Federal Court Judge Block Blocks Temporarily HHS’s Enforcement of Revised ACA Anti-Sex Discrimination Rules, Restores ACA Protections for LGBTQ Individuals

On August 17, 2020 the U.S. District Court for the Eastern District of N.Y. preliminarily enjoined the U.S. Department of Health and Human Services (“HHS”) from enforcing provisions of its June 2020 final Section 1557 regulations (“2020 Rules”) which were slated to take effect the next day. The 2020 Rules, in part, interpret the Affordable Care Act’s prohibition of sex discrimination as excluding discrimination based on gender identity and sex stereotyping, which is contrary to the interpretation under the Obama-era rule. Walker v. Azar, Case No. 20-CV-2834-FB-SMG, 2020 WL 4749859 (E.D.N.Y. August 17, 2020).

BACKGROUND

ACA Section 1557 prohibits various forms of discrimination in “any health program or activity” that either receives federal financial assistance or is administered by a federal agency (such as ACA health insurance exchanges). Section 1557 defines discrimination by incorporating the forms of discrimination prohibited under four longstanding federal anti-discrimination statutes including discrimination on the basis of sex under Title IX of the Education Amendments of 1972 (“Title IX”).

In 2016 the Obama administration’s HHS promulgated Section 1557 regulations (“2016 Rules”) which interpreted Section 1557’s prohibition of sex discrimination as explicitly including gender identity, gender expression, sex stereotyping and pregnancy-related conditions.

On June 19, 2020 the HHS published revised 2020 Rules, which rescinded the 2016 Rules’ broad interpretation of sex discrimination contending that “Title VII and Title IX do not encompass discrimination ‘on the basis of’ sexual orientation or gender identity” and instead interpreted the prohibition as applying only to discrimination based on biological sex as determined at birth. HHS published the 2020 Rules just four days after the landmark Supreme Court decision in Bostock v. Clayton County, where the Court held that under Title VII of the Civil Rights Act, sex discrimination encompasses discrimination based on an individual’s gender identity and sexual orientation because “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.”

REQUEST FOR INJUNCTIVE RELIEF

On June 26, 2020, the Human Rights Campaign sued HHS on behalf of two transgender women who claimed they face and will continue to face discrimination in seeking health care for their chronic illnesses on account of their gender identity. The plaintiffs contested HHS’s interpretation of on the basis of sex under the 2020 Rules and asked the court to invalidate the 2020 Rules, stay their effective date, and preliminarily enjoin HHS from enforcing the 2020 Rules.

DISTRICT COURT’S RULING

Judge Frederic Block granted the request for a stay and a preliminary injunction, and found that: (i) the plaintiffs established a harm and that the harm would be irreparable; (ii) any potential money damages would not adequately compensate the plaintiffs; (iii) HHS's interest in implementing the 2020 Rules did not outweigh the interests of individuals who could experience discrimination under 2020 Rules; (iv) the plaintiffs were likely to succeed on the merits of their claim because the 2020 Rules were contrary to law based on the Supreme Court’s decision in Bostock and HHS acted arbitrarily and capriciously by failing to consider the impact of the Bostock decision prior to publishing the 2020 Rules. Specifically, the court found that based on HHS’ statements in prior litigation, as well as its statements in the preamble to the 2020 Rules, HHS (i) knew the Bostock case was pending before the Supreme Court; (ii) acknowledged that the decision could have ramifications in the Section 1557 context; and (iii) failed to re-evaluate the 2020 Rules after the Bostock decision. Judge Block noted that when "the Supreme Court announces a major decision, it seems a sensible thing to pause and reflect on the decision's impact." The court’s decision “stays the repeal of the 2016 definition of discrimination on the basis of sex” and therefore restores, for now, the definition of sex discrimination contained in the 2016 Rules.

The court did not address other provisions of the 2020 Rules, which rolled back other provisions of the 2016 Rules, including certain regulatory requirements.

IMPACT OF THE RULING

The full impact of Judge Block’s decision and the full scope of Section 1557's nondiscrimination protections are uncertain at this time since litigation in Walker and other federal cases around the country challenging these and other provisions of the 2020 Rules is ongoing. The 2020 Rules are at the center of suits in the District of Columbia, Manhattan and Seattle. Whitman-Walker Clinic, Inc. v. U.S. Dep't of Health & Human Servs., No. 1:20-CV-1630, 2020 WL 3444030 (D.D.C. filed June 22, 2020); N.Y. v. U.S. Dep't of Health & Human Servs., 1:20-CV-5583, 2020 WL 4059929 (S.D.N.Y. filed July 20, 2020) and State of Washington v. HHS, 2020 WL 2020 WL 4788019 (W.D. Wash. Aug. 18. 2020).

We will continue to monitor these cases and report significant developments regarding the 2020 Rules and Section 1557 protections.

For more information about the Walker decision or compliance with ACA generally, please contact Patrick W. McGovern, Esq., via email here or Gina M. Schneider, Esq., via email here in the Firm’s Employee Benefits Practice Group.