Appeals Court Splits, 8-6, In Rejecting NC Health Plan’s Transgender Coverage Rules

By Carolina Journal Staff

  • The full 4th US Circuit Court of Appeals has upheld a federal trial court ruling rejecting the North Carolina State Health Plan’s ban on coverage of medical treatments mainly sought by transgender people.
  • The decision split the court, 8-6. Judges appointed by Democratic presidents voted to block the State Health Plan restrictions. Judges appointed by Republican presidents supported the State Health Plan.
  • The State Health Plan has been providing the treatment since 2022, when US District Judge Loretta Biggs produced the case’s first ruling.

The full 4th US Circuit Court of Appeals has tossed out the North Carolina State Health Plan’s ban on coverage of medical treatments sought mainly by transgender people. The decision created an 8-6 split among the appellate judges.

“Do healthcare plans that cover medically necessary treatments for certain diagnoses but bar coverage of those same medically necessary treatments for a diagnosis unique to transgender patients violate either the Equal Protection Clause or other provisions of federal law? We hold that they do,” wrote Judge Roger Gregory for the court majority.

The decision covered two lawsuits addressing similar policies in North Carolina and West Virginia. In both cases, the 4th Circuit affirmed decisions against the states at the trial court level.

“[W]e hold that the coverage exclusions facially discriminate on the basis of sex and gender identity, and are not substantially related to an important government interest,” Gregory wrote.

The 4th Circuit majority rejected the state government’s arguments that the banned treatments challenged in the case affected all people, not just transgender people.

“Appellants next argue that gender dysphoria is not being used as a proxy for transgender identity here because treatment for that diagnosis is not covered for anyone, transgender or cisgender. This argument elides common sense and is inconsistent with Supreme Court precedent about how to approach equal-protection analyses,” Gregory wrote.

“In sum, targeting a subset of a protected group does not preclude a finding of proxy Discrimination,” he explained. “Nor does the fact that a law applies equally to all, when it only affects a protected group. We hold that gender dysphoria, a diagnosis inextricable from transgender status, is a proxy for transgender identity. And coverage exclusions that bar treatments for gender dysphoria bar treatments on the basis of transgender identity by proxy.”

Chief Judge Albert Diaz and Judges Robert King, James Wynn, Stephanie Thacker, Pamela Harris, Toby Heytens, and Deandrea Gist Benjamin joined Gregory’s opinion. Democratic presidents appointed all eight judges in the majority.

Republican presidents appointed all six dissenting judges: Julius Richardson, Harvie Wilkinson, Paul Niemeyer, Marvin Quattlebaum, Steven Agee, and Allison Jones Rushing. The case produced three separate dissents.

“In Grimm v. Gloucester County School Board, we heralded the victory of ‘the burgeoning values of our bright youth’  over ‘the prejudices of the past,’” Richadson wrote in a dissent joined in full or in part by all six dissenters. “Our en banc Court treats these cases as new fronts upon which this conflict must be waged. But not every battle is part of a larger war.”

“In the majority’s haste to champion plaintiffs’ cause, today’s result oversteps the bounds of the law,” Richardson added. “The majority asserts that the challenged exclusions use medical diagnosis as a proxy for transgender persons, despite the complete lack of evidence for this claim. It then blatantly sidesteps controlling Supreme Court precedent by conjuring up an imagined conflict with another, unrelated line of cases. Finally, it misrepresents how the challenged exclusions actually work in order to malign them as sex-based and grounded in stereotypes. The result is a holding that speaks the language of Equal Protection yet departs wholly from its established principles.”

“Today’s result is a victory for plaintiffs but a defeat for the rule of law,” Richardson wrote. “To reach its holding, the majority misconstrues the challenged policies and steamrolls over the careful distinctions embedded in Equal Protection doctrine. It finds unlawful discrimination where there is none, stripping the states of their prerogative to create health-insurance and Medicaid systems that serve the best interests of their overall populations.”

“More troubling, however, are the implications of today’s result for future cases involving state classifications in the healthcare context,” Richardson added. “Running a healthcare system is no easy task. Because the states have limited resources, they must make hard judgment calls about which services they will and will not cover. Ordinarily, such line-drawing is of no concern to the Equal Protection Clause. It is only in a narrow set of cases—when lines are drawn based on membership in a protected class—that heightened scrutiny is triggered. It is therefore incumbent on those in robes to exercise caution before jumping to conclusions about the reasons for particular judgements and distinctions drawn in the medical field. In failing to heed this warning, the majority sets a dangerous precedent and threatens the feasibility of state regulation in this area.”

Wilkinson added a solo dissent. “Why the rush to constitutionalize? Why the dash to create a substantive Fourteenth Amendment right to transgender surgery and treatment underwritten by the State?” he asked.

“Of course the controversies surrounding transgender status will reach the courts. But how they reach us is the all-important thing. There is a big difference between, say, reading a statute and discovering a novel unenumerated constitutional right,” Wilkinson wrote.

