By Tim Kennedy and Anne Tyler Hall (October 31, 2023)
In recent years, the U.S. has seen an increase in the number of individuals identifying as transgender.[1] With this development, there also has been increased attention on transgender rights and protections, as well as an increase in the demand for employer-sponsored group health plans, or GHPs, to cover gender-affirmation benefits.
Whether or how a GHP should cover gender-affirming care is a complex and evolving legal issue. This is especially true of self-funded GHPs, which are generally not subject to the nondiscrimination provisions of the Affordable Care Act and cannot look to their insurance carrier for guidance. 
Both state and federal law are still unsettled as they respond to recent court rulings that protect transgender people from discrimination. Decisions to restrict gender-affirmation services therefore may include legal risks that are hard to assess. To navigate these risks, self-funded GHP sponsors must carefully consider numerous legal factors.
The purpose of this article is to identify and discuss legal compliance factors associated with coverage of gender-affirming care and to provide plan sponsors, who may be struggling with these questions, a clearer path toward the right decision for their self-funded GHPs.
Gender-Affirmation Services
First, it is important to identify exactly what is meant by gender-affirmation coverage. Gender-affirmation benefits, also referred to as transgender health care benefits or gender-transition benefits, encompass a range of medical services and treatments designed to support individuals in their gender transitions. These services can include:
- Surgeries such as mastectomy or vaginoplasty;
- Hormone therapy;
- Mental health counseling;
- Voice therapy;
- Facial and body hair removal;
- Breast augmentation or reduction; and
- Fertility preservation.
Plan Sponsor Considerations
Plan sponsors of self-funded GHPs addressing this issue should carefully consider each of the following legal compliance issues before including any gender-affirmation services in their GHP.
Title VII of the Civil Rights Act
Many self-funded GHPs categorically exclude all gender-affirmation services. As such, the first question plan sponsors should address is whether to cover any gender-affirmation services.
The primary consideration for this threshold question is a nondiscrimination concern under Title VII of the Civil Rights Act. While Title VII does not explicitly mention gender-affirmation services, some legal interpretations and developments suggest that discrimination based on gender identity or transgender status may be considered a form of sex discrimination and, therefore, plan sponsors may be required to provide gender-affirmation services in certain circumstances.
Recent Court Decisions Implicate Expanded Definition of “Sex”
Title VII prohibits an employer from discriminating on the basis of sex. The U.S. Supreme Court’s 2020 decision in Bostock v. Clayton County[2] expanded the definition of “sex” to include any discrimination based on sexual orientation or gender identity.
While Bostock addresses discrimination in the context of employment terminations, Title VII also prohibits discrimination with respect to the “compensation, terms, conditions or privileges of employment,” a phrase widely interpreted to include employee benefit GHPs. Title VII therefore arguably prohibits GHPs from discriminating against transgender individuals in their benefits offerings.
A GHP that does not offer any gender-affirmation services could be at risk of a Title VII claim. In recent years, such claims by participants against self-funded GHPs have generally been successful.
For example, in Lange v. Houston County, plan participant Anna Lange was diagnosed with gender dysphoria, and her doctors determined that gender-confirming surgery was medically necessary.[3]
The self-funded GHP denied Lange coverage on the basis that the GHP’s terms specifically excluded coverage for gender-affirmation services, including vaginoplasty surgery, even if it was determined that the patient suffered from gender dysphoria. Relying in part on Bostock, the U.S. District Court for the Middle District of Georgia in Lange found in 2020 that the GHP’s exclusion of gender-affirmation services violated Title VII.
Likewise, in the case of Kadel v. Folwell, North Carolina’s self-funded GHP for state employees excluded coverage for any treatments “leading to or in connection with sex changes or modifications.”[4] Relying heavily on Bostock, the U.S. District Court for the Middle District of North Carolina held in 2020 that the GHP violated Title VII in the Kadel case, too.
In both Lange and Kadel, the GHPs excluded coverage of all gender-affirmation services. And in both cases, the GHPs were determined to be discriminatory under Title VII. While there is no federal mandate for self-funded GHPs to cover gender-affirmation services, a self-funded GHP’s decision to provide or deny coverage for gender-affirmation services could raise nondiscrimination concerns depending on the specific facts, applicable laws and legal interpretations in a given jurisdiction.
Section 1557 of the Affordable Care Act
Like Title VII, Section 1557 of the Affordable Care Act also prohibits discrimination on the basis of sex in providing certain health programs and activities, including self-funded GHPs.[5] Under guidance proposed by the U.S. Department of Health and Human Services in July 2022, the protections under Section 1557 would extend to any discrimination based on gender identity.
Notably, the proposed guidance makes it clear that Section 1557 only applies to insurers and third-party administrators that receive federal funding. Section 1557 does not apply to self-funded GHPs. Still, if these proposed rules are finalized, self-funded GHPs may need to confirm that their third-party administrator is not subject to Section 1557, and is able to administer and support their GHP’s exclusions or restrictions on gender-affirmation services.
State Legislatures
States are approaching transgender rights and protections in a variety of ways. Many states look to restrict gender-affirmation services, while others seek to shield such services through legal protections, health care coverage and access.
For example, Arkansas in 2021 became the first state to ban gender-affirmation services for transgender minors. Since then, 19 states have enacted similar restrictions,[6] and dozens of bills are being considered in other states. Enforcement in these states typically focuses on the provision of services by imposing civil, criminal or professional penalties on the physicians who perform these services.
