Court Blocks Portions of Section 1557 Nondiscrimination Regulations

In the recent case of Asapansa-Johnson Walker v. Azar, a federal trial court blocked the U.S. Department of Health and Human Services (HHS) from enforcing certain provisions of its Section 1557 regulations, which were finalized in June 2020. The provisions in question removed gender identity and sex stereotyping from the Affordable Care Act's nondiscrimination protections.

The 2020 regulations repealed significant portions of previous Sec. 1557 regulations that the HHS considered duplicative of or inconsistent with other federal nondiscrimination rules. They were to take effect August 18, 2020. Under the court's ruling, however, the previous regulations' more expansive definitions of "on the basis of sex," "gender identity" and "sex stereotyping" will remain in effect while litigation continues.

Details of the Case

The case was filed by two transgender individuals who alleged that they'd faced and would continue to face discrimination in health care because of the 2020 regulations' narrowed protections. The court agreed with the individuals that the disputed provisions were contrary to the U.S. Supreme Court's ruling in Bostock v. Clayton Cnty., Ga., which found that discrimination based on sex (for Title VII purposes) encompasses discrimination based on sexual orientation or gender identity.

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The court determined that the HHS acted arbitrarily and capriciously in issuing the regulations without properly considering the ramifications of a pending Supreme Court decision. The court also pointed out that the regulations weren't officially published until four days after the Supreme Court had ruled, during which time the HHS could have reconsidered the regulations in light of the decision.

Furthermore, the court referenced Franciscan Alliance, Inc. v. Azar, a decision under which a different court vacated the provisions of the previous regulations that prohibited discrimination on the basis of gender identity. The court noted that it had no power to revive a rule vacated by another district court but concluded that Franciscan Alliance didn't address the concept of sex stereotyping embodied in the previous regulations. Therefore, the court rejected the government's argument that the prior provision "has no real world effect" after Franciscan Alliance.

A Developing Story

The full impact of this ruling remains to be seen as litigation continues in this and other cases challenging the 2020 regulations. Other provisions of the regulations — including those narrowing Sec. 1557's applicability, repealing the nondiscrimination protections related to termination of a pregnancy, and eliminating the requirement for non-English notices and taglines for certain health plan communications — weren't addressed by the court and remain in effect.

Asapansa-Johnson Walker v. Azar, No. 20-CV-2834, Aug. 17, 2020 (Eastern Dist. of New York) Bostock v. Clayton Cnty., Ga., No. 17-1618, June 15, 2020 (U.S. Supreme Court) Franciscan Alliance, Inc. v. Azar, No. 7:16-cv-00108-O, Oct. 15, 2019 (Northern Dist. of Texas)

IRS Issues Updated ALE Amounts, Draft ACA Forms

The IRS has updated its Q&A guidance to reflect indexing adjustments applicable to the employer shared responsibility provisions of the Affordable Care Act (ACA). One question updates the annual per-employee penalties under Internal Revenue Code Section 4980H for the 2021 calendar year. The subsection (a) penalty, which may apply when an applicable large employer (ALE) fails to offer minimum essential coverage to at least 95% of its full-time employees, will increase to $2,700 (up from $2,570 for 2020).

The subsection (b) penalty, which may apply when an ALE offers minimum essential coverage to the required percentage of full-time employees, but the offered coverage either is unaffordable or doesn't provide minimum value, will increase to $4,060 (up from $3,860 for 2020). Another question verifies that the previously announced affordability percentage will be 9.83% for plan years beginning in 2021 (up from 9.78% for plan years beginning in 2020).

The IRS has also released draft ACA information reporting forms for 2020. As a reminder, Forms 1094-B and 1095-B are filed by minimum essential coverage providers (mostly insurers and government-sponsored programs, but also some self-insuring employers and others) to report coverage information in accordance with Sec. 6055. Forms 1094-C and 1095-C are filed by ALEs to comply with Sec. 6056, providing information that the IRS needs to administer employer shared responsibility penalties and eligibility for premium tax credits.

The draft forms are similar to those for 2019, but they reflect availability of individual coverage Health Reimbursement Accounts (ICHRAs) starting in 2020. An ICHRA code has been added to the coverage codes on Form 1095-B. ICHRA codes have also been added to Form 1095-C, in addition to fields for the employee's age and ZIP code (information used to determine whether the ICHRA is deemed to provide affordable coverage).

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