Treasurer Folwell Critical of Divided Fourth Circuit Decision

Treasurer and Team are Weighing Supreme Court Appeal

Raleigh, NC

Apr 29, 2024

Today, the United States Court of Appeals for the Fourth Circuit announced its decision in the case of Kadel v. Folwell, ruling against the State Health Plan for Teachers and State Employees (Plan). A slim majority of the Court, consisting of only eight of the 14 judges, decided against the Plan, while six dissenting judges concluded that the Plan has not violated the Equal Protection Clause and that the appeal presented no evidence of "intent-based" discrimination. Today's majority decision is in direct conflict with multiple decisions from other federal appeals courts and, hopefully, will be corrected by the U.S. Supreme Court.

Frustrated by the majority's unabashed judicial activism, the Court's longest serving judge explained that the majority decision "is imperial judging at its least defensible." The judge also stated that, by using "the Constitution to establish a nationwide mandate that States pay for emerging gender dysphoria treatments," the Court has impermissibly encroached on the "State's prerogative under its basic police power to safeguard the health and welfare of its citizens."

As this dissenting judge explained, today's majority assumes "the authority to tell States how to draft insurance policies covering state employees on state health care plans. This is a breach of our federal system. It is an intrusion upon the residual powers that the Constitution guarantees to the States. It is a usurpation of the prerogatives of fifty sovereigns, supplanting difficult judgments on issues in their very infancy with an ill-advised, self-assured" proclamation of its own.

"It is our mission to protect the Plan for our more than 750,000 current members, as well as future members," Treasurer Dale R. Folwell, CPA, said. "Key to achieving this mission is protecting the Plan's fiscal sustainability; simply, the Plan must continue to exist for our current and future members. However, due 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. So, clearly, we disagree with the Fourt 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."

Treasurer Folwell and the Plan, a division of the Department of State Treasurer, were sued in 2019 because a temporary arrangement to pay for surgical and hormonal treatments related to sex changes had expired. This one-year arrangement was put in place in the final month of the prior treasurer's term. Treasurer Folwell sought legal representation from the N.C. Department of Justice after the lawsuit was filed, but Attorney General Josh Stein refused his request.

In June 2022, U.S. District Court Judge Loretta Biggs issued an order in favor of the plaintiffs, prohibiting enforcement of the decades-old benefits exclusion, which had been in place under every state treasurer since the 1990s, regarding sex changes. Her decision attempted to evade controlling precedent from a U.S. Supreme Court case (which held that only women can get pregnant) by instead holding that "pregnancy can be explained without reference to" a person's biological sex. Only by ignoring that precedent could Judge Biggs rule against the Plan, because the U.S. Supreme Court has recognized that state entities like the Plan must have appropriate leeway to make critical financial and coverage decisions.

The State Health Plan appealed the district court's ruling and the case was heard before the full federal Court of Appeals for the Fourth Circuit in September 2023. To avoid the same controlling U.S. Supreme Court precedent and rule against the Plan, the Court of Appeals' majority concluded that pregnancy is not sufficiently connected to a person's biological sex.

In addition to what the State Health Plan began paying in 2022, under the federal district court order in 2023 the State Health Plan was required to expend approximately $1.55 million on surgical and related treatments for 579 individuals, including 68 children under the age of 18. This figure does not include payments for pharmaceuticals, such as "puberty blockers." So far in 2024, the Plan is on track to exceed those 2023 expenditures. For January through March 2024, the Plan expended more than $708,000 on surgical and related treatments for 305 individuals, including 37 children under the age of 18. Again, this 2024 figure does not account for additional amounts paid in pharmaceutical claims.

In the Plan's appeal at the Fourth Circuit, Treasurer Folwell argued that the ruling by Judge Biggs deprived the Plan of a jury trial and substituted judicial decision making for the Plan's Board of Trustees' authority to determine coverage and benefits. The Plan's appeal was bolstered by 21 states, supporting the authority of North Carolina officials to determine which benefits will be covered by the Plan. The filing, submitted by the attorneys general for each state, contended that certain gender transition procedures "are at best experimental and at worst deeply harmful."

The State Health Plan, a division of the Department of State Treasurer, provides health care coverage to nearly 750,000 teachers, state employees, retirees, current and former lawmakers, state university and community college personnel, and their dependents.

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