Andrea Schmitt v. Kaiser Foundation Health Plan

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ANDREA SCHMITT, on her own No. 18-35846

behalf, and on behalf of all similarly

situated individuals; ELIZABETH D.C. No.

MOHUNDRO, on her own behalf, and 2:17-cv-01611-

on behalf of all similarly situated RSL

individuals,

Plaintiffs-Appellants,

OPINION

v.

KAISER FOUNDATION HEALTH PLAN

OF WASHINGTON; KAISER

FOUNDATION HEALTH PLAN OF THE

NORTHWEST; KAISER FOUNDATION

HEALTH PLAN, INC.,

Defendants-Appellees.

Appeal from the United States District Court

for the Western District of Washington

Robert S. Lasnik, District Judge, Presiding

Argued and Submitted November 8, 2019

Seattle, Washington

Filed July 14, 2020

2 SCHMITT V. KAISER FOUND. HEALTH PLAN

Before: Ronald M. Gould and Jacqueline H. Nguyen,

Circuit Judges, and Gregory A. Presnell, * District Judge.

Opinion by Judge Nguyen

SUMMARY **

Patient Protection and Affordable Care Act

The panel affirmed in part and reversed in part the

district court’s dismissal without leave to amend of an action

alleging that a health insurer violated the Patient Protection

and Affordable Care Act’s nondiscrimination mandate by

excluding coverage of all hearing loss treatment except

cochlear implants.

Plaintiffs claimed that the insurer’s plans discriminated

against hearing disabled people in violation of section 1557

of the ACA, which incorporates by reference the grounds

protected by four earlier nondiscrimination statutes,

including the Rehabilitation Act, and prohibits

discrimination on those grounds in the health care system,

including in health care contracts. The panel agreed with the

district court that plaintiffs failed to state a plausible

discrimination claim. The panel held that the ADA

specifically prohibits discrimination in plan benefit design,

and a categorical exclusion of treatment for hearing loss

*

The Honorable Gregory A. Presnell, United States District Judge

for the Middle District of Florida, sitting by designation.

**

This summary constitutes no part of the opinion of the court. It

has been prepared by court staff for the convenience of the reader.

SCHMITT V. KAISER FOUND. HEALTH PLAN 3

would raise an inference of discrimination against hearing

disabled people notwithstanding that it would also adversely

affect individuals with nondisabling hearing loss. But the

exclusion here was not categorical. The panel held that

while the insurer’s coverage of cochlear implants was

inadequate to serve plaintiffs’ health needs, it might

adequately serve the needs of hearing disabled people as a

group. Because amendment might not be futile, the panel

reversed the district court’s dismissal without leave to amend

and remanded.

COUNSEL

Eleanor Hamburger (argued) and Richard E. Spoonemore,

Sirianni Youtz Spoonemore Hamburger PLLC, Seattle,

Washington, for Plaintiffs-Appellants.

Medora A. Marisseau (argued) and Mark A. Bailey, Karr

Tuttle Campbell, Seattle, Washington, for Defendants-

Appellees.

Huma Zarif, Northwest Health Law Advocates, Seattle,

Washington; Sarah Somers, Elizabeth Edwards, and Wayne

Turner, National Health Law Program, Carrboro, North

Carolina; for Amici Curiae National Health Law Program

and Northwest Health Law Advocates.

Carly A. Myers, Silvia Yee, and Arlene B. Mayerson,

Disability Rights Education & Defense Fund, Berkeley,

California, for Amici Curiae Disability Rights Education

and Defense Fund; National Association of the Deaf;

Bazelon Center for Mental Health Law; Hearing Loss

Association of America; Hearing Loss Association, Oregon

State Association; Washington State Communication

4 SCHMITT V. KAISER FOUND. HEALTH PLAN

Access Project; Oregon Communication Access Project; and

California Communication Access Project.

OPINION

NGUYEN, Circuit Judge:

Section 1557 of the Patient Protection and Affordable

Care Act (“ACA”), 42 U.S.C. § 18116, prohibits covered

health insurers from discriminating based on various

grounds, including disability. Prior to the ACA’s enactment,

an insurer could generally design plans to offer or exclude

benefits as it saw fit without violating federal

antidiscrimination law—in particular, the Rehabilitation

Act—so long as the insurer did not discriminate against

disabled people in providing treatment for whatever

conditions it chose to cover. The primary issue before us is

whether the ACA’s nondiscrimination mandate imposes any

constraints on a health insurer’s selection of plan benefits.

We hold that it does.

Andrea Schmitt and Elizabeth Mohundro have hearing

loss severe enough to qualify them as disabled. They require

treatment other than cochlear implants, but their Kaiser

health insurance plans exclude all hearing loss treatment

except cochlear implants. In a putative class action, Schmitt

and Mohundro allege that Kaiser violated section 1557 when

designing plan benefits. They claim that Kaiser’s

categorical exclusion of most hearing loss treatment

discriminates against hearing disabled people. The district

court ruled that Kaiser’s plans do not exclude benefits based

on disability because the plans treat individuals with hearing

loss alike, regardless of whether their hearing loss is

disabling.

SCHMITT V. KAISER FOUND. HEALTH PLAN 5

We agree with the district court that Schmitt and

Mohundro have failed to state a plausible discrimination

claim. The ACA specifically prohibits discrimination in

plan benefit design, and a categorical exclusion of treatment

for hearing loss would raise an inference of discrimination

against hearing disabled people notwithstanding that it

would also adversely affect individuals with non-disabling

hearing loss. But the exclusion here is not categorical.

