Clarifying ACA § 1557 Employer Nondiscrimination Rules

Dan Kuperstein

ComplianceMINUTE | Dan Kuperstein | ERISA Penalties Increase for Form 5500 Violations!
Under Section 1557 of the ACA, health insurers, TPAs and plan sponsors receiving federal financial assistance from the HHS are prohibited from engaging in discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs, including in health plans and programs offered on the federal and state exchanges.

Related Resources:
HHS Final Regulations
Section 1557 of the ACA
Decoding the ACA’s New Nondiscrimination Rules

Video Transcript: 
Hi, I’m Dan Kuperstein, and welcome to this episode of ComplianceMINUTE.

The focus for today’s episode is going to be on the new Affordable Care Act “nondiscrimination” rules, and what they mean for employers.

These new rules, which were published in a final regulation on May 18, 2016, were designed to implement Section 1557 of the ACA, and they’ve caused a lot of confusion, perhaps in large part because they weren’t the ACA nondiscrimination rules that employers were expecting.

These new ACA nondiscrimination rules should not be confused with the other highly-anticipated ACA nondiscrimination rules, which would have prohibited sponsors of fully-insured health plans from discriminating in favor of highly compensated employees under rules similar to rules that prohibit such discrimination by sponsors of self-insured health plans under Section 105 of the Internal Revenue Code.

Section 105 of the Code generally prohibits employers from discriminating with respect to the value of the plan benefits offered and the plan’s eligibility terms.

While these ACA rules have not been released yet, fortunately for employers sponsoring fully-insured health plans, the IRS has clarified that employers will not be penalized for failing to comply with these rules until regulations or guidance is issued. We’re still waiting for that to happen.

So let’s move onto the focus for today – the new nondiscrimination regulations under Section 1557 of the ACA.

The regulation prohibits health insurers, TPAs and plan sponsors (called covered entities) receiving federal financial assistance from the Department of Health and Human Services (or HHS) from engaging in discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs and activities, including in health plans and programs offered on the federal and state exchanges.

The new regulation only applies to employers that receive federal financial assistance from HHS, but federal financial assistance is defined very broadly, and includes:

  • grants,
  • loans,
  • subsidies
  • contracts of insurance,

and other types of assistance, and so it does apply to a broad spectrum of federal contractors and other employers doing business with the federal government.

While the new regulation contains a long list of requirements that these covered entities must comply with, including quite detailed notice and access requirements, perhaps the most notable of the new rules is one that interprets sex discrimination very broadly, and prohibits covered entities that are plan sponsors from designing their health plans in a way that may discriminate on the basis of gender identity.

Specifically, the Final Rule adopts Section 92.207 of the Proposed Rule — which lists specific prohibited practices, including implementing a categorical coverage exclusion or limitation for all health services related to gender transition and denying or limiting coverage for transgender individuals for any health services that are ordinarily available to non-transgender individuals.

While the regulation does not provide examples of discriminatory benefit designs, it does say that HHS’ Office of Civil Rights will analyze “whether a design feature is discriminatory on a case-by-case basis” using the “facts and circumstances of a given scenario.”

The final regulation became effective on July 18, 2016. However, HHS, in recognizing that some covered entities would have difficulty making changes to their plan’s design in the middle of a plan year, permitted an exception, and allowed a delayed implementation for plan design changes until the first day of the first plan year beginning on or after January 1, 2017.

The key takeaways here for employers doing business with the federal government are:

  1. if you’re not sure if your organization is a covered entity, definitely check all contracts and business transactions to clearly determine whether or not your organization has received any federal financial assistance from HHS; and
  2. if you are a covered entity, make sure that your health plan does not have any provisions that may discriminate against a protected class, including discrimination on the basis of gender identity.

For more information on this and other topics, visit our Knowledge Center at corpsyn.com. Thank you.