Health plans that exclude gender-affirming care pose bigtime business risks

In June 2020, the U.S. Supreme Court’s decision in Bostock v. Clayton County established that employers cannot discriminate against employees based on their gender identity under Title VII of the Civil Rights Act of 1964. Since then, many employers have taken preventative measures to ensure compliance by updating employee handbooks and policies including those involving pronouns, dress codes and bathroom or locker room usage.

However, the Bostock ruling extends beyond workplace conduct, harassment and employment issues like hiring or firing. It affects the intricate terms of health insurance plans, such as the inclusion or exclusion of gender-affirming physical, mental or other health care services administered or prescribed to treat gender dysphoria or related diagnoses. Such care may include puberty-delaying medication, hormone replacement therapy, “sex reassignment” surgery or other treatments.

While self-insured health plans have historically faced fewer regulations than traditional insurance, employers and third-party administrators must not overlook the importance of compliance in this area. Transgender plaintiffs have recently filed numerous discrimination lawsuits against employers and their selected health plans due to categorical exclusions that deny gender-affirming care. And they have been overwhelmingly victorious, even winning summary judgment at rates seldom seen. The alleged claims fall under multiple statutes and laws, most notably:

• Title VII of the Civil Rights Act of 1964
• Section 1557 of the Affordable Care Act (ACA)
• The Equal Protection Clause of the Fourteenth Amendment

One of the first big tests of exclusionary health plans under Title VII, which disallows an employer from discriminating against “any individual with respect to his compensation, terms, conditions, or privileges of employment” because of the individual’s sex, occurred in June 2022. In Lange v. Houston County, Georgia, the United States District Court for the Middle District of Georgia had little trouble concluding that the County’s health insurance plan excluding “sex change” surgery violated the civil rights law.

The Lange court found that the Bostock decision was outcome-determinative–that is, “it is impossible to discriminate against a person for being . . . transgender without discriminating against that individual based on sex” — and that denying health insurance coverage to transgender employees necessarily discriminates based on sex. A jury eventually awarded the plaintiff $60,000 in damages for emotional pain and mental anguish. Moreover, news reports suggest the County spent as much as $1.2 million in legal fees to defend its policy.

In December 2022, in C.P. v. Blue Cross Blue Shield of Illinois, another district court found a transgender exclusionary health plan unlawful, this time under Section 1557 of the ACA, which prohibits sex discrimination against individuals in health programs or activities that receive Federal financial assistance. The C.P. v. BCBSIL case was noteworthy because it held BCBSIL liable even though it was only a third-party administrator.

The United States District Court for the Western District of Washington was not persuaded by any of BCBSIL’s arguments that it shouldn’t be liable because it merely administered, rather than created the discriminatory health plan, or because it felt it was obligated under ERISA to administer the exclusion as written. And even though BCBSIL did not receive federal financial assistance for its administration of self-funded insurance plans, the fact it received federal financial assistance for other products like Medicare supplemental coverage, Medicaid, and Medicare Advantage was determined to be sufficient grounds for Section 1557 to apply.

The prospect of class-action status

Compounding the liability of this issue is the potential for these lawsuits to become class actions involving larger groups of plaintiffs and damage amounts. The aforementioned BCBSIL case was certified as a class action, for example, and is one of multiple such cases where plaintiffs successfully referenced Bostock’s holding. Others include:

• Fain v. Crouch (August 2022 decision), where a group of transgender Medicaid participants won summary judgment on their Section 1557 sex discrimination claim against West Virginia Medicaid program agencies and officials due to the exclusion of the surgical treatment of gender dysphoria.
• Kadel v. Folwell (August 2022 decision), where multiple transgender individuals who received health insurance through the North Carolina State Health Plan for Teachers and State Employees sued NCSHP—under Section 1557, Title VII, and the Equal Protection Clause—for its exclusion of coverage for gender-affirming treatments. After the District Court granted summary judgment to one of the plaintiffs on her Title VII claim, it further granted summary judgment for all plaintiffs on their Section 1557 claim.
• Being v. Crum (December 2020 settlement), where the State of Alaska settled a proposed class action that challenged the State’s denial of Medicaid coverage for gender-affirming treatment, including surgery, hormone treatment and therapy. A spokesperson from the Department of Health and Social Services cited the Bostock case as one reason for the settlement. The State also agreed to pay each named plaintiff $60,000.

Related: LGBTQ+ adults have closed health insurance gap, but access to care still lags

Employers and third-party administrators must recognize the significant business risks associated with health plans that exclude gender-affirming care in today’s post-Bostock environment. Not only have numerous lawsuits been filed against employers and administrators, they’re prevailing at exceptional rates and have strong odds to obtain class action certification and deepen damages. To avoid legal consequences, financial losses, and reputational setbacks, compliance strategies in this area must be prioritized.

Sara Lewenstein is an attorney with Nilan Johnson Lewis who advises and defends employers in a range of issues, including discrimination and retaliation claims.