State Employee Health Plan Waived Sovereign Immunity

The United States Court of Appeals for the Fourth Circuit, applying federal law, denied a motion to dismiss from the defendant North Carolina State Health Plan for Teachers and State Employees (NCSHP), holding instead that NCSHP waived its state sovereign immunity by accepting federal financial assistance. As a result, the plaintiffs, who are transgender NCSHP enrollees, can sue NCSHP for alleged gender discrimination.

NCSHP provides health insurance plans for the employees of North Carolina and their dependents, covering nearly 750,000 individuals. The NCSHP has the power to determine, define, adopt, and remove health care benefits and exclusions. Among the exclusions from coverage is gender-confirming care, which the court regards as “safe, effective, and often medically necessary” treatments that bring the sex-specific characteristics of a transgender individual’s body into alignment with their gender identity.

The plaintiffs filed suit against NCSHP, alleging that the exclusion violated § 1557 of the Affordable Care Act (ACA), which prohibits any health program or activity receiving federal assistance from discriminating on prohibited grounds. NCSHP filed a motion to dismiss, arguing that it was immune from suit under the Eleventh Amendment. The Fourth Circuit affirmed the district’s court denial of NCSHP’s motion, stating that NCSHP had waived its sovereign immunity by accepting federal funds.

A state can waive its own sovereign immunity through an express constitutional or statutory provision, through its conduct in a particular suit, or, as relevant here, by voluntarily participating in a federal program in which Congress has clearly conditioned participation upon a waiver of sovereign immunity. Here, the Fourth Circuit found that clear condition within the Civil Rights Remedies Equalization Act (CRREA), which provides that “[a] State shall not be immune under the Eleventh Amendment [for a violation of] … any other Federal Statute prohibiting discrimination by recipients of Federal financial assistance.”

The Fourth Circuit found this to be a clear condition of assistance and that § 1557 of the ACA was another “Federal statute prohibiting discrimination” as comprehended by CRREA.

In a dissent, Chief Judge Agee stated his disagreement with both holdings, arguing that a clear condition of waiver must be expressed in the relevant statute and not implicated from outside the text of the statute, and that the ACA did not qualify as such a “Federal Statute” for purposes of CRREA because it is not solely concerned with anti-discrimination. The Fourth Circuit’s decision sets up a circuit court split, standing in opposition to the Fifth and Tenth Circuits’ holdings that CRREA applies only to statutes that deal “solely” with discrimination. Nonetheless, by reading CRREA and § 1557 of the ACA together, the Fourth Circuit held that NCSHP waived its sovereign immunity, and could indeed be sued for discrimination due to its administration of health insurance plans, thus denying their motion to dismiss. Kadel v. North Carolina State Health Plan for Teachers and State Employees, No. 20-1409, 2021 WL 3891732 (4th Cir. Sept. 1, 2021).