“There will, of course, always be those who applaud and those who decry the decision of the day,” he added. “But that is transient, much as a fleeting goldfinch wings before our eyes. And in the long tomorrow, the recurrent creation of rights so unmoored from constitutional text or history will deplete the store of public respect on which a branch devoid of sword or purse must ultimately rely.”

Quattlebaum’s dissent attracted support from Agee, Richardson, and Rushing. “We do not—or, at least, we should not—bend the Federal Rules of Evidence just because a case involves important constitutional issues,” he wrote. “But that is what the majority seems to be doing here.”

“In order to conclude that no legitimate, non-discriminatory reasons support denying coverage for certain treatments of gender dysphoria, the majority abandons settled evidentiary principles,” Quattlebaum added. “Properly accounting for the record, questions about the medical necessity and efficacy of such treatments linger. And those lingering questions support the states’ coverage decisions.”

State Treasurer Dale Folwell served as lead defendant in the case because the State Health Plan falls under the treasurer’s office.

“It is our mission to protect the Plan for our more than 750,000 current members, as well as future members,” Folwell said in a prepared statement. “[D]ue to unabated and rapidly increasing health care costs, funding that has not increased at the same rate, and the aging and declining health of the Plan member pool (due in part to the inability to attract younger dependents and families into the SHP because of high family premiums), the Plan is facing the real risk of looming insolvency. Accordingly, the Plan cannot be everything for everyone — our priority is to provide coverage that does the most good for the highest number of people with the finite resources we have available.”

“Protecting the Plan for our current and future members has always been what this case has been about,” Folwell added. “So, clearly, we disagree with the Fourth Circuit’s majority opinion. Untethered to the reality of the Plan’s fiscal situation, the majority opinion opens the way for any dissatisfied individual to override the Plan’s reasoned and responsible decisions and drive the Plan towards collapse.”

“As I have said consistently, I respect the rule of law and, therefore, will continue to follow every legal avenue available to protect the Plan and its members,” Folwell concluded.

Splits were evident among the 14 Appeals Court judges when they held an “en banc” hearing in September 2023.

Diaz labeled the North Carolina dispute, Kadel v. Folwell, “a very important case … obviously,” as he wrapped up the 90-minute session in Richmond, Virginia.

The full court had decided in April 2023 to rehear the case. That was before a three-judge panel that had considered the dispute in January 2023 had issued a ruling.

A June 2022 trial court order called on the health plan to pay for “medically necessary services” for transgender employees and their dependent children. Those services include hormone therapy and some surgeries. A 2019 lawsuit challenged the plan’s policy denying coverage.

Attorney John Knepper, representing the State Health Plan and State Treasurer Dale Folwell, argued that the challenged policy did not involve discrimination against transgender people.

“In this case, neither transgender status nor biological sex is the basis for determining whether you can get these procedures,” Knepper argued. “We don’t cover them for anyone. We don’t cover them to affirm your current biological sex. We don’t cover them to change your biological sex. We don’t look at the reason you’re seeking them.”

Multiple judges questioned Knepper’s reasoning.

“The plan covers a mastectomy … following a diagnosis of cancer,” Diaz said. “But the plan doesn’t cover a mastectomy following the diagnosis of gender dysphoria if the patient has been advised by his or her doctor that that’s part of the treatment. Isn’t that correct?”

“That is correct,” Knepper responded.

“So how do you justify that?” Diaz asked.

Harris compared the current dispute to Loving v. Virginia, the 1967 US Supreme Court decision striking down a state ban on interracial marriage.

“Is that something different from Loving, where neither black people nor white people could marry people of the opposite sex?” Harris asked. “Is that different from that kind of reasoning?”

On the other side of the argument, Wilkinson noted concern about federal judges’ outsized role in one state’s decisions about its health care coverage for government employees.

“What are we doing to the structure of the Constitution when you’re asking us to intervene,” Wilkinson said. “We’re telling the states what they can cover and what they cannot in their own insurance programs.”

“Why can’t a state decide that the money that could have been spent on transgender-related issues should instead be spent to provide greater coverage for cancer, stroke, and heart attack victims?” he asked.

“It seems to me to assume a very imperial position for the federal judiciary to be making these sorts of dictations,” Wilkinson added minutes later.

Tara Borelli, representing the transgender plaintiffs, responded to Wilkinson.

“I think that’s the role that the 14th Amendment requires of the courts,” Borelli said. “It’s particularly important for the courts to protect constitutional rights, especially when we’re talking about classifications based on suspect or quasi-suspect classes.”

Borelli argued that the State Health Plan’s ban on coverage of sex changes presents a clear case of discrimination.

“The question in this case is: Is … a ban on sex changes, a ban on gender dysphoria, is that a closely enough related proxy for transgender people? The answer is unequivocally yes,” she said.

Judges’ contrasting approach to the case emerged clearly little more than halfway through the arguments.

Wilkinson contrasted the current dispute to past equal protection disputes involving race and sex discrimination. “There’s a difference between night and day in terms of the clear-cut equal protection violations” in the landmark Brown v. Board of Education case and the arguments in the Kadel case.

