On September 8, 2015, the Department of Health and Human Services’ (HHS) Office for Civil Rights published in the Federal Register a proposed regulation entitled “Nondiscrimination in Health Programs and Activities,” interpreting and implementing section 1557 of the Affordable Care Act (ACA or Obamacare).[1]

The text of section 1557 references existing statues prohibiting discrimination on the basis of race, color, national origin, sex, age, or disability, and applies them to federally funded health programs, including the ACA’s subsidies for coverage purchased through health insurance exchanges.[2] Section 1557 reads:

[A]n individual shall not, on the ground prohibited under title VI of the Civil Rights Act of 1964, title IX of the Education Amendments of 1972, the Age Discrimination Act of 1975, or section 794 of title 29, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an Executive Agency or any entity established under this title.[3]

On its face, section 1557 prohibits discriminatory actions that prevent an individual participating in, or receiving public assistance for, federally funded health care coverage for which the individual otherwise qualifies. However, in the proposed regulation the Obama Administration further expansively interprets that already broad, statutory text to also apply those prohibitions to the benefits covered by health insurance plans, the treatments provided by medical professionals, and the health insurance coverage of tens of millions of Americans enrolled in private, unsubsidized plans. Such an expansive application would have significant implications for health policy—involving issues separate from the other legal and practical concerns raised by the proposed regulation, such as how it conflicts with conscience rights protections, or provisions of the Administrative Procedure Act, or federal laws governing relations with Indian tribes and the operation of the Indian Health Service.[4]

The practical effect of the Administration’s expansive interpretation of section 1557 would be to subordinate coverage and treatment determinations about what is “medically necessary” or “medically appropriate” to new, and evolving, determinations by federal regulators of what constitutes prohibited “discrimination.” In essence, the Obama Administration is asserting that, under the guise of enforcing “non-discrimination,” the HHS Office for Civil Rights has the power to impose coverage mandates on private health plans and to determine what constitutes appropriate medical practice.

Such concerns are not merely theoretical. For example, this new regulation includes provisions that would explictly govern the coverage and treatment of gender dysphoria. By using the force of law to impose on others its opinions regarding one specific, contentious area of medical practice, this regulatory overreach would establish a troubling precedent for future federal intervention on similarly contentious coverage and treatment issues.

Sweeping Application to Health Plans

In this proposed rule, the Administration not only asserts the power to determine what constitutes appropriate medical treatment; it also defines the scope of the rule so broadly that it will apply to virtually all current health plans and medical providers.

This expansive scope is established through several steps. First, HHS defines a “covered entity” subject to the regulations as an “entity that operates a health program or activity, any part of which receives Federal financial assistance.”[5] It then defines “health program or activity” as:

[T]he provision or administration of health-related services or health-related insurance coverage and the provision of assistance to individuals in obtaining health-related services or health-related insurance coverage. For an entity principally engaged in providing or administering health services or health insurance coverage, all of its operations are considered part of the health program or activity, except as specifically set forth otherwise in this part. Such entities include a hospital, health clinic, group health plan, health insurance issuer, physician’s practice, community health center, nursing facility, residential or community-based treatment facility, or other similar entity. A health program or activity also includes all of the operations of a State Medicaid program.[6]

In addition, the proposed regulation defines “federal financial assistance” as including not just direct federal funding, but also

all tax credits under Title I of the ACA, as well as payments, subsidies, or other funds extended by the Department to any entity providing health insurance coverage for payment to or on behalf of an individual obtaining health insurance coverage from that entity or extended by the Department directly to such individual for payment to any entity providing health insurance coverage.[7]

Furthermore, HHS makes clear its intention to apply this regulation to all of a health insurer’s business if any of the insurer’s customers receive a federal coverage subsidy. Thus, any insurer that offers, say, Medicare Advantage plans, Medicaid managed-care plans, or ACA exchange plans would be subject to this regulation. Furthermore, the regulation would apply to the coverage of all of the insurer’s unsubsidized customers, including even self-insured employer plans for which the insurer provides only administrative services. Lest there be any doubt, in the preamble HHS explicitly states:

Thus, for example, an issuer that participates in the Marketplace and thereby receives Federal financial assistance, and that also offers plans outside the Marketplace, will be covered by the proposed regulation for all of its health plans, as well as when it acts as a third party administrator for an employer-sponsored group health plan.[8]

HHS explains that this sweeping application is “modeled on the definition of ‘Federal financial assistance’ in the regulation implementing Title IX at 45 CFR 86.2(g).”[9] That regulation applies Title IX (one of the statutes referenced in section 1557) to even those educational institutions that only receive federal funds indirectly in the form of fees paid by students receiving federal loans, grants, or scholarships. Thus, HHS states:

[W]e have added language to this proposed definition stating that such funds are Federal financial assistance when extended to the entity providing the health insurance coverage or services, whether they are paid directly by the Federal government to that entity or to the individual for remittance to the entity providing health insurance coverage or services.[10]

An analysis of enrollment data from insurer regulatory filings finds that, under these criteria, the regulation’s mandates would be imposed on the coverage of over 164 million Americans with unsubsidized private individual or employer group health insurance. Those 164 million Americans have coverage that is issued or administered by one of 181 insurance companies that would be subject to this regulation because those insurers also provide coverage to other individuals under federally subsidized ACA exchange plans, Medicare Advantage plans, or Medicaid managed-care contracts. In fact, 102 million of those individuals are covered by self-insured employer plans, for which the insurer only “acts as a third party administrator.”[11]

Nor can those employers who have maintained their (pre-ACA) plans’ “grandfathered” status escape this proposed regulation, as section 1557 is not one of the sections of the ACA from which grandfathered plans are exempted.[12]

Furthermore, because nearly all medical facilities, physicians, and ancillary health care providers receive at least some federal funding, either by treating patients whose care is paid for with federal funds, or from other sources—such as, “meaningful use” payments for adopting electronic health records, research grants from the National Institutes of Health, or federal funding of health professional training programs—HHS expects that this rule will also apply to virtually all medical providers.[13] The rule further stipulates that, as “covered entities,” health care providers must also comply with the rule’s provisions with respect to their own employee health plans.[14]

Mandating Coverage of “Gender Transition” Treatments

The manner in which this proposed rule would regulate health plans and providers is most clearly illustrated by the Administration’s inclusion in the rule of provisions that explicitly apply to one particular psychological condition. Specifically, under this new rule, refusals by health plans to cover “gender transition” (commonly known as “sex change”) treatments may be determined by HHS to constitute impermissible discrimination under federal civil rights laws. The premise for that conclusion is the Administration’s opinion that physical interventions in the form of drugs and surgeries designed to achieve “gender transition” are medically appropriate treatments for individuals with the psychological condition of gender dysphoria. Consequently, the Administration proposes to overrule, by regulatory fiat, the judgments of any health plans or medical professionals holding contrary views.

The Administration’s approach to regulating gender transition coverage and treatments is relevant for understanding not only that particular mandate, but also how this approach could establish a precedent for imposing future coverage mandates.

The Administration’s strategy begins with the creation of three definitions in the proposed rule that, collectively, redefine and expand the meaning of the word “sex” in the application of anti-discrimination statutes. First, it defines discrimination “on the basis of sex” as including “sex stereotyping, or gender identity.”[15] Second, it defines “gender identity” as “an individual’s internal sense of gender, which may be different from that individual’s sex assigned at birth.”[16] Third, it defines “sex stereotypes” as referring to

stereotypical notions of gender, including expectations of how an individual represents or communicates gender to others, such as behavior, clothing, hairstyles, activities, voice, mannerisms, or body characteristics. These stereotypes can include expectations that gender can only be constructed within two distinct opposite and disconnected forms (masculinity and femininity), and that gender cannot be constructed outside of this gender construct (individuals who identify as neither, both, or as a combination of male and female genders).[17]

