Can Sec. 1557 be used to prevent discriminatory adverse tiering?

The Section 1557 Regulation: What’s Missing, And How We Can Include It

By Douglas Jacobs
Health Affairs Blog, September 21, 2015

Kristin Agar, a 63-year-old social worker, was diagnosed with lupus in 2008, a rare disease in which the body’s own immune system can cause serious damage to the kidneys, brain, skin, and joints. Unfortunately, despite having insurance coverage, Kristin has found that the drug she needs to treat her lupus is unaffordable. All around the United States, Kristin joins other patients with chronic conditions like HIV, Hepatitis C, Multiple Sclerosis, Rheumatoid Arthritis, and Leukemia, who are having trouble paying for their medications.

In June, Robert Restuccia and I wrote a Health Affairs Blog post showing that discrimination in our health care system is evolving. Some insurers that once refused outright to offer coverage to patients like Kristin are now resorting to more surreptitious means to discourage enrollment, like increasing the cost of all medications for certain conditions. This practice, called “adverse tiering,” has been regulated under Section 1302 of the Affordable Care Act (ACA), which grants the Department of Health and Human Services (HHS) the authority to define essential health benefits under the ACA.

However, the Section 1302 regulation has so far been limited. The rule states that adverse tiering may be discriminatory, but also appears to allow an exemption for expensive drugs like Kristin’s lupus medication. Additionally, insurers that are “caught” practicing adverse tiering only have to provide written justification for their actions to HHS or comply by fixing their benefit design.

Even without practicing adverse tiering, insurers could discourage the most expensive beneficiaries from enrolling by increasing the cost of wheelchairs, nursing homes, or even specific surgeries. If HHS wanted to categorize any future insurance practices as discrimination under Section 1302, the regulatory process could take years. As such, these new forms of discrimination have prompted many to call on the Obama Administration for a stronger response.

The Section 1557 Regulation

Earlier this month, over five years after the Affordable Care Act was adopted, the Obama Administration finally proposed the highly anticipated rule that implements the ACA’s main nondiscrimination provision: Section 1557. The rule prevents discrimination on the basis of race, color, national origin, sex, age, and disability, and broadly applies to all health programs and activities that receive assistance through HHS.

For those who have experienced discrimination in its many forms, the regulation includes a number of provisions to protect consumers. Each health entity must provide appropriate aids and services to those with limited English proficiency and disabilities. The rule extends protections for transgender persons unlike ever before, including it as a form of sex discrimination. Furthermore, all services must be made available for gender transition (like a hysterectomy) that are available to a person seeking non-transition related care. All transgender persons must be treated consistent with their own gender identity.

The proposed rule also establishes a private right of action, giving individuals the ability to file a lawsuit under Section 1557 (courts had already begun to authorize private Section 1557 lawsuits, but this makes it official). This is an important step forward, because unlike the Section 1302 regulation, insurers will be highly motivated to comply with the 1557 regulation or face costly litigation. Insurers will think twice about changing their benefit design to discourage enrollment by individuals of a certain race, color, national origin, sex, age, and disability. Instead of taking years to pass a new regulation, a private cause of action allows the justice system to “keep pace” with quickly evolving insurer practices.

However, these positive developments are tempered by some noticeable omissions. Namely, the rule is conspicuously silent about discrimination on the basis of health status. As Timothy Jost stated in his recent post, “Surprisingly, the proposed rule does not directly address one of the most salient current discrimination questions: whether insurers can impose high cost sharing or otherwise limit access to expensive drugs needed by certain disabled populations.”

Kristin Agar, who can’t afford her lupus medication, may not be assisted by the Section 1557 regulations. Insurers could continue to discourage enrollment by the sickest consumers through manipulation of their benefit designs.

Without directly addressing the issue, HHS seems to have made a distinction between two different types of discrimination: discrimination by categorically excluding certain individuals from care, and discrimination by “pricing out” certain enrollees by making specific services unaffordable. In other words, making drugs or services unaffordable seems to be an effective way for insurance companies to discourage enrollment and improve their bottom lines.

The reticence to address “price-based” discrimination likely stems from insurers historically charging different prices for medications and services. Insurers argue that this pricing structure allows them to encourage the use of more low-cost services and medications.

However, this omission even has the potential to undermine the very forms of discrimination that the proposed Section 1557 regulation aims to protect against. For example, despite the new transgender protections in the rule, plans could still discriminate against transgender people by making hormonal treatments and transition-related care unaffordable. A plan could more broadly still discriminate on the basis of sex by increasing costs for medications predominantly used by women (like breast cancer treatment), increasing costs for pregnancy care, or severely limiting the number of gynecologists in the plan network. It is clear that in order to have a strong Section 1557 regulation, HHS must also address cost.

