A federal court ruling staying key parts of new Affordable Care Act (ACA) regulations in light of the landmark Supreme Court of the United States ruling on sexual orientation and gender identity will provide little certainty to employers about how federal discrimination law applies to their health plans.

Judge Frederic Block, a senior judge for the U.S. District Court for the Eastern District of New York, granted a preliminary injunction against the enforcement of U.S. Department of Health and Human Services (HHS) regulations that would relax the nondiscrimination rules that apply to certain federally-supported health plans. The court also said it was restoring key parts of the ACA rules to their original 2016 form. The ruling came August 17, 2020—the day before the new ACA rules were scheduled to take effect.

HHS published the new ACA regulations in June 2020.  The regulations interpret Section 1557 of the ACA, which prohibits discrimination on the basis of race, color, national origin, sex, age, or disability by health programs or activities that receive federal support or are administered by a federal agency. Rather than defining the forms of prohibited discrimination and enforcement thereof, Section 1557 incorporates provisions from four existing nondiscrimination statutes: Title VI of the Civil Rights Act of 1964, Title IX of the Education Amendments of 1972, the Age Discrimination Act of 1975, and Section 504 of the Rehabilitation Act of 1973.

Initially, in 2016, the Section 1557 regulations defined “discrimination on the basis of sex” very broadly to include gender identity, pregnancy (or its termination), sex stereotyping, and sexual orientation. In 2019, a federal court in Texas vacated those rules as they related to gender identity discrimination and termination of pregnancy. In its 2020 revisions, HHS removed the definitions of prohibited discrimination and, in the preamble, stated that HHS would interpret “discrimination on the basis of sex” to mean discrimination solely on the basis of “biological sex,” or an individual’s sex assigned at birth.

Between the time the HHS regulations were posted online and when they were formally published, the Supreme Court issued its landmark decision in Bostock v. Clayton County, Georgia, which held that Title VII of the Civil Rights Act of 1964’s prohibition on sex discrimination encompasses discrimination on the basis of sexual orientation and gender identity. Bostock, however, left at least one area of potential uncertainty for employers: the Section 1557  prohibition on sex discrimination derives from Title IX, not Title VII, which the Supreme Court interpreted. Judge Block did not address this issue in his order.

In the current case, two transgender women sued HHS shortly after the Bostock decision, claiming that they were discriminated against based on their transgender status. They asked the court to vacate the new HHS rule. Judge Block ruled that HHS should have waited for the Bostock opinion and taken it into account because Title IX sex discrimination case law is often informed by Title VII precedent. He wrote that “[t]he timing might even suggest to a cynic that the agency pushed ahead specifically to avoid having to address an adverse decision.”

Judge Block determined that the women were likely to win on the merits of the case. He enjoined HHS’s enforcement of the 2020 rule, and said he was restoring the definitions of discrimination on the basis of sex, sex stereotyping, and gender identity to their 2016 status. However, the court did not clarify how the 2016 definitions could be restored when certain parts of the rules related to gender identity had already been vacated by the federal court in Texas.

It is safe to say that there will be more to come for employers on the application of sex discrimination law to health plans as a handful of other lawsuits challenging the new rule make their way through the federal court system.