While Kaiser’s coverage of cochlear implants is inadequate

to serve Schmitt and Mohundro’s health needs, it may

adequately serve the needs of hearing disabled people as a

group. Because the pleadings do not suggest otherwise, we

affirm the district court’s dismissal of the second amended

complaint. But because amendment may not be futile, we

reverse the district court’s dismissal without leave to amend

and remand so that Schmitt and Mohundro have that

opportunity.

I. Statutory Background

A. Essential Health Benefits

Congress enacted the ACA “to increase the number of

Americans covered by health insurance and decrease the cost

of health care.” Nat’l Fed’n of Indep. Bus. v. Sebelius,

567 U.S. 519, 538 (2012). The ACA requires most

Americans to maintain “minimum essential coverage,”

26 U.S.C. § 5000A(a), which they can do through a variety

of health insurance plans, such as those provided by their

employer or the government or purchased directly from

private carriers. See id. § 5000A(f). Plans that insurers offer

to individuals and small employers must include an

6 SCHMITT V. KAISER FOUND. HEALTH PLAN

“essential health benefits package.” 1 42 U.S.C. § 300gg-

6(a); see also 45 C.F.R. § 147.150(a) (“A health insurance

issuer offering health insurance coverage in the individual or

small group market must ensure that such coverage includes

the essential health benefits package . . . .”).

The ACA directs the Secretary of Health and Human

Services to define, subject to certain constraints, the

“essential health benefits” that plans in the individual and

small group markets must cover. 42 U.S.C. § 18022(b)(1).

The definition must include at least ten specified “general

categories” of benefits, including “[r]ehabilitative and

habilitative services and devices,” 2 as well as the “items and

services” within those categories. Id. § 18022(b)(1),

(b)(1)(G). The scope of coverage must be “equal to the

scope of benefits provided under a typical employer plan,”

and the agency must conduct “a survey of employer-

sponsored coverage” to inform its determination. Id.

§ 18022(b)(2)(A).

Under agency regulations, an insurer providing essential

health benefits must offer benefits that are “substantially

equal” to a “benchmark” plan set by the state. 45 C.F.R.

§ 156.115(a)(1). The State of Washington selects as its

1

A “small” employer generally has no more than 50 employees, but

states can extend the definition to encompass up to 100 employees. See

42 U.S.C. § 18024 (b)(2)–(3).

2

The other categories are: “[a]mbulatory patient services”;

“[e]mergency services”; “[h]ospitalization”; “[m]aternity and newborn

care”; “[m]ental health and substance use disorder services, including

behavioral health treatment”; “[p]rescription drugs”; “[l]aboratory

services”; “[p]reventive and wellness services and chronic disease

management”; and “[p]ediatric services, including oral and vision care.”

42 U.S.C. § 18022(b)(1)(A)–(F), (H)–(J).

SCHMITT V. KAISER FOUND. HEALTH PLAN 7

benchmark plan “the largest small group plan in the state by

enrollment,” which it supplements “as needed” to ensure

coverage of “all of the ten essential health benefits

categories.” Wash. Rev. Code § 48.43.715(1)–(2); accord

45 C.F.R. § 156.100(a)(1). Washington’s benchmark plan

includes cochlear implants as “rehabilitative services” but

excludes “[h]earing aids other than cochlear implants.”

Wash. Admin. Code § XXX-XX-XXXX(7)(b)(i), (c)(iv).

B. Nondiscrimination Statutes

1. The Rehabilitation Act

The Rehabilitation Act of 1973, 29 U.S.C. § 701 et seq.,

was the first major federal statute designed to protect the

rights of individuals with disabilities. Smith v. Barton,

914 F.2d 1330, 1338 (9th Cir. 1990). Its linchpin, section

504, “creates a private right of action for individuals

subjected to disability discrimination.” Fleming v. Yuma

Reg’l Med. Ctr., 587 F.3d 938, 940 (9th Cir. 2009); see

29 U.S.C. § 794a(a)(2).

Section 504 broadly provides that “[n]o otherwise

qualified individual with a disability . . . shall, solely by

reason of her or his disability, be excluded from the

participation in, be denied the benefits of, or be subjected to

discrimination under any [federally funded] program or

activity.” 29 U.S.C. § 794(a). However, section 504 does

not require an insurer to design plan benefits so as to avoid

imposing a disproportionate burden on disabled people—the

insurer need only provide disabled people “meaningful

access” to whatever benefits it chooses to offer. Alexander

v. Choate, 469 U.S. 287, 301 (1985). In Choate, the

Supreme Court rejected a Rehabilitation Act challenge to a

state Medicaid regulation that adversely affected a

disproportionate number of disabled users of hospital

8 SCHMITT V. KAISER FOUND. HEALTH PLAN

services. Id. at 289. The Court reasoned that the rule applied

equally to disabled and non-disabled people, noting that it

was “neutral on its face, [was] not alleged to rest on a

discriminatory motive, and [did] not deny [disabled people]

access to or exclude them from the particular package of

Medicaid services [the state had] chosen to provide.” Id.

at 309.

