ACA’s nondiscrimination mandate prohibits discriminatory design of health insurance benefits.
Section 1557 of the Patient Protection and Affordable Care Act (ACA) prohibits discrimination in the healthcare system by incorporating four nondiscrimination statutes—including the Rehabilitation Act, which prohibits certain types of disability discrimination. Andrea Schmitt, who has a severe hearing loss disability, filed a class action against Kaiser Foundation Health Plan, alleging that it unlawfully discriminated against her and other hearing-disabled plan members by excluding all hearing loss treatments except cochlear implants. The district court dismissed the complaint with prejudice for failure to state a claim, ruling that Kaiser has discretion under the ACA regarding the scope of benefits it provides in a non-discriminatory manner, and Schmitt’s allegations failed to raise a plausible discrimination claim because Kaiser afforded the same benefits to disabled and nondisabled plan participants.
The Ninth Circuit affirmed the dismissal of Schmitt’s complaint, but reversed to allow her to amend the complaint. The court explained that an insurer does not provide essential health benefits under the ACA if its plan design discriminates based on disability status. Kaiser had defended its plan because it complied with the state’s benchmark plan, but the court held that was not the same as compliance with section 1557. Compliance with the ACA presents a federal question that a state cannot control through benchmarks. The court also rejected Kaiser’s contention that, if the ACA required nondiscriminatory plan benefit design, then insurers will be forced to cover all treatments; the court explained that, if insurers have reasonable, nondiscriminatory reasons to exclude certain coverage, they may do so.
The court then held that Schmitt’s complaint failed to state a plausible discrimination claim because it defined “people with hearing loss” as a proxy for “hearing disability” when many non-disabled people experience some loss of hearing. Moreover, while “‘overdiscrimination is prohibited,’” the complaint alleged no factual basis for inferring that that the proxy’s “ ‘fit’ is ‘sufficiently close’ to make a discriminatory inference plausible.” Further, Kaiser’s coverage of cochlear implants and related services could meet the needs of some or most disabled plan members, undermining a discrimination claim. However, the court determined that Schmitt might be able to cure the deficiencies in her complaint and remanded with instructions to allow such an amendment.
The bulletin describing the Ninth Circuit’s decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.