Having thus asserted that “expectations that gender can only be constructed within two distinct opposite and disconnected forms (masculinity and femininity)” is a form of “sex stereotyping,” constituting impermissible discrimination “on the basis of sex,” HHS proceeds to specify in the proposed rule that “a covered entity shall not,” among other things:

Categorically or automatically exclude from coverage, or limit coverage for, all health services related to gender transition; or

Otherwise deny or limit coverage, or deny a claim, for specific health services related to gender transition if such denial or limitation results in discrimination against a transgender individual.[18]

In other words, any refusal to cover gender transition treatments on the grounds that such treatments are medically inappropriate, or more akin to elective plastic surgery, would constitute prohibited discrimination on the basis of sex. Even so, HHS claims that its proposed rule “does not require plans to cover any particular benefit or service,”[19] and includes in the rule a subsequent paragraph stating:

Nothing in this section is intended to determine, or restrict a covered entity from determining, whether a particular health service is medically necessary or otherwise meets applicable coverage requirements in any individual case.[20]

Such disclaimers notwithstanding, the HHS’ discussion of how the rule would operate makes clear that, in reality, it will function as a coverage mandate. The preamble offers the hypothetical example of the denial of a claim for a hysterectomy for a patient with gender dysphoria, and states that in such an eventuality the HHS Office for Civil Rights

will evaluate the extent of the plan’s coverage of hysterectomies under other circumstances. OCR will also carefully scrutinize whether the covered entity’s explanation for the denial or limitation of coverage for transition-related care is legitimate and not a pretext for discrimination.

These provisions do not, however, affirmatively require covered entities to cover any particular procedure or treatment for transition-related care; nor do they preclude a covered entity from applying neutral standards that govern the circumstances in which it will offer coverage to all its enrollees in a nondiscriminatory manner.[21]

The Administration’s protestations in the second paragraph are disingenuous, as it is clear from the first paragraph that HHS will determine whether an otherwise unnecessary hysterectomy is a medically appropriate treatment for gender dysphoria; HHS will determine what counts as “pretext” for discrimination; and HHS will determine whether a denial of coverage is “legitimate.” Furthermore, it is also clear from the first paragraph that HHS considers its Office for Civil Rights’ opinion of what is “medically necessary” to be superior to the opinions of health plans.

In addition to health plans, HHS also applies this regulation to physicians, hospitals, and other medical providers. Indeed, in the “Regulatory Impact Analysis” section it notes, “We anticipate that a large number of providers may need to develop or revise policies or procedures to incorporate this prohibition.”[22] HHS again uses the hypothetical hysterectomy example to illustrate the point, stating:

A provider specializing in gynecological services that previously declined to provide a medically necessary hysterectomy for a transgender man would have to revise its policy to perform the procedure on transgender individuals in the same manner it provides the procedure for other individuals.[23]

Thus, the Administration is asserting that determinations by the HHS Office for Civil Rights of what constitutes appropriate medical treatment will be imposed on health plans and medical providers by regulatory fiat. That the Administration expects health plans and medical providers to subordinate their own professional judgments to those of the HHS Office for Civil Rights is further clarified when HHS states:

To the extent a covered entity did not interpret sex discrimination on the basis of gender identity in this way, the covered entity would have to revise its policies and procedures to provide coverage consistent with this rule’s parameters, which might include revising policies to include gender transition-related care.[24]

Physicians and benefit managers will read this rule for what it, in fact, is—a federal mandate to cover, pay for, and provide “gender transition” treatments in a manner acceptable to the HHS Office for Civil Rights.