At the same time, states including Colorado, Illinois, Maryland, New Mexico and Minnesota have passed bills designed to protect and expand gender-affirmation services. Because the Employee Retirement Income Security Act preempts any civil law that relates to benefits under a GHP, most self-funded GHPs are not subject to state laws that regulate the provision of gender-affirmation services.[7] However, ERISA does not preempt criminal law. Plan sponsors of self-funded GHPs seeking to cover gender-affirmation services in states that impose criminal penalties for doing so should carefully consider whether or how they offer gender-affirmation services under their GHP.
Even where ERISA might preempt state law, plan sponsors of self-funded GHPs should assess how the recent legislative activity in the states where their GHP operates might be instructive to them.
The Mental Health Parity and Addiction Equity Act
Self-funded GHPs that decide to offer gender-affirmation services should also consider the implications of the federal Mental Health Parity and Addiction Equity Act, or MHPAEA. Under MHPAEA, a GHP that offers both medical/surgical benefits and mental health/substance use disorder benefits must ensure that the GHP’s quantitative and nonquantitative treatment limitations are applied to both categories of benefits on as equal a basis as possible.
To the extent a GHP labels the underlying condition required to obtain gender-affirmation services coverage as a mental health condition, this would implicate MHPAEA, so the GHP should be ready to comply with MHPAEA parity requirements. For example, if a GHP allows gender-affirmation services only for plan participants that have a gender dysphoria diagnosis, this could trigger MHPAEA, because “gender dysphoria” may be recognized as a mental health condition.[8]
Restrictions
Once a self-funded GHP decides to cover gender-affirmation services, it may also want to place restrictions on that coverage. Careful consideration should be given before imposing any restrictions.
For example, a self-funded GHP might wish to only allow gender-affirmation services for individuals who are 18 years of age or older. It is unclear whether this restriction is permissible under the ACA.
Under the ACA, a GHP that allows dependent coverage must cover dependents up to age 26. The ACA also contains a uniformity rule, which states that the terms of a GHP providing dependent coverage of children “cannot vary based on age (except for children who are age 26 or older).”[9] This rule was designed to ensure that GHPs that were forced by the ACA to cover dependents up to age 26 did not, as a work-around, provide lesser coverage to these new dependents.
It is not clear whether this rule would apply to a GHP looking to expand coverage to these dependents by allowing access to gender-affirmation services when they are over the age of 18.
Alternatively, a GHP may wish to offer only select gender-affirmation services, such as mental health counseling, to all dependents, or to seek to impose separate deductibles on this benefit. Each of these limitations should be reviewed in the context of the GHP’s other coverages to ensure the restriction does not discriminate against transgender individuals covered by the GHP.
Proactive Steps When Considering Coverage of Gender-Affirmation Services
Plan sponsors of self-funded GHPs should carefully consider the various compliance components at issue before deciding to offer, exclude or limit coverage of gender-affirmation services. Until there is further guidance indicating what and how this coverage must be offered, plan sponsors should consider the following.
Nondiscrimination
Plan sponsors should perform a thorough review of their self-funded GHP’s definitions, exclusions and limitations to understand whether there is any risk of discrimination under Title VII.
Third-Party Administrator Services
Plan sponsors should confirm that their third-party administrator does not receive federal funding and is able to support the exclusion or restriction of gender-affirmation services under Section 1557 of the ACA.
State Law
Plan sponsors should consider whether state law imposes any criminal penalties on physicians providing gender-affirmation services that are not preempted by ERISA. Plan sponsors should ensure that any gender-affirmation services coverage under their GHP is consistent with the state law in which it operates.
Mental Health Parity and Addiction Equity Act
Plan sponsors should consider whether any gender-affirmation services coverage is considered a mental health benefit under the GHP and ensure appropriate MHPAEA compliance.
Restrictions
Plan sponsors imposing any restrictions on gender-affirmation services should ensure that such restrictions do not violate Title VII, applicable state law or the Affordable Care Act.
Tim Kennedy is a partner and Anne Tyler Hall is a managing partner at Hall Benefits Law.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] According to a February 2023 survey by Gallup, the percentage of individuals identifying as transgender is increasing by generations. 0.2% of those born before 1965 identify as transgender; 0.3% of those born between 1965 and 1980 identify as transgender; 1% of those born between 1981 and 1996 identify as transgender; and 1.9% of those born between 1997 and 2004 identify as transgender.
[2] Bostock v. Clayton County, 140 S. Ct. 1731 (2020).
[3] Lange v. Houston County, 499 F. Supp. 3d 1258 (M.D. Ga. 2020).
[4] Kadel v. Folwell, F. Supp. 3d 1 (M.D.N.C. 2020).
[5] Specifically, under proposed guidance, Section 1557 of the Affordable Care Act prohibits discrimination on the basis of race, color, national origin, age, disability or sex — including pregnancy, sexual orientation, gender identity and sex characteristics — in covered health programs or activities. 42 U.S.C. 18116.
[6] “States That Have Restricted Gender-Affirming Care for Trans Youth in 2023,” U.S. News & World Report, Sept. 27, 2023.
[7] Section 514(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
[8] Gender dysphoria is a recognized condition that refers to psychological distress resulting from a person’s internal knowledge of their gender being incongruent with their assigned gender at birth. Gender dysphoria is included in the fifth edition of the Diagnostic and Statistical Manual of Mental Disorders, a manual published by the American Psychiatric Association.
[9] 29 C.F.R. Sec. 2590.715-2714.
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