The ACA 1557 Final Regulations: Plans and Plan Sponsors as Covered Entities

By on May 21, 2024

In a recent On the Subject (available here), we reported on the impact of the final rule (final rule) interpreting Section 1557 of the Affordable Care Act (ACA) on self-funded group health plans that contract with licensed health insurance issuers to provide administrative services. That article considered instances in which neither the plan sponsor nor the group health plan was a covered entity for Section 1557 purposes. This post starts by assuming that either the plan sponsor or the group health plan is or at least may be a covered entity.

Section 1557 prohibits discrimination on the basis of race, color, national origin, sex, age or disability, or any combination thereof, in a health program or activity, any part of which is receiving federal financial assistance. The final rule makes clear an employer’s employment practices, including the sponsorship of a group health plan, are not generally subject to the rule. Thus, an employer does not become subject to Section 1557 by simply offering a group health plan, and a group health plan is not a covered entity where it does not receive federal financial assistance. The preamble cites examples of plans that may (or may not) receive federal financial assistance: Employer Group Waiver Plans (EGWPs), Medicare Advantage plans and Medicare Part D plans.

Plan Sponsor/Covered Entity

There are clearly instances in which a plan sponsor is itself a covered entity for Section 1557 purposes. This is the case wherever the plan sponsor is itself principally engaged in providing or administering health programs and activities (e.g., a hospital that accepts Medicare). Where that is the case, all the entities’ operations are also subject to Section 1557. The reference to “all” an entities’ operations usually conjures up images of separate legal entities under common control (e.g., a subsidiary or affiliate of the plan sponsor). But is the covered entity’s group health plan part of the covered entity’s operations? (See, e.g., T.S. v. Heart of CarDon, LLC, holding that Section 1557 applies to all the activities of a covered entity plan sponsor, including its group health plan, regardless of whether the group health plan itself received federal financial assistance.) In the context of the final rule, we are not sure that it matters. The plan sponsor is itself a covered entity that is subject to, and will need to comply with, Section 1557 irrespective of the status of the plan.

Part D and EGWPs

According to the preamble to the final rule, EGWPs, Medicare Advantage plans and Part D plans are covered entities where the plan receives federal financial assistance. EGWPs are types of Medicare Advantage plans or Part D prescription drug plans that qualify for waivers of certain Medicare regulations. Prior to the 2003 Medicare Modernization Act, employer-sponsored Part D coverage was the primary source of coverage for retirees. EGWPs, which came later, provided a more flexible alternative for employers seeking the benefits that could be captured through waivers. Whether the EGWP, Medicare Advantage plan or Part D plan is a covered entity for Section 1557 purposes depends on whether the subsidy goes to the plan sponsor or the plan.

Although some waivers may be restricted to particular entities and/or plans, prescription drug subsidies may generally be paid directly to an employer or to a Medicare Advantage organization or Part D plan sponsor, which is typically a licensed carrier. Where the subsidy is paid to the employer, Section 1557 will not apply (assuming that the plan sponsor is not itself a covered entity, such as a hospital that accepts Medicare). The plan sponsor is not a health program or activity, and the plan does not receive federal financial assistance. But where the subsidy is paid to the plan, then the plan is a covered entity because it is a health program or activity that receives federal financial assistance. This would include most carrier-sponsored arrangements since most carriers qualify as health programs or activities that receive federal financial assistance.

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A special note of thanks to Chris J. Rylands, Esq., Associate General Counsel, ERISA Compliance & Commercial Transactions, Hub International Limited for calling the Part D-related issues discussed above to my attention.

Alden Bianchi
Alden J. Bianchi is an experienced Employee Benefits and Executive Compensation lawyer who advises corporate, not-for-profit, governmental and individual clients on a broad range of executive compensation and employee benefits matters, including qualified and non-qualified retirement plans, health and welfare plans. Read Alden Bianchi's full bio.




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