While Congress Slept: Health Benefit Developments During the Shutdown

While Congress Slept: Health Benefit Developments During the Shutdown

As all eyes were focused on the looming and eventual federal government shutdown this fall, actions affecting health benefit plans continued in the courts and some administrative agencies. Plan sponsors may wish to consider how these changes will affect their benefits in the coming year.

Plan Sponsor Responses to New Plan Design Litigation

In the wake of two novel cases, some plan sponsors spent the shutdown taking a closer look at the choices offered through their medical plans.

In cases filed this year against Northwestern University and the University of Rochester, plan participants have alleged that the coverage options offered through their respective medical plans breached ERISA’s fiduciary duties. Their complaints are founded on a new and unprecedented allegation; the plaintiffs claim that, in nearly all fact settings, the PPO option elected by the plaintiffs resulted in higher total expenditures (accounting for participant contributions and cost-sharing expenses, like deductibles and copayments) than they would have incurred if they had elected the high-deductible option offered under the plan. The plaintiffs argue that it was a fiduciary breach (1) to offer such skewed options, and (2) to fail to notify participants that one option is financially superior to another.

The merits of both cases are being tested in the courts. In October, Northwestern filed a motion to dismiss, arguing, in part, that the plaintiffs incurred no harm and, in fact, received the benefits offered to them at the cost they were told. Nevertheless, in view of the allegations, some plan sponsors have chosen to analyze their own coverage options to see whether one option (such as a high premium PPO option) results in higher total costs for participants, regardless of their medical claims, when compared to other options (such as a low premium high deductible option) covering the same expenses. If this proves to be the result for their designs, plan administrators may want to consider whether it would be sensible to enhance their messaging to participants to further address the relative financial merits of their medical plan options.

Court Vacates ACA Nondiscrimination Regulations on Gender Identity

A federal district court in Mississippi has issued an order that universally vacates provisions in the regulations under Section 1557 of the Affordable Care Act (ACA) that treat discrimination based on gender identity as sex discrimination. Under this ruling, various provisions in the Section 1557 regulations would no longer apply. Some of these vacated provisions relate specifically to matters of gender identity, including those that prohibit limits on health services based on gender identity and limits on coverage for health services related to gender transition. Other parts of the order extend more broadly. For example, by its terms, the order vacates the procedural requirements for health plans and health care providers to maintain nondiscrimination policies and issue nondiscrimination notices because those requirements refer to a definition of sex discrimination that includes gender identity. The order does not simply restrict those policies and notices from applying to gender identity; rather the requirement to maintain these policies and produce these notices has been vacated entirely. The order takes a similar approach to certain requirements affecting Medicaid programs.

The decision proceeds in the same direction charted by the Trump administration on gender identity and gender transition issues. Additionally, the broad application to procedural requirements in Section 1557 aligns with the course followed in regulations issued during the first Trump administration. Future regulations may follow suit.

In issuing its decision, the court declined to apply the Supreme Court’s ruling in Bostock v. Clayton County, which held that sex discrimination under Title VII of the Civil Rights Act included discrimination based on gender identity. The prohibition against sex discrimination in Section 1557 is grounded in Title IX (not Title VII). Citing to the Supreme Court’s recent decision on gender affirming care for minors in United States v. Skrmetti, the court found that Congress did not intend that Title IX encompass discrimination based on gender identity. However, the ruling stands in contrast to some rulings, issued in the wake of the Bostock decision, that found that the scope of Title IX is informed by the scope of Title VII.

Health plan sponsors and health care providers should continue to follow this, and other litigation relating to the scope of Section 1557. For example, the Ninth Circuit has recently remanded a case to a federal district court to re-examine its analysis of sex discrimination under Section 1557 in view of Skrmetti). Plan sponsors and providers should also stay attuned for any updated regulatory guidance that the Trump administration issues under Section 1557.

FAQs Address Fertility Benefits

While an increasing number of employers have been enhancing the fertility benefits offered through their medical plans, the Departments of Labor, Health and Human Services, and the Treasury have issued a new set of FAQs permitting employers to offer fertility benefits as a stand-alone option. The guidance treats certain stand-alone fertility benefit arrangements as “excepted benefits,” which are exempt from a range of otherwise applicable rules. In particular, excepted benefits do not have to meet the Affordable Care Act requirement to provide 100% coverage for certain preventive care expenses, which a plan providing only fertility benefits would fail to meet. In addition, excepted benefits do not need to meet the prohibition against annual and lifetime dollar caps on essential health benefits. Thus, even if fertility benefits are deemed to be essential health benefits (generally determined state-by-state), a qualifying stand-alone fertility plan may establish dollar limits on the benefits it provides. In short, this means that certain fertility benefits may be provided to participants who are not enrolled in the employer’s medical plan (similar to the eligibility rules for many employee assistance programs).

To be regarded as an excepted benefit, the new guidance requires stand-alone fertility benefit plans to meet certain requirements. Most significantly, group health plan sponsors will need to make sure that their stand-alone fertility benefit plans are either insured or provide limited benefits and that they do not coordinate in specified ways with the benefit coverage of any plan that the plan sponsor maintains. 

The publication of these FAQs coincided with the administration’s announcement of an arrangement with a pharmaceutical manufacturer to make certain fertility drugs available at a reduced cost through the government discount program known as TrumpRx.  

Shutdown Resolution

The government shutdown did not result in the changes that Democrats in Congress sought: to reverse cuts in Medicaid benefits and restore certain subsidies available for coverage under the public health insurance exchanges established by the Affordable Care Act. As a result, it is expected that the number of uninsured and underinsured individuals will increase, with a downstream effect on the cost of employer-provided group health benefits. The affordability of health coverage continues to be a hot-button issue as the enhanced subsidies will soon expire, and as Congress approaches the end of the year with a new budget deadline awaiting in January.

Ballard Spahr lawyers continue to follow these, and other legal developments affecting employer-sponsored health benefit plans and are prepared to answer your questions about this ever-evolving legal environment.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.