Compliance FYI: Section 1557 Final Rule 2024

Compliance, Employee Benefits

On May 6, 2024 the Department of Health and Human Services (HHS) Office for Civil Rights (OCR) and the Centers for Medicare and Medicaid Services (CMS) published final regulations reinstating certain protections against discrimination in health care programs under Section 1557 of the Affordable Care Act (ACA). Section 1557 prohibits “covered entities” that receive funding from the federal government to refuse treatment for an individual based on race, color, national origin, sex, age or disability. Since the enactment of the ACA in 2010, there have been several interpretations and court cases regarding the applicability of these rules, specifically in relation to sex discrimination. See:

This final rule strengthens the protections against discrimination based on sex by defining sex discrimination to include discrimination based on sex characteristics, pregnancy, sexual orientation, gender identity and sex stereotypes. This reaffirms the 2021 HHS interpretation and is a departure from 2020 regulations.


The final rule applies to “covered entities” which are defined as health programs or activities that receive HHS funding, health programs or activities administered by HHS and the health insurance Marketplace, including all plans offered by issuers that participate in those Marketplaces and receive Federal financial assistance. Employers and “group health plans” are generally not directly subject to Section 1557 but carriers and third-party administrators (TPAs) that receive Federal funding would be subject to the requirements of the new rule.

Plan sponsors could be “covered entities” if they receive federal funding directly or indirectly by being a subcontractor to an entity that receives federal financial assistance. The 2022 proposed rule excluded “group health plans” from coverage under Section 1557 but the final rule reverses that stance and confirms that Section 1557 can apply to group health plans and issuers if they receive federal financial assistance. A group health plan can also be covered as a subcontractor of a plan sponsor or TPA if it is liable for the actions of a plan sponsor or TPA covered by Section 1557.

The final rule applies to all the operations of any covered entity that is a “health program or activity”, issuer or other entity principally engaged in providing or administering health insurance coverage or other health-related coverage, including TPA activities. A covered TPA should not be held responsible for discriminatory plan design features over which it exercised no control, but if the benefit design feature originated with the TPA, the TPA may be liable for discriminatory plan terms.


Section 1557 prohibits a covered entity from denying, canceling, limiting, or refusing to issue or renew health care coverage or denying or limiting coverage of a claim based on sex. If the plan sponsor or TPA of a self-funded health plan is covered by Section 1557, the plan many need to provide gender-affirming care coverage to comply with the final rule.

The final rule explicitly prohibits covered entities from having or implementing a categorical exclusion or limitation for all health services related to gender transition or other gender-affirming care. It also prohibits a covered entity from denying or limiting health services sought for purposes of gender transition or other gender-affirming care that the covered entity would provide to an individual for other purposes if the denial or limitation is based on an individual’s sex assigned at birth or gender identity.

Section 1557 does not require coverage where a covered entity has a legitimate, nondiscriminatory reason for denying or limiting coverage of the health service. The plan sponsor of a self-funded group health plan will need to determine whether the services its plan covers has a disparate impact on transgender or nonbinary persons or whether the plan has explicitly excluded gender-affirming care services for a discriminatory purpose. Because it is generally difficult to dismiss a disparate impact claim or explain an exclusion as being non-discriminatory in its purpose, this typically means plans must coverage a range of medical, surgical, and mental health services for gender-affirming care.

Other Considerations:

Title VII
Title VII prohibits discrimination in an employee’s compensation, terms, conditions, or privileges of employment, including the scope of health benefits offered to employees. It expressly prohibits discrimination based on sex. If a self-funded group health plan fails to cover gender-affirming care, the employer sponsoring the plan is at risk of employment discrimination claims. See: Bostock v. Clayton County, 140 S. Ct. 1731 (2020).

Mental Health Parity Addiction Equity Act (MHPAEA)
If a group health plan provides any coverage for medically necessary gender-affirming care, the MHPAEA requires the plan cover gender dysphoria mental health treatment in parity with medical/surgical benefits.

Under the MHPAEA requirements, plans must analyze whether limitations on coverage for gender-affirming care are more restrictive than comparable restrictions for medical or surgical services under the plan, both in terms of how the plan is written and how the plan applies the restriction in practice.

Effective Date: The rules relative to non-discrimination in health insurance coverage and other health-related coverage are effective on the first day of the plan year beginning on or after January 1, 2025.

Key Takeaways:

The 2024 final regulations interpreting ACA Section 1557 again change how “discrimination on the basis of sex” will be applied in the context of health programs, activities, and coverage. Plan sponsors should be aware of these new regulations and should work with carriers and third-party administrators to determine the extent of gender-affirming care coverage in their employer sponsored group health plans.

The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.

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