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Transgender Challenge to NYS Medicaid Regs Survives Motion to Dismiss

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US District Judge Jed Rakoff in Manhattan has denied most of New York State’s motion to dismiss a lawsuit challenging a variety of limitations in the state’s Medicaid program handling of gender dysphoria treatment. Rakoff did not immediately issue a written opinion supporting his June 26 ruling, but indicated one would be forthcoming.

Medicaid is a joint federal-state program providing health care coverage for people who lack the financial resources to pay for adequate care. Though states are not required to have a Medicaid program, if they do so they must comply with US government standards in order to be eligible for the federal share of the cost. In general terms, the federal program requires coverage for medically necessary care.

The lawsuit was brought on behalf of a class of transgender Medicaid-eligible New Yorkers seeking various procedures as a part of their gender transition. It was originally filed in June 2014 to challenge a state regulation banning all coverage for sex-reassignment treatments and procedures, which had been adopted during the Pataki Administration in 1998. The lawsuit arose from frustration about the Cuomo administra­tion’s lack of response to continuing demands to change the policy, even as the federal Medicaid and Medicare programs have been evolving toward greater coverage in this area.

Federal judge rejects most of state AG’s arguments

Indeed, several years ago the US Tax Court ruled that gender transition treatment cost could be tax-deductible as medically necessary, reversing a long-time policy, and just weeks ago the federal Office of Personnel Management notified insurance companies covering federal employees that they were required to cover such expenses.

This New York lawsuit soon triggered a response from the state, which adopted a new regulation effective this past March. The new regulation, however, only went part way toward the plaintiffs’ goal of achieving complete coverage for sex-reassignment procedures under Medicaid. They quickly filed an amended complaint.

The old regulation was a blanket prohibition, stating: “Payment is not available for care, services, drugs, or supplies rendered for the purpose of gender-reassignment (also known as transsexual surgery) or any care, services, drugs, or supplies intended to promote such treatment.” The new regulation states that “payment is available for medically necessary hormone therapy and/ or gender-reassignment surgery for the treatment of gender dysphoria.”

Payment for hormone therapy is available even if the individual is not seeking surgical reassignment. In cases of surgery, two qualified state-licensed health care professionals must certify that the individual suffers from gender dysphoria and the surgery is medically necessary. The regulation excludes coverage for people under age 18 and will not cover surgery that would render somebody sterile unless they are at least 21. This is most significant for transgender women, since removing the male genitalia and reproductive system organs always produces sterility. The regulation also explicitly excludes a long list of procedures deemed “cosmetic” and so not “medically necessary,” but which transgender individuals may need in order to accomplish a complete transition consistent with their gender identity.

The lawsuit challenges the exclusions of coverage for younger transgender people and sharply disputes the contention that the procedures labeled as “cosmetic” should be excluded.

The mindset of those who drafted the regulation is exemplified by its explanation that “cosmetic surgery, services, and procedures refers to anything solely directed at improving an individual’s appearance.” But Medicaid covers such procedures in other contexts, such as reparative and cosmetic surgery for somebody who has suffered disfiguring injuries in a fire, auto crash, or similar catastrophe, even though “improving an individual’s appearance” may be the primary goal of a particular procedure.

The complaint spells out the problems encountered by individuals unable to access these procedures. An incomplete transition, the complaint spells out, makes their transgender status obvious, “outing” them and leaving them vulnerable to harassment or worse.

The legal theory behind the lawsuit is that the limitations that persist even under the new regulation violate the state’s obligations under the federal Medicaid statute to cover medically necessary care and also raise constitutional issues of unequal treatment, as transgender people are being excluded from access to treatments and procedures covered in other contexts. The complaint also alleges a violation of the non-discrimination requirements of the Affordable Care Act (ACA).

The attorney general’s office quickly responded to the amended complaint by filing a motion, in the name of Attorney General Eric Schneiderman, to dismiss the case, arguing that 11th Amendment’s guarantee to states of sovereign immunity bars the plaintiffs’ constitutional claims, and that the Medicaid statute’s requirements are not enforceable by individuals in a federal lawsuit. The AG’s office also argued that excluding those under 18 violated no provisions of the statutes the plaintiffs relied on, that the denial of coverage for cosmetic procedures was not “ripe” for review based on the factual allegations in the complaint, and that the complaint raised no plausible claim for violation of the specific Medicaid regulation upon which the plaintiffs relied.

Rakoff rejected most of the AG’s arguments, at least at this early stage of the lawsuit for purposes of determining whether the case should be thrown out or allowed to continue.

According to a summary of his ruling published by the New York Law Journal on June 30, Rakoff declined to dismiss claims related to the “refusal to fully fund the treatment of gender identity disorder or gender dysphoria” including “refusing surgery for those under 18.” He also refused to dismiss a sex-based discrimination claim under the ACA, but granted the state’s motion to dismiss an ACA claim for youth hormone therapy for those under 18. He also dismissed a claim under one section of the Medicaid law requiring the state to have reasonable standards for determining eligibility for the extent of medical assistance.

Rakoff noted that the two parties had agreed to dismiss the equal protection constitutional claim.

The plaintiffs are represented by the Sylvia Rivera Law Project and the Legal Aid Society, with pro bono assistance from lawyers at Willkie Farr & Gallagher LLP.

Sumani Lanka, a Legal Aid Society attorney, told the Law Journal, “The state doesn’t really understand what gender identity is. Gender identity isn’t just reassignment surgery — it has to do with how a person perceives themselves and identifies themselves. It shouldn’t be that the state arbitrarily limits treatment that is medically necessary for gender dysphoria.”

Updated 5:14 pm, July 20, 2018
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