Third Time is the Charm? Proposed Regulations Strengthen Nondiscrimination Protections for Health Insurance Enrollees

By Karen Davenport

For the third time, the Department of Health and Human Services’ Office of Civil Rights (OCR) has issued a Notice of Proposed Rulemaking to effectuate the application of civil rights protections to the health care industry under Section 1557 of the Affordable Care Act (ACA). This proposed rule, if finalized, will have significant implications for health insurers and provide important nondiscrimination protections for insurance enrollees.

Background

Section 1557 of the ACA prohibits discrimination on the basis of race, color, national origin, age, disability, or sex, packing a lot of substance and rulemaking authority into three paragraphs of statutory language. The prohibition against discrimination applies to health programs and activities receiving federal financial assistance, such as hospitals that receive Medicare reimbursement and state-administered, federally funded programs like Medicaid, federally administered health programs and activities (such as Medicare), and entities created by the ACA such as the health insurance marketplaces and Qualified Health Plans (QHPs). Under Section 1557, individuals cannot be excluded from participation in, denied the benefits of, or subjected to discrimination by any of these programs or activities.

While these nondiscrimination protections are self-implementing, going into effect upon the ACA’s enactment without additional administrative action, three different presidential administrations have sought to provide greater specificity and clarity regarding the scope and enforcement mechanisms of Section 1557 through regulations. In addition to significant differences in the treatment of sex discrimination—specifically, whether the definition of “sex” encompasses sexual orientation, gender identity, sex stereotypes and sex characteristics, and pregnancy as well as gender, thus affecting the level of protection for gay and transgender individuals—important changes across these rulemaking efforts include the breadth and scope of nondiscrimination protections related to health insurance.

The 2016 and 2020 Rules—New Protections Followed by Rollback

The Obama Administration’s final rule in 2016 applied Section 1557’s protections to a substantial swath of the health insurance industry, including health plans participating in Medicaid, Medicare Advantage, the Children’s Health Insurance Program (CHIP), QHPs sold on the ACA’s marketplaces, and plans providing third-party administration for self-insured employer-sponsored health insurance. The Obama Administration’s 2016 rule also encompassed these issuers’ other lines of business, including those that do not receive federal financial assistance, such as state-regulated plans, excepted benefit plans, and short-term, limited-duration plans. The rule specified that plan benefit design and administration were all subject to Section 1557’s prohibition on discrimination, which meant that an issuer could not, for example, place all prescription medications used to treat a specific condition on the plan’s highest-cost formulary tier or limit coverage for a specific service by applying an age limit if the service has been found to be effective at all ages.

The Trump Administration’s 2020 regulation severely limited protections against discrimination in health insurance, including issuance, coverage, benefit design, cost sharing, and plan administration. The 2020 rule narrowed the application of Section 1557’s nondiscrimination requirements to plans’ lines of business that actually receive federal funding, such as Medicare Advantage plans and Medicaid MCOs, and to programs and activities administered by the Department of Health and Human Services under Title 1 of the ACA, such as QHPs. Other federal programs previously subject to Section 1557, such as the Federal Employees Health Benefit Program, were no longer subject to the law’s prohibition on discrimination, nor were issuers’ other lines of business, such as group health plans, self-insured employer plans administered by a third party, and short-term, limited duration plans. The 2020 rule also exempted the administration of health insurance from the reach of Section 1557, thus permitting plans subject to 1557’s nondiscrimination requirements to institute discriminatory benefit designs and coverage exclusions.

Biden Administration Would Restore and Expand Nondiscrimination Protections in Health Insurance

Bringing Back the 2016 Rule’s Protections

The Biden Administration’s proposed rule, if finalized, would resurrect the 2016 regulation’s broader interpretation of Section 1557’s scope and reach related to health insurance. The proposed rule reinstates the 2016 regulation’s definition of “health program or activity,” which includes all operations of entities that provide or administer health insurance or health-related coverage and clarifies that Section 1557 generally applies to many health insurers and to all HHS health programs and activities. Altogether, if the rule is finalized, Section 1557’s nondiscrimination requirements would apply to a wide range of health insurance-related organizations, including insurers, QHPs, Medicaid MCOs, Medicare Advantage plans, Medicare Part D plan sponsors, pharmacy benefit managers, and third party administrators. The proposed rules would prohibit entities from taking discriminatory actions related to coverage across all of their lines of business, such as denying, canceling, limiting, or refusing to issue or renew coverage, denying or limiting coverage of a claim, or imposing additional cost-sharing or other coverage limitations on the basis of race, color, national origin, disability, age, or sex.

The proposed rule also clarifies that Section 1557 prohibits discriminatory benefit designs, prohibiting practices such as provider network designs that exclude specialists for certain chronic conditions, “adverse tiering” within prescription drug formularies, or cost-sharing designs or utilization management techniques that discourage enrollment or otherwise discriminate against individuals on the bases covered by Section 1557.

Bolstering Nondiscrimination Protections with New Requirements

Beyond restoring requirements from the 2016 regulation, the proposed regulations would institute new requirements, including some that signal significant changes in health care delivery and payment since the Obama Administration promulgated the 2016 rules. For example, the proposed rule will hold covered entities, including insurers, responsible for discrimination stemming from the use of clinical decision-making algorithms. Algorithms—tools such as clinical guidelines and models—can amplify and perpetuate pre-existing inequities present in the data that informed the algorithm, including biases related to race, ethnicity, disability, and age. Under the proposed rule, issuers that use clinical algorithms to facilitate coverage decisions or identify patients for care management programs would need to understand whether those algorithms are inherently biased and make appropriate adjustments in how they use those tools. While insurers and other covered entities would not be liable for algorithms they did not develop, they may be liable for discriminatory decisions that are overly reliant on these algorithms. The preamble to the proposed rule also raised concerns about value assessment methodologies used by insurers to inform coverage decisions or benefit designs, which may penalize individuals on the basis of race, color, national origin, sex, age, or disability, but for now OCR has requested input rather than providing proposed regulatory language.

Finally, the proposed regulations’ definition of federal financial assistance includes, for the first time, Medicare Part B, thus extending Section 1557’s requirements to physicians and other outpatient clinicians who receive Medicare reimbursement. In practice, many outpatient providers are likely already covered by Section 1557 because they receive federal funds through other sources, such as Medicaid; this change ensures that all outpatient clinicians are prohibited from discriminating on the bases covered by this law.

The Final Word?

Section 1557 provides vital protections for consumers, building on federal civil rights laws that prohibit discriminatory practices. Federal rulemaking has dictated the breadth and depth of these protections. Will this third set of Section 1557 regulations establish long-lasting expectations for insurers and durable protections for their enrollees? Perhaps this time a combination of timing, political will, and policy insight will result in regulations with staying power. OCR is accepting comments on the proposed rule until October 3, 2022.