Setting a Troubling Precedent

The reasoning used by the Obama Administration to arrive at its requirement that health plans cover “gender transition” treatments sets a troubling precedent for future de facto coverage mandates. Indeed, because this process started with what could be called a “hard case”—meaning one for which the Administration had to creatively and laboriously extrapolate its desired conclusion from the underlying statute—should HHS establish a precedent on such tenuous grounds, it would become much easier to subsequently achieve similar results in other areas.

Thus, while the Obama Administration had to resort to devising a contorted reinterpretation of the concept of sex discrimination to justify mandating coverage for “gender transition” treatments, the concept of “disability” (another category of prohibited discrimination under section 1557) is already sufficiently broad that the federal government could easily use it to justify imposing similar coverage and treatment mandates in other circumstances. One supporter, writing in Health Affairs, describes how that could occur:

[A]nother way to achieve Section 1557 protection against discrimination is for HHS or courts to categorize certain diseases as “disabilities.” Courts have historically been reluctant to do this, defining a “disability” as being restricted to an “impairment that substantially limits one or more major life activities.”

However, this was before the passage of the Americans with Disabilities Act Amendments in 2008, and the subsequent final rule in 2011 that broadened the definition of disability to include impairments to bodily functions (such as the immune system, special sense organs, normal cell growth, and digestive, genitourinary, neurological, bowel, respiratory, cardiovascular, endocrine, hemic, lymphatic, musculoskeletal, and reproductive functions, among others). Since the amendments passed, courts have more broadly interpreted “disability,” although they continue to assess each case individually.[25]

In fact, the proposed regulation’s definition of disability explicitly “incorporates the definition of disability in the ADA Amendments Act of 2008.”[ 26] Thus, it is not difficult to envision this legal theory being applied to health plans. The logical path would be to argue that a given medical condition should be considered a “disability,” that an individual with the condition is, therefore, “disabled,” and that, consequently, any coverage exclusion or limitation for a treatment deemed appropriate for the condition by the HHS Office for Civil Rights (or a federal judge) is impermissible “discrimination” against a “disabled” person.

Indeed, the logic by which the proposed rule could be used to interpret section 1557 as deeming numerous medical conditions to be “disabilities” subject to federal non-discrimination rulings is far more direct than the Administration’s strained reinterpretation of “on the basis of sex” needed to arrive at its intended conclusion that plans must cover gender transition treatments.

To be clear, at issue in this proposed rule is the Administration’s reinterpretation of anti-discrimination statutes from their original intent of ensuring that otherwise eligible individuals are not denied access to whatever benefits a plan might provide, into legal requirements that plans provide specified benefits.

Inviting Litigation

As if the prospect of federal regulators imposing more benefit mandates was not disconcerting enough, the proposed regulation also invites federal lawsuits to achieve the same end. For example, HHS states in the preamble that “a private right of action and damages for violations of Section 1557 are available to the same extent” that they are provided for and available under the other statutes referenced in Section 1557.[27] Consequently, HHS includes in the proposed rule a section specifying that an “individual or entity may bring a civil action to challenge a violation of Section 1557 or this part in a United States District Court in which the recipient or State-based Marketplace is found or transacts business.”[28]

The aforementioned supporter considers this “an important step forward” because “insurers will be highly motivated to comply with the 1557 regulation or face costly litigation.” He went on to note that “[i]nstead of taking years to pass a new regulation, a private cause of action allows the justice system to ‘keep pace’ with quickly evolving insurer practices.”[29]

Indeed, such litigation was already underway prior to HHS issuing its proposed rule. Back in May of 2015, law professor Timothy Jost wrote about three cases involving section 1557 claims in which federal District Court judges had already handed down decisions.[30]

