Healthcare loophole allows employers to deny coverage to transgender people in spite of state laws

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Healthcare loophole allows employers to deny coverage to transgender people in spite of state laws

September 5, 2019

A quiet morning in Seattle, Washington. I wake up, as usual, to my cat dramatically informing me that her food bowl is empty. As I head back to bed, I notice several notifications on my phone: a missed call, a voicemail, and an email. My uniquely American nightmare begins.

The messages on my phone inform me that my request for preauthorization for top surgery has been denied. They tell me–to my confusion–that because my insurance is “self-funded,” gender transition-related costs of any kind are not covered. 

What the heck is self-funded, you ask? For starters, it has nothing to do with what your employer charges you to take part in the insurance plan. Self-funded plans allow companies to construct medical insurance in a way that minimizes the company's expense and ultimately dictates what kind of medical care employees can receive. Some companies do offer so-called “fully insured” plans, but it's not always the kind of thing you ask about before accepting a job.

I can, of course, pay for the procedure out of pocket–for a low price of only $11,000! (The unnegotiated “rack rate”). This rate is in addition to the $3,600 I pay annually for medical insurance premiums (which apparently covers a flu shot and not much else). This rate is $5,000 more than the maximum I expected. I am 21 years old and I have been saving for three years to afford this procedure. I am being given a choice between a bill I can’t pay and an indefinite extension on the physical and emotional suffering I’ve experienced for the past eight years. It’s a quiet summer morning in Seattle, Washington, and I hand my phone to my partner, speechless, as I watch the light at the end of the tunnel flicker out.

As anyone who knows me can tell you, I am not the kind of person to give up easily, nor do I go into any situation without the power of research on my side. So, I spend the morning calling and emailing, googling, and ranting to my friends all the while. 

“It’s a mistake,” I say. “I know my coverage. I know the law. This is Washington State, they can’t just not cover trans things.”

Ah, but they can.

Under Washington State insurance law, “Health insurers must cover procedures that are part of a gender transition process if they're covered for other policyholders for different reasons.” This means that hormones, chest-related surgeries, and therapy must be covered by any insurance plan in Washington State. Unless, of course, you find the handy little loophole known as ERISA. 

ERISA stands for “Employee Retirement Income Security Act of 1974.” It is, ironically, meant to protect employees who receive benefits through private employment. These are employees like my mother, who was absolutely thrilled to switch from paying for an expensive family plan to a new insurance plan with Aetna Meritain when she was hired by MAQ Software–a preferred supplier for Amazon, Microsoft, and many other tech companies who like to advertise their progressive benefits for employees. However, the benefits that are federally protected under ERISA are considerably fewer than those protected by many state-level regulations. Rather than having state-protected benefits added to the ERISA-mandated ones when creating insurance policies, private employers-–like Microsoft and its suppliers–can choose to exclude anything not protected under ERISA from their plans, as long as those companies pay out of pocket for health care rather than offering fully insured plans for their employees.

In case that was confusing (it certainly was the first time I read it):

If your employer pays your health care through a self-funded plan, they can choose to not cover anything that isn’t federally protected through ERISA, no matter what state laws require.

This is where things start to get scary, because ERISA doesn’t cover much. My plan lists 61 exclusions intentionally chosen by the company which insures my family. In addition to “sexual transformation” (an odd term for gender-affirming services including therapy, hormone replacement, and all related surgeries), here is a selection of treatments and conditions that MAQ Software specifically and deliberately chose to exclude:

  • “Expenses for the treatment of autism or autistic spectrum disorders”

  • Cardiac Rehabilitation

  • “Expenses in connection with the treatment of developmental delays” with the exception of ADD

  • Anything related to medical care for feet

  • Hearing Aids

  • Maternity for dependents other than a spouse 

  • Radioactive Contamination

  • Sexual Dysfunction/Impotence

  • “Expenses for the treatment of Illness or Injury resulting from a war or any act of war or terrorism”

Several of these treatments and conditions are protected under many state laws, and even the ACA. However, these protections are rendered meaningless due to the way that the ERISA is written. Thus, ERISA is essentially a free pass for employers to discriminate against almost anyone with specific medical needs. According to a report by the Department of Labor, “The Department estimates that in 2015 there were approximately 2.2 million ERISA-covered health plans covering approximately 136 million people.” That means that, by conservative estimates, around eight million transgender people are currently on a health plan which may discriminate against them. And all 136 million people on these plans, regardless of gender, may be forced to pay for services their own state has deemed a legal necessity.

Everyone in the world is aware of the healthcare crisis in America, but many people don’t understand the role that ERISA plays in this crisis. It’s a loophole that even the most liberal companies take advantage of in order to cut corners and prevent their most vulnerable employees from accessing treatment. Take it from someone who knows–don’t assume that just because you live in a liberal state or work for an “ethical” company that your rights are protected. 

What can you do? 

First: look at your official plan document. It will state whether the plan is self-funded or fully insured. If it's self-funded, review the Exclusions. Then, send a letter to your employer asking them to remove discriminatory exclusions, such as those specific to transition and trans-related healthcare as well as important issues like developmental disabilities and mental health. You can follow the template below, or personalize it as you see fit:

Hi [name of benefits coordinator],

I was really disappointed to learn that the [insurance company name] plan that [your company name] offered is actually a self-funded plan and thus does not have to abide by state and ACA protections for coverage for transgender health care. [Include who on your insurance is affected by this, if anyone, and how devastating it is].

It’s possible for [company] to fix this issue, by requesting that [insurance company] remove the Exclusion, section [#], for Sex Transformation, from your policy. I’m sure this change would be beneficial for many employees at [company] now and in the future. Over the past few years, similar exclusions have been largely eliminated in public programs and private insurance because medical experts, state and federal agencies, and the business community understand the medical benefit and cost effectiveness of providing this treatment. Courts have also found that these types of exclusions are discriminatory and violate federal law.

Please keep me posted on the progress of this request.


[your name]

Next, notify your elected officials–or those hoping to be your elected officials–and ask for their help removing the loophole. 

As my mom says: “Make the next election about healthcare, stupid.”

Because if they can take my medical care, they can take yours, too.


James Washburn is a GLAAD Campus Ambassador and senior at Cornish College of the Arts studying musical theatre direction and playwriting. He has acted as a queer health educator and coordinator in the Bellevue School District and has worked as a diversity advocate with transgender inclusion training at his college.

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