rule applies to issuers and plans on the first day of the plan year beginning on or after January 1, 2025.

The discriminatory practices prohibited by Section 1557 are defined in existing Federal anti-discrimination statutes.  These are largely uncontroversial other than the prohibition based on sex discrimination which includes:

• Sex characteristics, including intersex traits;
• Pregnancy or related conditions;
• Sexual orientation;
• Gender identity; and
• Sex stereotypes. [1]

Who does the final rule apply to?

The final Section 1557 rule applies to health programs or activities that receive HHS funding, health programs or activities administered by HHS (such as the Medicare Part D program), and the health insurance Marketplace (and all plans offered by issuers that participate in those Marketplaces that receive Federal financial assistance).

Impact on Health Insurers

As noted above, health insurance is a health program or activity.  Many health insurers receive Federal financial assistance because they participate in the Exchanges and/or provide Medicare Advantage plans, Medicare Part D plans or Medicaid managed care plans and are therefore covered entities.  If an insurer is a covered entity then all of the insurer’s operations are subject to Section 1557, even if those operations are not themselves recipients of Federal funds.   This would encompass its non-grandfathered health insurance policies including excepted benefits, such as its dental, vision, fixed indemnity and dread disease products.  It would also include their third-party administrator activities.

Impact on Employers and Plans

The good news for employers is that Section 1557 does not apply to an employer with respect to its employment practices including the provision of employee benefits.  HHS does note that the non-discrimination statutes on which Section 1557 is based do apply to most employers, including employers that improperly discriminate with respect to the provision of health care benefits.  HHS will refer complaints of discrimination that are not covered by Section 1557 to the appropriate agency for handling.

It likewise does not directly affect an employer-sponsored health plan to the extent that the plan is an entity that is legally separate from the employer.    While a plan is a health program or activity, plans do not normally receive Federal financial assistance and are therefore not covered entities.  The fact that an employer or other plan sponsor (such as a MEWA) receives Federal financial assistance does not necessarily alter this conclusion.

Nevertheless, Section 1557 may indirectly affect employer-sponsored plans.

Fully Insured Plans

Most insurance companies will be covered entities under Section 1557 and the insurance policies that they sell will all have to comply with the Section 1557 non-discrimination requirements.  That means that an employer with a plan that is insured by an insurance company that is a covered entity will have to accept an insurance policy that does not discriminate on a prohibited basis, even if the employer has moral or religious objections to some of the coverages.  An employer with such objections would need to find an insurer that is not a covered entity.[2]

Self-insured Plans

Self-insured plans that are administered by TPAs that are not themselves covered entities will not be affected by Section 1557.

Many TPAs are part of insurance companies that are covered entities.  As such, the operations of those TPAs are subject to Section 1557.  A TPA that is subject to Section 1557 will be permitted to administer a plan that is designed by a plan sponsor even if the plan design discriminates in a prohibited manner.  However, many plan sponsors simply adopt plans created by the TPA.  In those cases, the TPA must design and administer the plan in a manner that is consistent with constraints imposed by Section 1557.  HHS will decide whether a plan design has been created by an employer or its TPA on case-by-case basis.

[1] At the time of publication, two lawsuits have been filed challenging the breadth of this definition of sex discrimination.