In one of those cases, the pharmaceutical company Gilead Sciences was sued over the pricing of its Hepatitis C drugs. As Professor Jost summarized, the plaintiffs

claimed that Gilead’s pricing violated 1557 because its pricing discriminated against persons with disabilities and had a disproportionate impact on minorities. The plaintiffs asserted that Gilead discriminated against the disabled because it charged more for its drugs to people in the United States than it charged abroad, charged more for individuals who are not part of health programs or plans that received discounts, caused health plans and programs to refuse access to its drugs, and denied access itself because of “excessive and discriminatory pricing practices, contracts and policies.” The plaintiffs also claimed that Gilead intentionally discriminated against minorities by being indifferent to the fact that Hepatitis C disproportionately affects African Americans and because Gilead priced its drugs so as to make them inaccessible to African Americans.[31]

While the defendant was a pharmaceutical company, not a health plan, and while the judge dismissed the case on other grounds—including that federal patent law grants pricing freedom to patent holders—the plaintiffs’ claims in this case offer a flavor of what insurers and benefit managers can expect under the proposed rule.

As the proposed rule would apply to virtually every private health plan, its adoption would create a broad avenue for legal challenges to plans limiting or excluding coverage for specific items or services.

Opening a Pandora’s Box of Federal Health Care Mandates

The practical effect of adopting the proposed rule would be to open a Pandora’s Box of potential new federal health care benefit mandates, with costly consequences for private insurers, employer health plans—and ultimately, their enrollees who bear those costs in the form of either higher premiums or lower cash compensation.

The same legal strategy—based on defining medical conditions as disabilities, and augmented by the proposed rule’s precedent-setting reasoning for finding refusals to cover gender transition treatments discriminatory—could also be applied to health plan coverage of other controversial treatments.

Examples of other controversial treatments that, under the proposed rule, could soon become the focus of federal lawsuits or regulations can already be found among some existing state health insurance benefit mandates, such as those requiring coverage for:

1. Off-label use of a prescription drug, which a plan might not pay for on the grounds that the treatment is unproven or experimental;
2. Various assisted reproductive technologies, which a plan might refuse to cover on the grounds that they are not medically necessary, or because the sponsoring employer has moral objections;
3. Bariatric surgeries, for which a plan might restrict coverage on the grounds that they are elective procedures whose uncertain benefits do not outweigh their risks and costs; and
4. Applied behavior analysis for children with autism, which a plan might reasonably refuse to cover on the grounds that it is not a medical treatment, but rather an educational methodology that should be funded through existing educational programs for children with learning disabilities, not by health plans.

Given that some state legislatures have already been persuaded to mandate that health insurers cover the foregoing items and services, it is not hard to imagine the HHS Office for Civil Rights, or federal judges, applying the proposed rule to achieve the same results at the federal level. In that regard, it is worth noting that HHS cites 11 states that “have laws and policies providing that exclusions and denials of coverage for treatment for gender identity disorder are or are likely to be discriminatory in at least some circumstances,” in support of its decision to impose a federal requirement to cover gender transition treatments. Regulators or judges imposing federal benefit mandates for other conditions or treatments could similarly point to state benefit mandates to support their actions.

Knowledgeable commentators have also identified other coverage policies that could be subject to the new discrimination test set forth in the proposed rule. For instance, how would the proposed rule apply to dependent pregnancy coverage, meaning coverage for the pregnancy of an individual who is a dependent child of a primary insured individual? That question is particularly relevant, as another provision of the ACA requires private plans to cover dependent children up to age 26, though it also states: “Nothing in this section shall require” a plan “to make coverage available for a child of a child receiving dependent coverage.”[32] One legal analyst notes that

grandfathered and large group plans (like state Medicaid plans) typically exclude dependent pregnancy coverage. Does ACA Title I “otherwise provide for” that exclusion? If not, does the exclusion violate § 1557’s prohibition of discrimination on the basis of sex?[33]

In other words, does the broad scope of section 1557 (as interpreted in the proposed rule) trump the narrow (“in this section”) application of the saving clause in the ACA provision requiring plans to cover dependents up to age 26? At least one advocacy organization believes that it should. In June, The National Women’s Law Center filed administrative complaints with the HHS Office for Civil Rights arguing that the exclusion of dependent pregnancy coverage under the employee health plans of five representative institutions constitutes impermissible discrimination under section 1557.[34]

