No Title VII claim for son’s sex reassignment treatment coverage denial, but ACA claim revived

By Joy Waltemath

By Marjorie Johnson, J.D.

An employee whose son was denied employer-sponsored insurance coverage for gender reassignment treatment failed to convince the Eighth Circuit to revive her claims against her employer for sex discrimination under Title VII and the Minnesota Human Rights Act (MHRA), since she didn’t suffer discrimination based on her own gender, and thus lacked statutory standing. However, a divided appeals court panel reversed the dismissal of her Affordable Care Act (ACA) claim against the plan’s third-party administrator based on its conclusions that the district court erred in finding she lacked Article III standing, and remanded for the district court to consider alternative grounds for tossing her claims. Believing the appeals court should have considered those alternative grounds and affirmed dismissal, Judge Benton dissented in part (Tovar v. Essentia Health, May 24, 2017, Murphy D.).

The employee worked for Essentia Health and received health insurance through its self-funded medical plan, which was administered by a third-party administrator (TPA). In 2014, her teenage son became a beneficiary of the plan, and later that year was diagnosed with gender dysphoria—a condition in which an individual’s gender identity differs from the gender assigned at birth. She sought coverage for his medications and gender reassignment surgery, but her requests were denied based on the plan’s categorical exclusion for “services and/or surgery for gender reassignment.”

She filed this lawsuit against Essentia and the TPA alleging claims of gender discrimination under Title VII, the MHRA, and the ACA. The district court granted the defendants’ motion to dismiss, concluding that her claims against Essentia failed for lack of statutory standing and that her claim against the TPA failed for lack of Article III standing.

Discrimination was against son. The Eighth Circuit agreed with the district court’s conclusion that she had no statutory standing to bring her Title VII and MHRA claims against her employer. Assuming for purposes of this appeal that the statutory prohibitions on sex-based discrimination included protection for transgender individuals, she did not fall within a class of protected plaintiffs since she did not allege discrimination on the basis of her own sex. Rather, she alleged discrimination against her on the basis of her son’s sex, based on the refusal to cover his medical treatment. Title VII did not extend to this discrimination as it prohibits employment discrimination “because of such individual’s race, color, religion, sex, or national origin.”

This conclusion was supported by “decades” of case law, and the employee’s reliance on the U.S. Supreme Court’s decision in Newport News Shipbuilding and Dry Dock Co. v. EEOC was misplaced. That case involved an employer’s health plan that provided different pregnancy related benefits for female employees and the female spouses of male employees. The Supreme Court concluded that the discrimination at issue was against the male employees because of their own sex, since the health plan gave married male employees a “benefit package” for their dependents that was “less inclusive than the dependency coverage provided to married female employees.”

Claim against TPA. However, the district court erred in dismissing her ACA claim against the TPA for lack of Article III standing. First, its primary conclusion that she lacked standing because she named the wrong defendant was erroneous since the plan document did not definitively establish that the TPA she identified was wholly uninvolved in the administration of the plan. The Eighth Circuit also disagreed with the lower court’s alternative conclusion that the employee’s injuries were not fairly traceable or addressable by the TPA since the plan was self-funded by the employer, which also had the “all powers and discretion necessary to administer the Plan” (including the power to change its terms).

Significantly, the employee alleged that the health plan and its discriminatory terms originated with the TPA, and not with Essentia. Thus, if the TPA had provided Essentia with a discriminatory plan document, the employee’s alleged injuries could well be traceable to and redressable through damages by those defendants. This was so even if Essentia subsequently adopted the plan and maintained control over its terms.

Injury in fact. Rejecting the TPA’s assertion that the employee did not suffer any injury since she was not personally denied coverage under the plan, the Eighth Circuit distinguished the question of whether she suffered an injury sufficient to confer Article III standing from the question of whether she was a proper plaintiff under the text of the ACA. She alleged an injury cognizable under Article III because she contended that the defendants’ discriminatory conduct denied her the benefits of her insurance policy and forced her to pay out of pocket for some of her son’s prescribed medication. This was sufficient to establish an injury in fact for purposes of Article III standing.

Remand. The panel majority declined to address the TPA’s assertion that her ACA was due to be dismissed on the alternative ground that she did not fall within the class of plaintiffs whom Congress had authorized to sue under the ACA, and that the TPA could not be liable for administering a plan whose allegedly discriminatory terms were under the sole control of another organization. Since these issues were not previously addressed by the district court, it felt it was best to remand for its consideration and ruling.

Partial dissent: No ACA standing. Dissenting in part, Judge Benton found no need for a remand on whether the employee stated an ACA claim against the TPA since this “pure question of law” could be resolved by looking to applicable Office for Civil Rights’ regulations. After undergoing a thorough analysis of the OCR’s commentary and applying it to the employee’s ACA claims, Judge Benton concluded that she failed to state a cognizable claim against the TPA since she didn’t allege that it discriminated in its administration of the plan, that it shared common ownership or control with Essentia, or that it served as a “subterfuge for discrimination” intended to allow Essentia to continue to administer discriminatory health-related insurance.

Source:: No Title VII claim for son’s sex reassignment treatment coverage denial, but ACA claim revived