965 F.3d 945
9th Cir.2020Background
- Plaintiffs Andrea Schmitt and Elizabeth Mohundro are insured by Kaiser and have disabling hearing loss; their Kaiser plans cover cochlear implants but exclude all other hearing-loss treatments (aids, audiologist visits, etc.).
- They filed a putative class action under ACA § 1557, alleging Kaiser’s benefit design discriminates against hearing‑disabled people by categorically excluding non‑cochlear treatments.
- The district court dismissed the second amended complaint for failure to state a claim, reasoning insurers may set benefit scope so long as they implement benefits nondiscriminatorily.
- The Ninth Circuit held the ACA’s nondiscrimination provisions can reach plan benefit design (unlike the narrower scope of the Rehabilitation Act as interpreted in Choate) but found the plaintiffs’ complaint failed to plausibly allege discriminatory intent or a sufficiently tight proxy between hearing loss and disability.
- The court affirmed dismissal of the complaint on the merits but reversed the district court’s refusal to grant leave to amend and remanded so plaintiffs may replead.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §1557 prohibit discriminatory health‑plan benefit design? | §1557 forbids designing benefits in ways that discriminate against disabled people. | §1557 should not limit insurers’ discretion to choose which benefits to offer; Rehab Act governs access, not benefit design. | §1557 can reach benefit design; ACA requires considering needs of persons with disabilities and not designing benefits to discriminate. |
| Does Kaiser's exclusion of non‑cochlear treatment constitute proxy discrimination against the hearing‑disabled? | The categorical exclusion is a proxy for disability because hearing loss correlates with hearing disability. | The exclusion is facially neutral: it applies to both non‑disabled and disabled persons with hearing loss. | Plaintiffs failed to plausibly plead discrimination: the complaint did not show the exclusion predominantly or sufficiently narrowly targeted disabled persons. |
| Does compliance with a state EHB benchmark or the existence of a gender‑dysphoria regulation immunize exclusions? | N/A (plaintiffs argue exclusion violates federal nondiscrimination obligations). | Kaiser argued state benchmark compliance or regulatory structure forecloses §1557 challenge. | State benchmark compliance does not automatically satisfy §1557; a gender‑specific rule does not imply other categorical exclusions are permitted. |
| Was dismissal without leave to amend appropriate? | Plaintiffs sought opportunity to allege additional facts (proxy fit, statistical or other factual detail). | Defendant urged dismissal to be final. | Dismissal for failure to state a claim affirmed, but denial of leave to amend reversed; remand for leave to amend. |
Key Cases Cited
- Alexander v. Choate, 469 U.S. 287 (1985) (Rehabilitation Act “meaningful access” standard and limitation on requiring individualized tailoring of benefits)
- Alexander v. Sandoval, 532 U.S. 275 (2001) (Title VI does not support a private disparate‑impact cause of action)
- Jam v. International Finance Corp., 139 S. Ct. 759 (2019) (statutory interpretation begins with ordinary meaning of text)
- Mark H. v. Lemahieu, 513 F.3d 922 (9th Cir. 2008) (Rehabilitation Act: intentionality standard and ‘‘deliberate indifference’’ for damages)
- Rice v. Cayetano, 528 U.S. 495 (2000) (ancestry can operate as a proxy for a protected classification)
- Davis v. Guam, 932 F.3d 822 (9th Cir. 2019) (discussion of proxy discrimination and how over‑inclusiveness affects inference)
- Lopez v. Smith, 203 F.3d 1122 (9th Cir. 2000) (district courts should generally grant leave to amend unless amendment would be futile)