Courts Invalidate ACA Regulations Following Demise of Chevron Deference

Quickly following the U.S. Supreme Court’s abandonment of its longstanding Chevron doctrine, which gave substantial deference to administrative agencies’ interpretation of federal statutes, three courts have struck down Biden administration regulations on one of the more controversial topics under the Affordable Care Act (ACA). Federal district courts in Mississippi, Florida, and Texas have all issued preliminary injunctions against regulations on sex discrimination under Section 1557 of the ACA. These regulations would have required health plans that receive funding from the U.S. Department of Health and Human Services (HHS) to include gender identity in the consideration of what constitutes unlawful discrimination, and would have prohibited these plans from excluding gender-affirming care from coverage outright. 

The Statute, the Regulations, and the Courts

In some respects, the Section 1557 regulations present the situation that the U.S. Supreme Court’s recent decision sought to address regarding regulatory guidance that shifts back and forth from one administration to the next. The Biden administration rules, published by HHS in May, were the third set of final regulations to address the subject of sex discrimination under Section 1557’s nondiscrimination provisions. In 2016, the Obama administration issued rules that took into account gender identity. In 2020, the Trump administration published final rules that reversed course.

These swings in regulation have not occurred in a vacuum. The issuance of the Trump administration rule came within days of the U.S. Supreme Court’s landmark Bostock decision, which found that Title VII of the Civil Rights Act prohibits discrimination on the basis of gender identity and sexual preference. Citing that decision, some courts struck down the narrow interpretation of sex discrimination in the Trump administration regulations. The Biden administration rule followed those court rulings and largely circled back to the broad interpretation of sex discrimination included in the Obama administration rule, defining discrimination based upon sex to include “gender identity.” 

In part to address changes in regulatory direction such as these, the U.S. Supreme Court reversed the doctrine promulgated in Chevron and established that courts do not need to accept an administrative agency’s reasonable interpretation of an ambiguous statute, but should themselves make interpretive decisions of such statutory provisions. The three recent injunctions demonstrate how that ruling will be applied. None of the district court opinions give significant attention to the current HHS regulations or HHS’s explanation of its rule. Instead, they focus on the fact that the Section 1557 statute bases sex discrimination on Title IX of the Civil Rights Act and not Title VII (which was the law at issue in the Bostock case). Finding that, at the time of its enactment, Title IX did not take into account gender identity discrimination, the courts struck down the broader interpretation. (The Texas court’s injunction extended to the Section 1557 regulations in their entirety, although limited geographically to the states of Texas and Montana.)

The Effect of the Injunctions

The Mississippi court stated that its opinion will apply nationwide. Nevertheless, its effect on employer-sponsored plans will be limited. First, many plans that provide gender-affirming care will likely continue to do so, and nothing in the court’s ruling prevents that. Second, Section 1557 itself does not apply to every health plan. It applies to plans that receive funding from HHS and plans offered through the ACA public health insurance exchanges (as well as HHS programs and activities). The primary plaintiffs in the cases that led to the three injunctions are states, whose Medicaid (and certain other) programs are partly funded by HHS. Although certain retiree health benefit plans, which coordinate with Medicare or receive Medicare subsidies, are subject to Section 1557, many employer-sponsored plans do not receive federal funds and do not need to comply with its nondiscrimination requirements. State and local governments contemplating the coverage they offer to their own employees may need to take into account recent appellate court rulings finding that such governmental plans need to offer coverage for gender-affirming care on grounds unrelated to Section 1557.

The three injunctions are not likely to be the final rulings on this subject. The courts that invalidated the Trump administration rule in the wake of Bostock viewed Title IX as more closely aligned with Title VII, so while there is unanimity of the recent decisions, there is also a conflict with previous court decisions in how Title IX is to be interpreted.

Broader Implications for Employee Benefits

The three injunctions represent three early forays of courts into the applicability of regulations to employee benefit plans in the post-Chevron era. Court decisions on a range of subjects are likely to follow. These include the highly anticipated regulations under the Mental Health Parity and Addiction Equity Act, which are expected to be issued this summer, and the recent rules on investment advisers under ERISA’s fiduciary and prohibited transaction rules, which has already been challenged in court.

Historically, plan sponsors have paid close attention to regulatory and subregulatory guidance issued by HHS, the Department of Labor, the IRS, and other governmental agencies relevant to the design and administration of their plans. That guidance will now carry less certainty, as it may be reversed not only by a new administration, but by courts reviewing the guidance without deference.

Much remains to be seen about the long-term impact of the loss of Chevron deference. For example, will it have an effect on how legislation is drafted in the future and the extent to which that legislation expressly empowers regulatory agencies to provide interpretive guidance? There is also the question of how regulatory guidance already in place will be affected. In overturning Chevron, the Court stated that its decision will not disrupt court decisions that previously gave deference to administrative actions, but that leaves considerable ground to bring lawsuits regarding regulations that were not previously challenged and to bring challenges on different grounds.

Employee benefits litigation may also be fueled by an even more recent U.S. Supreme Court decision. Soon after issuing its decision to abandon Chevron deference, the U.S. Supreme Court ruled in Corner Post that the six-year statute of limitations for filing lawsuits challenging federal regulations begins on the date that the plaintiff suffers harm and not on the date the regulations are issued. In many cases, this will give litigants more time to bring such lawsuits, and any new employer the opportunity to seek a ruling that invalidates a regulation.

The abandonment of the Chevron doctrine has major implications for sponsors of employee benefit plans, who closely watch regulatory developments affecting the benefits industry. The three injunctions on Section 1557’s nondiscrimination provisions suggest that there is both a readiness to challenge administrative agency action and a level of uncertainty as to regulations that have been and will be issued. The long-term impact of the ruling has yet to be felt, as administrative agencies, courts, and Congress must all consider how they will respond to this seismic change.

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