Section 1557 also bars age discrimination, raising additional questions about how the proposed rule’s interpretation of that statute would be applied in some other circumstances. For example, yet another provision of the ACA limits age rating premiums for adults covered by individual and (non-grandfathered) small group plans to a 3:1 ratio—meaning that a 64-year-old may not be charged more than three times the premium charged to a 19-year-old. Does that mean “that § 1557 bans all age-rating except the 3:1 spread permitted for individual and non-grandfathered small group plans, effectively extending that limit to large group and grandfathered, plans?”[35]

Another age-related example involves Connecticut’s mandated coverage for infertility treatments. In August, that state’s Insurance Department issued a bulletin telling health insurers that, based on federal guidance and its interpretation of section 1557, coverage for infertility treatments could no longer be limited to enrollees under age 40 (as permitted under the Connecticut statute) “and is therefore requiring carriers to remove the age limits on infertility benefits for policies issued or renewed on or after January 1, 2016.”[36]

Also, two 2013 court decisions illustrate the potential for applying the proposed rule’s gender transition treatment precedent to age-related limitations on other medical procedures. In those cases, attorneys for the parents of children with cystic fibrosis convinced federal judges to order that the children be added to the adult lung transplant waiting list (for patients age twelve and older), instead of remaining on the pediatric transplant waiting list—raising a number of concerns among medical ethicist and clinicians.[37] While both cases centered on HHS’s implementation of the National Organ Transplant Act of 1984, plaintiffs bringing similar cases in the future could also argue that the proposed rule’s reasoning with respect to gender transition treatments supports prohibiting age-based organ transplant policies on the grounds that section 1557 bars age discrimination.[38]

The Next Step: Regulating Reimbursement

As noted, the proposed rule’s reinterpretation of anti-discrimination statutes creates a precedent for applying those statutes not merely to ensure that (otherwise eligible) individuals can access whatever benefits a given plan might provide, but also to require that the plan cover specific items or services.

The next step in this logic chain would be to then apply this new test for discrimination to health plan reimbursement policies as well—subjecting to anti-discrimination scrutiny any plan policy that limits coverage of, or payment for, specific items or services.

In reporting on the proposed rule, Professor Jost writes, “Surprisingly, the proposed rule does not directly address one of the most salient current discrimination questions: whether insurers can impose high cost sharing or otherwise limit access to expensive drugs needed by certain disabled populations, like persons with AIDS.”[39] On this point the previously cited supporter goes further, advocating that HHS “adopt a standard way of addressing cost-based discrimination in the final Section 1557 rule.” He suggests that the ACA’s employer mandate provision specifying a “percent of income” test for determining the “affordability” of an enrollee’s premium contribution for employer-sponsored coverage could be a starting point for HHS developing such a standard.[40]

Yet, while HHS may not have directly addressed this issue, it did set the stage for doing so by including in the proposed rule language specifying: “A covered entity shall not…impose additional cost sharing or other limitations or restrictions, on the basis of an enrollee’s or prospective enrollee’s race, color, national origin, sex, age, or disability.”[41] Even so, those seeking to apply section 1557 to plan reimbursement policies need not wait for HHS to amend and expand its rule, as the foregoing language would support the arguments of potential plaintiffs asking federal courts to adopt just such an interpretation.

Deeming a plan’s “benefits” to encompass not only specific items or services, but also any limits on coverage or payment for specific items or services, would make numerous design features of public and private health plans subject to legal challenges under section 1557. For instance, the plaintiffs’ argument in the Gilead case that individuals with Hepatitis C are disabled, and thus protected from “price discrimination” under section 1557 could be deployed to challenge plan reimbursement policies for drugs to treat Hepatitis C—or any other medical condition that federal regulators or judges could be persuaded constitutes a “disability.” Thus, section 1557 could be turned into a tool for detailed federal regulation of prescription drug formulary designs in employer and insurer health plans.

