Court Blocks Final Section 1557 Rule

August 18, 2020

On August 17, 2020, in Walker v. Azar, the US District Court for the Eastern District of New York blocked the Trump administration’s final rule concerning Section 1557 of the ACA. As reported in the June 23, 2020, edition of Compliance Corner, HHS issued a final rule that amended the agency’s prior regulation concerning Section 1557 of the ACA. This rule scaled back explicit protections based upon gender identity introduced by the previous administration, relying instead on broader protections against discrimination on the basis of sex provided for in the ACA. The final rule was to take effect on August 18, 2020.

This federal district case was initiated by two transgender women seeking medical care for ongoing health conditions. Both claim that they experience discrimination in their efforts to obtain that care and they asked the district court to vacate the final rule because it is contrary to a recent Supreme Court ruling that held that discrimination based upon gender identity is prohibited by Title VII of the Civil Rights Act of 1964. As a preliminary matter, the plaintiffs asked that the Trump administration be enjoined from enforcing the final rule, pending the resolution of the litigation.

In this case, the district judge agreed that the final rule was contrary to the Supreme Court ruling in Bostock v. Clayton Cty., Ga. As was also previously reported in the June 23 edition of Compliance Corner, the Supreme Court ruled that discrimination based upon sexual orientation or sexual identity is prohibited under Title VII of the Civil Rights Act of 1964. That opinion resolved three cases involving homosexual and transgender plaintiffs alleging that they were fired from their jobs based upon their sexual orientation or sexual identity. The court reasoned that Title VII’s prohibition against discrimination based on sex was broad enough to include sexual orientation and sexual identity because those things are inextricably linked to sex. Accordingly, employers cannot rely upon traditional notions of gender when considering terminating someone’s employment.

The federal district court noted that HHS adopted a position in its final rule regarding what constituted discrimination based upon sex that was soon to be rejected by the Supreme Court. HHS was aware that the Supreme Court case was coming when it issued its final rule, and did not attempt to change or pull down its final rule after the Supreme Court issued its ruling. So it appeared to the district court that the agency was taking a position that was rejected by the Supreme Court and was, therefore, contrary to law. In addition, by failing to take action that harmonized with the Supreme Court’s ruling, the agency was deemed to be acting in an arbitrary and capricious manner. As a result of these determinations, the federal district court stayed the implementation of the final rule until further order from the court.

This ruling is part of ongoing litigation and could be appealed, so the ultimate disposition of the final rule is unknown. Employers that would operate their plans in a manner consistent with the final rules should consult with legal counsel about the implications of this decision. We will keep an eye on developments in this area to see how they may affect the benefits employers provide to their employees.

Walker v. Azar »