2. The Affordable Care Act

Section 1557 of the ACA prohibits certain types of

discrimination in health care. It does so by referencing four

other statutes, including section 504 of the Rehabilitation

Act, that address discrimination based on various suspect

grounds: “race, color, or national origin,” 42 U.S.C. § 2000d,

“age,” id. § 6101, “sex,” 20 U.S.C. § 1681, and “disability,”

29 U.S.C. § 794(a). See 42 U.S.C. § 18116(a). Section 1557

provides that “an individual shall not, on the ground

prohibited under [the four enumerated statutes] . . . , be

excluded from participation in, be denied the benefits of, or

be subjected to discrimination under, any health program or

activity” receiving federal funding, “including . . . contracts

of insurance.” Id.

C. Factual and Procedural History

Schmitt and Mohundro are insured by Kaiser under

policies offered through their respective employers. 3 They

both have been diagnosed with disabling hearing loss. They

require treatment other than cochlear implants, such as

outpatient office visits to a licensed audiologist and hearing

3

Schmitt is insured by defendant Kaiser Foundation Health Plan of

Washington, and Mohundro is insured by Kaiser Foundation Health Plan

of Washington Options Inc. We refer to these entities and the other

named defendants collectively as “Kaiser.”

SCHMITT V. KAISER FOUND. HEALTH PLAN 9

aids or other durable medical equipment or prosthetic

devices. Their Kaiser policies cover cochlear implants and

related screening tests but exclude all other programs or

treatments for hearing loss and hearing care.

In October 2017, Schmitt and Mohundro filed this class

action against Kaiser, asserting a single claim under the

ACA. 4 They alleged that Kaiser’s exclusion of all

treatments for hearing loss other than cochlear implants

discriminates against putative class members on the basis of

their disability in violation of section 1557. The district

court granted Kaiser’s motion to dismiss their second

amended complaint for failure to state a claim and entered

judgment.

The district court concluded that “insurers have

discretion” over “the scope of benefits provided in the first

instance” so long as they “provide [the] benefits offered in a

non-discriminatory manner.” It therefore ruled that Schmitt

and Mohundro’s allegations “do not . . . give rise to a

plausible inference that they were excluded from

participation in or denied the benefits of their health plan

under . . . the ACA” because “[t]he benefits plaintiffs seek

are not part of the plan in which they participate.” Although

the court suggested that a coverage exclusion or limitation

might “be impermissible and a violation Section 1557 if it

were motivated by discriminatory intent,” it did not address

the issue. The court found that Schmitt and Mohundro failed

to raise an inference of discrimination because “the hearing

loss exclusion . . . is not designed with reference to a

4

Mohundro was added as a plaintiff in the second amended

complaint.

10 SCHMITT V. KAISER FOUND. HEALTH PLAN

disability and applies to both disabled and nondisabled plan

participants.”

II. Jurisdiction and Standard of Review

The district court had jurisdiction pursuant to 28 U.S.C.

§ 1331, and we have jurisdiction pursuant to 28 U.S.C.

§ 1291. We review de novo the district court’s dismissal of

the operative complaint for failure to state a claim. See

Segalman v. Sw. Airlines Co., 895 F.3d 1219, 1222 (9th Cir.

2018).

III. Discussion

A. Legal Standards Governing a Discrimination Claim

Under Section 1557

Applying section 1557 requires an understanding of its

relationship to previous civil rights statutes. Section 1557

incorporates by reference the grounds protected by four

earlier nondiscrimination statutes and prohibits

discrimination on those grounds in the health care system—

as relevant here, in health insurance contracts. See 42 U.S.C.

§ 18116(a). In addition to the Rehabilitation Act, section

1557 invokes Title VI of the Civil Rights Act of 1964 (“Title

VI”), 42 U.S.C. § 2000d, Title IX of the Education

Amendments Act of 1972 (“Title IX”), 20 U.S.C. § 1681,

and the Age Discrimination Act of 1972, 42 U.S.C. § 6101.

Congress occasionally drafts statutes by referencing the

substantive provisions of earlier-enacted laws. See Panama

R.R. v. Johnson, 264 U.S. 375, 391–92 (1924) (observing

that “a generic reference” to an existing statute “is a

recognized mode of incorporating one statute or system of

statutes into another, and serves to bring into the latter all

that is fairly covered by the reference”). The question is how

SCHMITT V. KAISER FOUND. HEALTH PLAN 11

much of the earlier statutes Congress meant to incorporate.

As usual, we start with the statute’s text. See Jam v. Int’l

Fin. Corp., 139 S. Ct. 759, 769 (2019) (“[A]bsent a clearly

expressed legislative intention to the contrary . . . the

legislative purpose is expressed by the ordinary meaning of

the words used.” (quoting Am. Tobacco Co. v. Patterson,

456 U.S. 63, 68 (1982))).

(a) In general

Except as otherwise provided for in [the

ACA or its amendments], an individual

shall not, on the ground prohibited under

[Title VI], [Title IX], the Age

Discrimination Act . . . , or [the

Rehabilitation Act], be excluded from

participation in, be denied the benefits of,

or be subjected to discrimination under,

any [federally funded] health program or

activity .... The enforcement

mechanisms provided for and available

under such [T]itle VI, [T]itle IX,

[Rehabilitation Act], or such Age

Discrimination Act shall apply for

purposes of violations of this subsection.

(b) Continued application of laws

Nothing in [the ACA or its amendments]

shall be construed to invalidate or limit

the rights, remedies, procedures, or legal

standards available to individuals

aggrieved under [Title VI], [Title VII of

the Civil Rights Act of 1964, 42 U.S.C.