Indeed, using section 1557 to impose detailed federal regulation of private plan benefit designs is exactly what some advocacy organizations intend, as illustrated by the following comments on the proposed rule submitted by the Center on Budget and Policy Priorities:

We support the proposed rule including specific examples of actions that are prohibited, such as discriminatory benefit design and marketing practices. It would be helpful, however, to clarify the definition of “benefit design” as encompassing all aspects of a plan or coverage program. Otherwise, there could be confusion about what specifically is part of a plan’s “benefit design.” The final rule should define “benefit design” as including, but not limited to, the following specific elements: prescription drug formularies; health care provider networks (including access to specialists and pharmacy access); wellness programs; tiered coverage and cost-sharing structures for drug formularies and provider networks; cost-sharing charges (including co-payments, co-insurance, deductibles, and other charges enrollees pay for health care items and services); utilization management; quantitative treatment limits; and non-quantitative treatment limits including prior authorization and step therapy. Under this approach, for example, a health plan would not be permitted to place all the medications required to treat a particular health condition on the most expensive tier in the plan’s prescription-drug formulary.[42]

In this regard, it is somewhat ironic that the lead plaintiff in the Gilead case, Southeastern Pennsylvania Transportation Authority, claimed standing to sue in its capacity as the sponsor of an employee health plan, and thus under this proposed regulation could be subject to similar suits brought by its own enrollees—possibly even over the placement of the same Hepatitis C drugs on its formulary.

Implications for Insurers and Employer Health Plans

The Administration’s clear intention to expansively apply the proposed rule sets a course for the federal government to potentially impose numerous benefit mandates on private insurer and employer health plans.

The only way for insurers and employers to avoid those costly benefit mandates—and attendant regulation and litigation—would be to extricate themselves from any contractual arrangements that might ensnare them in the proposed rule. For employers and unions that sponsor self-insured plans, that would mean contracting with only third-party administrators that do not receive federal funding either directly or indirectly.

For health insurers with multiple lines of business, including administering self-insured plans, that would mean deciding which market segments—subsidized or unsubsidized—they will serve, and restructuring their businesses accordingly. That would be akin to the decisions by some educational institutions to avoid regulation under Title IX, the consequence of which is that their students cannot receive federal financial aid.

For any given insurer the decision will depend on its current business mix. For example, Medicaid managed-care is the principal business of both Centene and Molina, both of which offer subsidized exchange coverage as well. It would be fairly easy for those carriers to maintain their current focus on subsidized markets and forgo what little business they currently derive from offering coverage to unsubsidized customers. The same would be true for Wellcare, another multistate Medicaid managed-care insurer offering exchange coverage in two states.[43]

Those carriers’ long and deep experience with Medicaid managed-care contracting means that they are accustomed to dealing with government micromanagement of their benefit designs. They can also expect to pass back to the federal government any additional costs to their plans that result from section 1557-based coverage mandates. Indeed, to the extent that the prospect of section 1557 regulation induces some of their competitors to exit the federally subsidized exchanges, those carriers could also expect to increase their shares of the subsidized exchange market.

In contrast, Cigna offers an example of a carrier at the opposite end of the spectrum. The vast majority of Cigna’s business consists of administering self-insured plans sponsored by employers or unions. Those plans will have a strong incentive to avoid entanglement with costly section 1557 regulations. Cigna, with its large nationwide presence in the self-insured market, could attract more of those customers by ending its Medicaid managed-care contracts in two states as well as its offering of Medicare Advantage plans in 19 states and exchange plans in seven states. Those three business segments combined account for less than 6 percent of Cigna’s total current enrollment.

Such a proactive approach would enable Cigna to not only attract even more self-insured plan business but to also leverage its existing provider networks to expand its offering of fully insured individual and group policies to unsubsidized customers purchasing coverage outside the exchanges. That said, Anthem’s pending acquisition of Cigna would alter this calculus for the resulting combined company as between one-fifth and one-quarter of Anthem’s current total enrollment comes from subsidized markets subject to section 1557 regulation.

