Final HHS Rule on Section 1557 Leaves Questions for Self-Funded Plans


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Section 1557 of the Affordable Care Act (ACA) prohibits discrimination on the basis of race, color, national origin, sex, age, or disability by health programs and activities funded or administered by the Department of Health and Human Services (HHS). In the context of health and welfare plans this means that section 1557 generally applies to healthcare providers and insurance carriers who process payments from Medicare or Medicaid and employers receiving the Retiree Drug Subsidy (or other HHS funds). In August of 2022, HHS released a proposed rule expanding the applicability of section 1557 in certain contexts. The proposed rule also raised questions about an indirect application of section 1557 to self-insured plans that do not otherwise receive federal funds if a carrier subject to section 1557 with respect to its insured business is acting as a third party administrator (TPA) and is responsible for a discriminatory self-funded plan design. The concern was that such TPAs would more broadly apply the principles of section 1557 to self-funded plan designs, thereby increasing plan costs.

Late last week HHS released its Final Rule on section 1557, but the final rule largely leaves this question unanswered. Under the Final Rule, a section 1557 covered carrier acting as a TPA will be liable for its self-funded plan designs if they violate section 1557. However, if a discriminatory design originated with the employer plan sponsor, the carrier may avoid liability but HHS may refer a complaint to the EEOC or DOJ for potential investigation of the employer. A TPA may also avoid 1557 liability if it is “legally separate” from the section 1557 covered carrier, but that determination requires a fact intensive analysis that considers whether any “separation” was created to avoid the applicability of civil rights laws. Self-funded employer plan sponsors should discuss the implications of the Final Rule with their TPA(s). Although rare, employers with a categorical exclusion of coverage for gender dysphoria (or that do not cover lawfully married same-sex spouses) should consult with legal counsel to assess the risks associated with those plan designs.


This alert was prepared by the Alliant Compliance Team. This email is a service to our clients and friends. It is designed only to give general information on the developments actually covered. It is not intended to be a comprehensive summary of recent developments in the law, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion.

Advanced Benefits and its employees are not attorneys and are not responsible for any legal advice. To fully understand how this or any legal or compliance information affects your unique situation, you should check with a qualified attorney. 

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