“It’s highly contestable, and in the face of this highly contestable equal-protection doctrine — unprecedented, really — we’re going to tell every state in the country how to run their insurance policies, how to treat their own employees,” Wilkinson said. “Not even the national legislature, or the people of any state, or the federal agencies that administer the funding — not a doggone thing you can do. Doesn’t that give you a little hesitation?”

“I think protecting people from sex discrimination by their government is one of our most cherished constitutional …,” Borelli responded, before Diaz interrupted her.

“Brown was highly contestable at the time, wasn’t it?” Diaz asked. “So was Loving, wasn’t it?”

“That’s the question: whether or not what we’re facing here today is equivalent to those issues,” he said. “To argue that it’s contestable doesn’t really answer the question, I don’t think.”

North Carolina’s plan provides medical coverage for more than 750,000 teachers, state employees, retirees, lawmakers, and their dependents. It provides counseling for gender dysphoria and other diagnosed mental health conditions. Prior to the trial court ruling, it did not cover treatment “in connection with sex changes or modifications and related care.”

The trial court ruling from US District Judge Loretta Biggs prompted the State Health Plan to reinstate excluded coverage in July 2022. Coverage had been provided for a single year in 2017 before the plan adopted its challenged policy.

Biggs ruled that the plan unlawfully discriminated against transgender people. She determined that the plan violated both the equal protection clause of the Constitution and Title VII of the Civil Rights Act on the basis of sex.

Seventeen other states and Washington, DC, filed a friend-of-the-court brief supporting the plaintiffs. Those states pay for the type of care involved in North Carolina’s dispute.

Meanwhile, 21 states filed a brief in May 2023 supporting Folwell and North Carolina’s State Health Plan.

“The States of Missouri, Alabama, Alaska, Arkansas, Florida, Georgia, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Carolina, Texas, Utah, and Virginia submit this brief to explain their strong interest in preserving the prerogative of States to make decisions ‘in areas fraught with medical and scientific uncertainties,’” according to the brief filed by Missouri Attorney General Andrew Bailey. “Making policy decisions in an area of scientific uncertainty is a core, sovereign, democratic function.”

The 21 states, called “amici” in legal jargon, opposed US District Court rulings forcing both North Carolina and West Virginia to fund treatment requested by transgender patients.

“The decisions by both district courts threaten this democratic prerogative,” according to the brief. “Taken together, the decisions wrongly assume that the science is settled and fully supports the routine use of puberty blocking drugs, cross-sex hormones, and surgeries to treat gender dysphoria. To the contrary, countries across Europe — the UK, France, Finland, Norway, and Sweden — have recently declared these interventions to be ‘experimental’ procedures, ‘lacking’ in evidentiary support, whose ‘risks … currently outweigh the possible benefits.’ Agencies on this side of the Atlantic have concluded the same.”

“In light of the medical uncertainty acknowledged across the globe, Amici States have taken a variety of approaches to the issue of using puberty blockers, cross-sex hormones, and surgeries to treat gender dysphoria,” the brief continued. “Some States decline to pay for these chemical and surgical interventions through state-funded healthcare programs. Some States — having compared the known, irreversible side-effects to the unknown, speculative benefits — have gone further and passed laws prohibiting these interventions in certain circumstances. Others have passed laws barring these interventions only temporarily — until policymakers obtain the benefit of more scientific studies. And still other States have allowed these interventions only after individuals have first been provided adequate counseling care and psychological support.”

“In light of Supreme Court precedent giving States wide authority in areas of uncertainty, this Court should permit the States wide latitude to respond to these scientifically unsettled issues,” the 21 states argued.


  1. Just what we need…. letting judges and the courts determine medical treatments. Another overreach by the government. When will TRUE CONSERVATIVES join me in demanding SMALLER government and FEWER regulations? Let patients and their doctors decide what is “medically necessary” — NOT THE GOVERNMENT. #Disappointed #VoteOutIncumbents

  2. The big problem with this ruling is where it says it discriminates on the basis of sex and gender identity. How can you discriminate on sex when you are either male or female? It does not discriminate on that basis. Gender identity? No such thing! That is all in your mind. God identified you when you were born. Learn to live and be thankful for what your Creator gave you. We are not all perfect, but must live and be thankful for all things.

    • @Carl: You’re completely missed the point. The government gets you and the rest of the sheep worked up with phrases like “gender identity” and “biological sex” while you ignore the REAL issue: letting the GOVERNMENT expand their power and dictate medical treatments to you and your doctor. Anyone who takes medical advice from a judge or politician over their own doctor is an idiot.

      • Sorry, but I am looking out for the good of the children and young people who are ruining their lives.

  3. @Tell the Truth. The GOVERNMENT did not say you had to have it, the said you could have the surgery, or the hormone pills, etc…., and it be paid for, which I personally think is BS. As Carl stated, you were born Male or Female. If you want to change that, then that should be on you.
    What would happen if they had medication and/or a surgery that would allow people to change what race they were born as. Would you still think it would be okay for the insurance to have pay for it, because you dont feel like you should have been born white, black, Hispanic, Chinese, etc…. Same principle applies here. If you want to change what you were born as, that should be 100% up to you, not at the cost of anyone else!!

Leave a Reply