Pursuing the same strategy might also be relatively easy for some Blue Cross carriers. For instance, in Mississippi, Iowa, and South Dakota the Blue Cross insurer does not offer exchange coverage and has no Medicare or Medicaid business. The Blue Cross carriers in Kansas and Nebraska also do not have Medicare or Medicaid business and each derive only 13 percent of their total enrollment from selling individual-market plans. While both of those carriers offer ACA exchange coverage, subsidized exchange enrollees likely account for less than half of their total individual-market enrollment. Thus, simply ending their participation in ACA exchanges, so as to avoid having any federally subsidized enrollees, would have only a marginal effect on their current businesses.[44]

Conclusion

The proposed rule crafted by HHS to implement section 1557 is sweeping in both its scope and application. As such, it has the potential to trigger costly and widespread disruption in private health insurance markets. This rule also constitutes an assertion of federal authority over the professional medical judgments of health care providers that is both undesirable and unwarranted. The Obama Administration should withdraw the proposed regulation.

Existing civil rights statutes already guarantee all Americans access to any federal health care program or subsidy for which they otherwise qualify. In addition, federal laws governing private health insurance policies and employer health plans also ensure that individuals cannot be denied private coverage for which they otherwise qualify, including on the basis of health status or genetic information. Insurers also cannot refuse to renew individual or group policies.

All of those protections were in force prior to the enactment of the ACA. The one exception under prior federal law was that, while insurers were required to issue group coverage to any qualified employer, they could refuse to issue a policy, exclude coverage of a pre-existing medical condition, or charge higher premiums to applicants for individual-market coverage. However, other provisions of the ACA eliminated that one exception for individual coverage, and proposals to replace the ACA would do so as well—albeit through a different design that can work without also needing to impose the ACA’s individual mandate to purchase coverage.

Consequently, with respect to ensuring that individuals have access to coverage, section 1557 of the ACA is redundant. The problem is that the broad and imprecise wording of section 1557 created an opening for the Obama Administration to apply its concept of anti-discrimination enforcement not only to access to coverage but also to specific plan designs and provider practices. To remedy that (and foreclose any future Administration adopting similar policies), Congress needs to either repeal section 1557 (on the grounds that it is redundant) or amend it to include rules of construction specifying that the section’s prohibitions on discrimination may not be applied in ways that have the effect of regulating health plan designs or superseding the moral or ethical standards of health care providers or the professional medical judgments of clinicians. For good measure, Congress should clarify that section 1557 also may not be interpreted as altering the existing application of civil rights statutes to federally recognized Indian tribes, tribal organizations, and the Indian Health Service.[45]

More broadly, the problems with this proposed rule are symptomatic of what is wrong with Obamacare’s entire approach to health care reform. In 2010, Sara Rosenbaum, a prominent supporter of the ACA, tellingly delinated that larger issue when she wrote, “First, and perhaps most fundamentally, in a remarkable shift whose precedent lies in the watershed Civil Rights Act of 1964, the ACA transforms health insurance into a public accommodation.”[46] She went on to note that one effect is to turn health insurance into “a regulated industry…that, in its restructured form, will therefore take on certain characteristics of a public utility.” Adopting this proposed rule implementing section 1557 would be the next big step in that transformation.

Health insurers and employee benefit managers, who should be alarmed by the prospect of the federal government turning their private health plans into “public accommodations” or “regulated utilities,” need to recognize that the proposed rule’s interpretation of section 1557 reflects Obamacare’s basic, underlying philosophy. Consequently, the ultimate solution lies in repealing the ACA and replacing it with a more reasonable set of health policy reforms—specifically, reforms that do not start from the premise that private heath plans and medical providers should be commandeered by Congress and converted into off-budget extensions of federal programs.