A Way Forward

HHS should adopt a standard way of addressing cost-based discrimination in the final Section 1557 rule. When does changing the cost of a drug or service make it “unaffordable,” thus discouraging enrollment and constituting discrimination? The answer to this question appears in other ACA regulations.

The Internal Revenue Service (IRS) defines “unaffordable” in the ACA as a percentage of income, which could set a standard for price-based discrimination as well. An “unaffordable” medication or service would become discriminatory if there is no lower-cost, but similarly efficacious drug or service. This would preserve an insurer’s ability to encourage the selection of lower cost drugs and services, while still protecting consumers from discriminatory pricing schemes. Even if the final Section 1557 regulation does not include cost-based discrimination, standards of discrimination may evolve with ongoing litigation. As individuals increasingly file Section 1557 cases, it is entirely possible that courts will find cost-based discrimination unlawful.

However, Kristin Agar and others with chronic conditions need more than a federal regulation recognizing cost-based discrimination: HHS should ban discrimination on the basis of health conditions in their final rule. HHS has the authority to interpret Section 1557 broadly as part of an overall statutory and regulatory regime to make health care more accessible to those who need it the most, and also have the responsibility to counter long standing and pervasive discriminatory practices by insurers.

In the absence of an explicit ban, another way to achieve Section 1557 protection against discrimination is for HHS or courts to categorize certain diseases as “disabilities.” Courts have historically been reluctant to do this, defining a “disability” as being restricted to an “impairment that substantially limits one or more major life activities.”

However, this was before the passage of the Americans with Disabilities Act Amendments in 2008, and the subsequent final rule in 2011 that broadened the definition of disability to include impairments to bodily functions (such as the immune system, special sense organs, normal cell growth, and digestive, genitourinary, neurological, bowel, respiratory, cardiovascular, endocrine, hemic, lymphatic, musculoskeletal, and reproductive functions, among others). Since the amendments passed, courts have more broadly interpreted “disability,” although they continue to assess each case individually. This relatively untested new version of disability could include protections for Kristin and many others with chronic conditions under Section 1557.

Until HHS or a court decides, those with health conditions will continue to rely on the slow, partial protections of Section 1302. Kristin deserves a better system. She deserves a system that prospectively bans discrimination on the basis of her race, color, national origin, sex, age, disability, and health, either by being excluded from insurance plans or by being priced out of them. Kristin deserves to be able to file suit when she is being discriminated against. Kristin deserves to be covered by Section 1557.


Nondiscrimination in Health Programs and Activities

Federal Register, September 8, 2015


The Department of Health and Human Services (HHS or “the Department”) is issuing this proposed rule on Section 1557 of the Affordable Care Act (ACA) (Section 1557). Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age, or disability in certain health programs and activities. Section 1557(c) of the ACA authorizes the Secretary of the Department to promulgate regulations to implement the nondiscrimination requirements of Section 1557. In addition, the Secretary is authorized to prescribe regulations for the Department's governance, conduct, and performance of its business, including, here, how HHS will apply the standards of Section 1557 to HHS-administered health programs and activities.



By Don McCanne, MD

Insurers will always try to find a way to avoid paying for health care whenever they can. This article explains “adverse tiering” - an innovation by the insurers wherein needed services or products used by individuals with high-cost disorders are placed in a higher tier of coverage in which patient cost sharing is much higher. This adverse tiering is being used by insurers to discourage enrollment in plans by people with disorders such as HIV, hepatitis C, multiple sclerosis, rheumatoid arthritis, or leukemia.

Section 1557 of the Affordable Care Act (ACA) - the nondiscrimination section - states that an individual shall not “be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an Executive Agency or any entity established under this title (or amendments).”

After five years, HHS has finally released a proposed rule for Section 1557 nondiscrimination under ACA. As Douglas Jacobs explains in the Health Affairs Blog, the proposed rule does not seem to adequately address adverse tiering discrimination. Banning such discrimination can be technically challenging since price tiering is encouraged by some in the policy community as a means of discouraging patients from receiving expensive care that they do not really need (the rhetoric of advocates of consumer-directed health care). Another possibility that Douglas Jacobs suggests is that the proposed rule could be modified to enable lawsuits under the amended Americans with Disabilities Act (ADA).

After reviewing the 200 page proposed rule and considering the complexities of defining how adverse tiering discrimination could be banned while still leaving tiering in place, or considering the complexities of lawsuits under ADA, even in defining whether these expensive conditions are disabilities, it does seem clear that these approaches further increase the wasteful administrative excesses that already plague our heath care system.

In contrast, a single payer national health program would eliminate cost sharing thereby eliminating the insurers’ tool of adverse tiering, not to state the obvious of eliminating the insurers themselves. Life for patients and their health care professionals would be so much simpler.