Court Holds That Health Insurer’s TPA Activities Are Subject to ACA Section 1557

April 5, 2023
Hall Benefits Law, LLC

An Illinois federal judge has ruled that an insurer that acted as a third-party claims administrator (TPA) for self-insured health plans violated Section 557 of the Affordable Care Act (ACA) by excluding coverage for gender-affirming care. In C.P. v. Blue Cross Blue Shield of Ill., 2022 WL 17788148 (W.D. Wash. 2022), a class action lawsuit filed by a transgender individual and his parent, the judge found that the insurer’s administration of the plan exclusions illegally discriminated against the plaintiff and other similarly situated class members, due to their sex.

Section 557 bars discrimination in certain health programs and activities based on race, color, national origin, sex, age, or disability. The U.S. Department of Health and Human Services (HHS) issued regulations in 2016 that interpreted Section 557 as applicable to all operations of health insurers that receive federal financial assistance. The insurer, in this case, receives federal financial assistance for some healthcare products, although not for its administration of self-funded health plans.

The court ruled that the insurer’s TPA activities qualify as the operation of a health program or activity under the 2016 regulations, subjecting those activities to the application of Section 557. In its ruling, the court also rejected the insurer’s argument that the 2020 regulations repealed portions of the 2016 regulations, as the 2020 regulations are arbitrary, capricious, and contrary to law. The court further rejected the insurer’s arguments that ERISA required it to administer the plan exclusions as written and that it was not subject to Section 1557 when administering a plan of a religious organization exempt from the rules under the Religious Freedom Restoration Act (RFRA).

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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