§ 2000e et seq.], [Title IX], [the

12 SCHMITT V. KAISER FOUND. HEALTH PLAN

Rehabilitation Act], or the Age

Discrimination Act . . . , or to supersede

State laws that provide additional

protections against discrimination on any

basis described in subsection (a).

42 U.S.C. § 18116.

The first sentence of section 1557(a) is similar to the first

sentence of section 504 of the Rehabilitation Act. Both

statutes provide that an individual with a disability shall not,

on that ground, “be excluded from the participation in, be

denied the benefits of, or be subjected to discrimination

under any [federally-funded health] program or activity.”

29 U.S.C. § 794(a); accord 42 U.S.C. § 18116(a).

But the two statutes are dissimilar in two respects. First,

they differ in scope. Section 1557 is both broader and

narrower than the Rehabilitation Act. It is broader because

the Rehabilitation Act addresses only disability

discrimination, and section 1557 concerns discrimination

based on several additional grounds. It is narrower because

the Rehabilitation Act addresses disability discrimination

generally whereas section 1557 is limited to discrimination

in the context of health programs or activities.

Second, the Rehabilitation Act prohibits discrimination

“solely by reason of [an individual’s] disability,” 29 U.S.C.

§ 794(a) (emphasis added), while section 1557 prohibits

discrimination “on the ground prohibited under . . . [the

Rehabilitation Act],” 42 U.S.C. § 18116(a), i.e., on the

ground of disability. In this regard, section 1557 is worded

more similarly to the other three statutes it references. See

42 U.S.C. § 2000d (prohibiting discrimination “on the

ground of race, color, or national origin”); 20 U.S.C.

§ 1681(a) (same “on the basis of sex”); 42 U.S.C. § 6102

SCHMITT V. KAISER FOUND. HEALTH PLAN 13

(same “on the basis of age”). While section 1557’s omission

of the modifier “solely” could point to a less strict causal

standard than under the Rehabilitation Act, see K.M. ex rel.

Bright v. Tustin Unified Sch. Dist., 725 F.3d 1088, 1099 (9th

Cir. 2013), that presupposes a single legal standard

governing all section 1557 claims rather than separate

standards for each protected classification drawn from case

law interpreting the incorporated statutes.

The text is ambiguous on this score. Section 1557(a)

incorporates only the prohibited “ground[s]” and “[t]he

enforcement mechanisms provided for and available under”

the four civil rights statutes. A prohibited “ground” for

discrimination is not typically understood to encompass the

legal elements necessary to establish a discrimination claim;

it is simply the protected classification at issue. See, e.g.,

Perry v. Merit Sys. Prot. Bd., 137 S. Ct. 1975, 1982 (2017)

(“He alleged discrimination on grounds of race, age, and

disability . . . .”). And “enforcement mechanism” may mean

no more than “the process for compelling compliance with a

substantive right, not the substantive right itself.” Doe v.

BlueCross BlueShield of Tenn., Inc., 926 F.3d 235, 239 (6th

Cir. 2019). Even if one assumes that “enforcement

mechanisms” includes the claims available under the four

statutes and the standards used to evaluate them, it is unclear

from section 1557’s text whether a plaintiff alleging one type

of discrimination can utilize any of the statutes’ enforcement

mechanisms or only the one corresponding to the

classification at issue.

The agency appears to have taken the view that a plaintiff

may take advantage of enforcement mechanisms available in

any of the four incorporated statutes. In response to

regulations proposed by the Department of Health and

Human Services’ Office of Civil Rights (“OCR”), several

14 SCHMITT V. KAISER FOUND. HEALTH PLAN

commenters sought clarification “that all enforcement

mechanisms available under the statutes listed in [s]ection

1557 are available to each [s]ection 1557 plaintiff, regardless

of the plaintiff’s protected class.” Nondiscrimination in

Health Programs and Activities, 81 Fed. Reg. 31,375, 31,439

(May 18, 2016). Their concern was the availability of a

disparate impact theory of discrimination—they believed

that Title VI did not allow it but the other three statutes did.

See id. at 31,440. OCR responded that it “interprets [s]ection

1557 as authorizing a private right of action for claims of

disparate impact discrimination on the basis of any of the

criteria enumerated in the legislation.” Id.

Ordinarily, we would defer to an agency’s reasonable

interpretation of an ambiguous statute that it administers.

See Rust v. Sullivan, 500 U.S. 173, 184 (1991). Here,

however, OCR’s interpretation appears to be based on the

assumption that certain civil rights statutes permit disparate

impact claims, an assumption that may not be accurate.

Title VI served as the model for Title IX, the Age

Discrimination Act, and the Rehabilitation Act, so we

interpret the four statutes similarly. See U.S. Dep’t of

Transp. v. Paralyzed Veterans of Am., 477 U.S. 597, 600 n.4

(1986); see also Nat’l Coll. Athletic Ass’n v. Smith, 525 U.S.

459, 466 n.3 (1999) (noting that the statutes are “defined in

nearly identical terms”). Title VI implies a private right of

action for intentional discrimination. See Alexander v.

Sandoval, 532 U.S. 275, 279–80 (2001). For a time, the

Supreme Court had construed Title VI to allow disparate

impact claims as well. See Lau v. Nichols, 414 U.S. 563, 568

(1974) (“Discrimination is barred which has that effect even

though no purposeful design is present . . . .”). Sandoval

shut that door. See Sandoval, 532 U.S. at 285 (“[W]e have

SCHMITT V. KAISER FOUND. HEALTH PLAN 15

since rejected Lau’s interpretation of [Title VI] as reaching

beyond intentional discrimination.”).

Before the disparate impact door closed, though, we and

other circuits relied on the Title VI authority to hold that the

Rehabilitation Act permits disparate impact claims. See,

e.g., Crowder v. Kitagawa, 81 F.3d 1480, 1484 (9th Cir.

1996); Prewitt v. U.S. Postal Serv., 662 F.2d 292, 306 (5th

Cir. Unit A Nov. 1981); NAACP v. Med. Ctr., Inc., 657 F.2d

1322, 1331 (3d Cir. 1981) (en banc). Although it is unclear

whether a disparate impact theory remains permissible under

the Rehabilitation Act after Sandoval, we need not reach that

issue because here Schmitt and Mohundro did not allege a

disparate impact claim.

Given the similar analytical framework applied to claims

under Title VI, Title IX, the Age Discrimination Act, and the

Rehabilitation Act, we need not decide whether section 1557

incorporates their legal standards and, if so, how. The

parties agree, and we can assume, that the case law

construing the Rehabilitation Act generally applies to claims

under section 1557 for disability discrimination by a health

care insurer.

A Rehabilitation Act claim requires a showing that

(1) the plaintiff is an individual with a disability; (2) she is

otherwise qualified to receive the benefit; (3) she was denied

the benefits of the program solely by reason of her disability;

and (4) the program receives federal financial assistance.

Updike v. Multnomah County, 870 F.3d 939, 949 (9th Cir.

2017), cert. denied, 139 S. Ct. 55 (2018). While a private

plaintiff must show intentional discrimination under the

statutes modeled after Title VI, we interpret this requirement

“somewhat more broadly” for Rehabilitation Act claims in

16 SCHMITT V. KAISER FOUND. HEALTH PLAN

light of that statute’s purpose. 5 Mark H. v. Lemahieu,

513 F.3d 922, 937 (9th Cir. 2008). The claim at issue here—

that Kaiser designed its plan benefits in a discriminatory

way—inherently involves intentional conduct. 6 See id.

at 936 (“To ‘design’ something to produce a certain, equal

outcome involves some measure of intentionality.”).

B. The ACA Prohibits Discrimination in the Design of

Plan Benefits

The ACA provides that “[i]n defining the essential health

benefits,” the agency must “take into account the health care

needs of diverse segments of the population, including . . .

persons with disabilities,” and “not make coverage decisions

. . . or design benefits in ways that discriminate against

individuals because of their . . . disability.” 42 U.S.C.

§ 18022(b)(4)(B)–(C) (emphasis added). In line with this

directive, the agency promulgated a regulation that an

insurer “does not provide [essential health benefits] if its

benefit design, or the implementation of its benefit design,

discriminates based on an individual’s . . . present or

predicted disability . . . , or other health conditions.”

5

In drafting the Rehabilitation Act, Congress perceived

discrimination against disabled persons “to be most often the product,

not of invidious animus, but rather of thoughtlessness and indifference.”

Choate, 469 U.S. at 295. “[M]uch of the conduct that Congress sought

to alter . . . would be difficult if not impossible to reach were the

[Rehabilitation] Act construed to proscribe only conduct fueled by a

discriminatory intent.” Id. at 296–97. Choate’s “meaningful access”

standard was an attempt to honor Congressional intent while “keep[ing]

§ 504 within manageable bounds.” Id. at 299.

6

To be entitled to monetary damages, however, Schmitt and

Mohundro “must prove a mens rea of ‘intentional discrimination’ . . . by

showing ‘deliberate indifference’ [or] ‘discriminatory animus.’” Mark

H., 513 F.3d at 938.

SCHMITT V. KAISER FOUND. HEALTH PLAN 17

45 C.F.R. § 156.125(a). Another regulation prohibits health

insurers from “[having] or implement[ing] . . . benefit

designs that discriminate on the basis of . . . disability.” Id.

§ 92.207(b)(2). Benefit design, though intentionally

undefined, “includ[es] covered benefits, benefits limitations

or restrictions, and cost-sharing mechanisms, such as

coinsurance, copayments, and deductibles.”

Nondiscrimination in Health Programs and Activities,

81 Fed. Reg. at 31,376 (emphasis added).

In holding that the Rehabilitation Act does not cover

discriminatory plan benefit design, the Supreme Court

rejected a group of Medicaid recipients’ attempt to define the

benefit at issue as “the amorphous objective of ‘adequate

health care.’” Choate, 469 U.S. at 303. “Medicaid

programs,” the Court explained, “do not guarantee that each

recipient will receive that level of health care precisely

tailored to his or her particular needs,” id., and states have

long had “discretion to choose the proper mix of amount,

scope, and duration limitations on services covered by state

Medicaid.” Id. at 307. The Rehabilitation Act does not

impose a general requirement on “each recipient of federal

funds first to evaluate the effect on [disabled people] of

every proposed action that might touch [their] interests . . . ,

and then to consider alternatives for achieving the same

objectives with less severe disadvantage to [them].” Id.

at 298, 307.

The ACA, in contrast, does almost all of this. While it

does not guarantee individually tailored health care plans, it

attempts to provide adequate health care to as many

individuals as possible by requiring insurers to provide

essential health benefits. And it imposes an affirmative

obligation not to discriminate in the provision of health

care—in particular, to consider the needs of disabled people

18 SCHMITT V. KAISER FOUND. HEALTH PLAN

and not design plan benefits in ways that discriminate

against them.

Thus, the ACA allows a claim for discriminatory benefit

design notwithstanding that, under Choate, the

Rehabilitation Act does not. In arguing otherwise, Kaiser

relies on several incorrect assumptions.

1. Compliance with a state’s benchmark plan does

not guarantee compliance with section 1557

Kaiser assumes that an insurer’s compliance with the

essential health benefits in a state’s benchmark plan was

sufficient to comply with the ACA’s nondiscrimination

requirement. According to Kaiser, “[t]he ACA did not

include hearing aids or services as an [essential health

benefit]” and the Secretary of Health and Human Services

“left it to each state to articulate the scope of essential health

benefits . . . through the adoption of a ‘benchmark’ plan.”

As discussed, the ACA requires that essential health

benefits not only include the ten specified categories of

coverage, but also take into account the needs of persons

with disabilities and not be designed in ways that

discriminate against them. See 42 U.S.C. § 18022(b)(4)(B)–

(C). The ten general categories of benefits were intended to

be a minimum requirement, see id. § 18022(b)(1)

(“[Essential health] benefits shall include at least the

following . . . .”), subject to additional limitations and

“[r]equired elements for consideration,” id. § 18022(b)(4),

such as nondiscrimination in benefit design.

ACA regulations also make clear that a state-selected

benchmark plan is only the starting point for determining

essential health benefits. They define “base-benchmark

plan” to mean “the plan that is selected by a State from the

SCHMITT V. KAISER FOUND. HEALTH PLAN 19

options [provided for by regulation], prior to any

adjustments made pursuant to the benchmark standards.”

45 C.F.R. § 156.20 (emphasis added). The regulations

distinguish the base-benchmark plan selected by a state from

an “EHB-benchmark plan,” which is “the standardized set of

essential health benefits that must be met” by an insurer. Id.

“In order to become an EHB-benchmark plan . . . , a state-

selected base-benchmark plan must meet the

requirements for coverage of benefits and limits described in

[45 C.F.R.] § 156.110”—i.e., the benchmark standards. Id.

§ 156.100(b). 7

The benchmark standards require the benchmark plan to

include the ten essential benefit categories, 45 C.F.R.

§ 156.110(a), but they also require that the plan “[n]ot

include discriminatory benefit designs that contravene the

non-discrimination standards,” id. § 156.110(d). The

nondiscrimination standards, in turn, provide that an insurer

“does not provide [essential health benefits] if its benefit

design . . . discriminates based on an individual’s . . . present

or predicted disability . . . or other health conditions.” Id.

§ 156.125(a).

Congress authorized the Secretary of Health and Human

Services to promulgate regulations implementing the

nondiscrimination provision in section 1557 specifically.

See 42 U.S.C. § 18116(c). In doing so, OCR explained that

compliance with federal and state law regarding essential

7

This was the regulation in effect for the plan years prior to 2020.

The regulation currently in effect similarly provides that a state’s EHB-

benchmark plan must “[p]rovide benefits for diverse segments of the

population, including . . . persons with disabilities,” and “[n]ot include

discriminatory benefit designs that contravene the non-discrimination

standards defined in [45 C.F.R.] § 156.125.” 45 C.F.R.

§ 156.111(b)(2)(iv)–(v).

20 SCHMITT V. KAISER FOUND. HEALTH PLAN

health benefits did not guarantee compliance with the ACA’s

nondiscrimination requirement. Commenters on the

proposed regulations expressed concern that “a State might

approve a plan that OCR might later find discriminatory,”

and they suggested “allow[ing] issuers to be deemed

compliant with [s]ection 1557 if they are compliant with

existing Federal or State law.” Nondiscrimination in Health

Programs and Activities, 81 Fed. Reg. at 31,377. The

agency rejected this suggestion, finding that it would be

“inappropriate to define requirements under Federal law

based on what could be the varying, and potentially

changing, requirements of different States’ approaches.” Id.

at 31,377–78. The agency observed that its approach “is

consistent with the approach taken by other agencies to civil

rights obligations, in which compliance with one set of

requirements, adopted under different laws or for different

purposes, is not considered automatic compliance with civil

rights obligations.” Id. at 31,378.

The State of Washington does not even require

compliance with section 1557 when its insurance

commissioner establishes the state’s benchmark plan. The

relevant statute provides that the insurance commissioner

“[m]ust ensure that the [benchmark] plan covers the ten

essential health benefits categories,” and “[m]ay consider

whether the health plan has a benefit design that would

create a risk of biased selection based on health status and

whether the health plan contains meaningful scope and level

of benefits in each of the ten essential health benefits

categories.” Wash. Rev. Code Ann. § 48.43.715(3)(a)–(b)

(emphasis added). But even if a state required its benchmark

plan to incorporate nondiscrimination principles, whether or

not it complied with section 1557 is a question of federal law

on which we owe the state no deference. Cf. Coeur D’Alene

Tribe of Idaho v. Hammond, 384 F.3d 674, 682–83 (9th Cir.

SCHMITT V. KAISER FOUND. HEALTH PLAN 21

2004) (“[A] question of federal law . . . cannot be

conclusively resolved in and of itself by the state

legislature’s mere statement.”).

2. The specific regulation prohibiting categorical

coverage exclusions for gender transition

treatment does not implicitly sanction categorical

coverage exclusions for other conditions

The regulations implementing section 1557 prohibit

“categorical coverage exclusion[s] or limitation[s] for all

health services related to gender transition.” 45 C.F.R.

§ 92.207(b)(4). Kaiser assumes that the agency’s inclusion

of a regulation specific to gender dysphoria signals the

agency’s implicit unwillingness to prohibit similar

categorical exclusions for treatments of other conditions.

Application of the canon expressio unius est exclusio

alterius might be understandable in the abstract, see, e.g.,

Murray v. Mayo Clinic, 934 F.3d 1101, 1107 (9th Cir. 2019),

cert. denied, No. 19-995 (U.S. Apr. 27, 2020), though we

have rejected it in similar circumstances, see Mark H. v.

Hamamoto, 620 F.3d 1090, 1100 (9th Cir. 2010) (“That one

regulation identifies a specific requirement for compliance

with the Rehabilitation Act § 504 . . . does not negate the

broader rule that a federally funded entity violates the

Rehabilitation Act § 504 if it denies a qualified disabled

person the reasonable accommodation that the person needs

in order to enjoy meaningful access to a program or

service.”). In any event, the agency explained that that was

not its intent.

The agency “received a number of comments requesting

that OCR add language to [45 C.F.R.] § 92.207(b) clarifying

that categorical exclusions of certain conditions, such as

coverage related to developmental disabilities or maternity

22 SCHMITT V. KAISER FOUND. HEALTH PLAN

care, are prohibited.” Nondiscrimination in Health

Programs and Activities, 81 Fed. Reg. at 31,434. The

agency declined to do so. Critically, however, it

acknowledged that “categorical exclusions of all coverage

related to certain conditions could raise significant

compliance concerns under [s]ection 1557.” Id. The agency

did not provide more explicit guidance because it believed

that “existing regulatory language is sufficient to address this

scenario.” Id.

The reason for a special regulation pertaining to gender

transition was that blanket exclusions of treatment have

historically been justified “because [the treatments] have

been viewed as cosmetic or experimental.” Id. Because a

treatment exclusion on these grounds could be seen as a

nondiscriminatory reason that comports with section 1557,

the agency clarified that it does not share that view. See id.

at 31,435 (“[T]he across-the-board categorization of all

transition-related treatment, for example as experimental, is

outdated and not based on current standards of care.”).

3. Requiring nondiscriminatory plan benefit design

does not require insurers to cover all treatment

Kaiser also assumes that if the ACA’s nondiscrimination

provision applies to plan benefit design, “every federally-

funded health insurer would need to immediately amend its

health plans and policies to cover hearing aids and related

services, and by extension, all other services and equipment

that might treat any other potentially disabling conditions.”

But the agency made clear that while discriminatory benefit

design is incompatible with essential health benefits, see

45 C.F.R. § 156.125(a), “[n]othing . . . prevent[s] an issuer

from appropriately utilizing reasonable medical

management techniques,” id. § 156.125(c).

SCHMITT V. KAISER FOUND. HEALTH PLAN 23

The final rule does not . . . require covered

entities to cover any particular procedure

or treatment. It also does not preclude a

covered entity from applying neutral,

nondiscriminatory standards that govern the

circumstances in which it will offer coverage

to all its enrollees in a nondiscriminatory

manner. The rule prohibits a covered entity

from employing benefit design or program

administration practices that operate in a

discriminatory manner.

Nondiscrimination in Health Programs and Activities,

81 Fed. Reg. at 31,434.

It is possible that Kaiser has a reasonable,

nondiscriminatory reason for its blanket exclusion of

treatment for hearing loss other than cochlear implants.

Even if Schmitt and Mohundro ultimately prevail in this

litigation and Kaiser is forced to withdraw its blanket

prohibition on coverage for hearing loss treatment other than

cochlear implants, it still could exclude specific hearing loss

treatments based on nondiscriminatory standards. For

example, it may be reasonable for Kaiser to exclude

coverage of a particular hearing loss treatment that is

experimental or has a high cost-to-benefit ratio. At this stage

in the litigation, however, the question is whether the blanket

exclusion of non-cochlear treatment raises an inference of

discrimination.

C. The Second Amended Complaint Fails to State a

Claim

Schmitt and Mohundro argue that Kaiser’s categorical

exclusion of coverage for hearing loss treatment other than

cochlear implants is a form of proxy discrimination. “[Proxy

24 SCHMITT V. KAISER FOUND. HEALTH PLAN

discrimination] arises when the defendant enacts a law or

policy that treats individuals differently on the basis of

seemingly neutral criteria that are so closely associated with

the disfavored group that discrimination on the basis of such

criteria is, constructively, facial discrimination against the

disfavored group.” Davis v. Guam, 932 F.3d 822, 837 (9th

Cir. 2019) (quoting Pac. Shores Props., LLC v. City of

Newport Beach, 730 F.3d 1142, 1160 n.23 (9th Cir. 2013)).

“For example, discriminating against individuals with gray

hair is a proxy for age discrimination because ‘the “fit”

between age and gray hair is sufficiently close.’” Id. at 837–

38 (quoting Pac. Shores Props., 730 F.3d at 1160 n.23).

Schmitt and Mohundro contend that hearing loss is a

proxy for hearing disability. All individuals with hearing

disability have hearing loss because “disability” is defined

in part as “a physical or mental impairment that substantially

limits one or more major life activities,” 42 U.S.C.

§ 12102(1)(A), including “hearing,” id. § 12102(2)(A). But

since not all hearing loss is substantial, at least some—and

potentially most—individuals with that condition are not

deemed disabled.

That the hearing loss exclusion also affects some non-

disabled individuals does not doom Schmitt and Mohundro’s

claim per se, since “overdiscrimination is prohibited.” Pac.

Shores Props., 730 F.3d at 1160. “Discriminatory laws,

policies, or actions will often have negative effects (whether

intended or not) on individuals who do not belong to the

disfavored group,” yet “such laws, policies, or actions are

discriminatory when they are undertaken for the purpose of

harming protected individuals.” Id.

The Supreme Court considered an overinclusive proxy

in Rice v. Cayetano, 528 U.S. 495 (2000), where a state law

discriminated on the basis of ancestry, providing benefits to

SCHMITT V. KAISER FOUND. HEALTH PLAN 25

individuals whose lineage traced to pre-1778 Hawaii. The

state argued that the classification was not race-based in part

because Polynesians were not the only race in Hawaii in

1778. Id. at 514. Rejecting that argument, the Supreme

Court observed that “[a]ncestry can be a proxy for race,” and

“[e]ven if the residents of Hawaii in 1778 had been of more

diverse ethnic backgrounds and cultures, it is far from clear

that a voting test favoring their descendants would not be a

race-based qualification.” Id. at 514.

Here, Schmitt and Mohundro allege no facts giving rise

to an inference of intentional discrimination besides the

exclusion itself. Thus, the crucial question is whether the

proxy’s “fit” is “sufficiently close” to make a discriminatory

inference plausible. Davis, 932 F.3d at 838 (quoting Pac.

Shores Props., 730 F.3d at 1160 n.23). The second amended

complaint sheds no light on the answer.

The complaint does not make clear to what extent the

proxy is overinclusive. Schmitt and Mohundro allege that

“[u]nder the Exclusion, only people with Hearing Loss, a

qualifying disability, are excluded from the benefits that they

require.” However, they define “people with Hearing Loss”

to include all persons with hearing loss that cannot be treated

with cochlear implants—not just those with disabilities—so

it is impossible to infer whether the exclusion primarily

affects disabled persons. Schmitt and Mohundro claim in

their brief that “few, if any, non-disabled insureds had claims

denied under the Hearing Loss Exclusion,” but this

allegation is not in their second amended complaint and in

any event requires further explanation to be plausible. 8

8

We recognize that prior to discovery it may be difficult for Schmitt

and Mohundro to allege with statistical accuracy the number of policy

26 SCHMITT V. KAISER FOUND. HEALTH PLAN

At the same time, Schmitt and Mohundro’s alleged

proxy is underinclusive because it excludes hearing disabled

individuals who “require or will require treatment . . .

associated with cochlear implants.” Just as “[t]he benefit . . .

cannot be defined in a way that effectively denies otherwise

qualified [disabled] individuals the meaningful access to

which they are entitled,” Choate, 469 U.S. at 301, a section

1557 plaintiff cannot define the benefit so narrowly as to

require an insurer to curate coverage for each individual’s

health care needs. Kaiser covers cochlear implants and

related services, and some proportion of hearing disabled

insureds can meet their treatment needs through cochlear

implants alone. We are left to guess what that proportion

might be. The district court asserted that cochlear implants

are “medically appropriate only when the hearing loss is

significant and therefore disabling,” but that assertion is not

in the complaint. Still, nothing in the complaint suggests

otherwise. If cochlear implants serve the needs of most

individuals with hearing disability, that fact would tend to

undermine a claim of proxy discrimination.

Because Schmitt and Mohundro’s allegations fail to

show the fit of their alleged proxy, they do not state a claim

claims by disabled persons relative to non-disabled persons that were

denied under the hearing loss exclusion, as this information may reside

exclusively with Kaiser. At the pleadings stage, we do not require a

plaintiff to allege enough detail to state a prima facie case of

discrimination, see Swierkiewicz v. Sorema N.A., 534 U.S. 506, 515

(2002)—only “sufficient factual matter, accepted as true, to ‘state a

claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007)). Schmitt and Mohundro may be able to meet this burden, for

example, by alleging facts showing how the needs of hearing disabled

persons differ from the needs of persons whose hearing is merely

impaired such that the exclusion is likely to predominately affect

disabled persons.

SCHMITT V. KAISER FOUND. HEALTH PLAN 27

for disability discrimination under section 1557. We

therefore affirm the district court’s dismissal of the second

amended complaint. “[I]n dismissing for failure to state a

claim under Rule 12(b)(6), ‘a district court should grant

leave to amend even if no request to amend the pleading was

made, unless it determines that the pleading could not

possibly be cured by the allegation of other facts.’” Lopez v.

Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc)

(quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir.

1995)). Because Schmitt and Mohundro may be able to

amend their pleading with details that would raise an

inference of proxy discrimination or some other theory of

relief, we reverse the district court’s decision not to allow

amendment and remand with instructions to do so.

AFFIRMED in part, REVERSED in part, and

REMANDED.