LANSING, Mich. (Michigan News Source) – A newly finalized federal rule is setting up a direct collision with Michigan law, and transgender health coverage could become one of the state’s biggest legal flashpoints heading into 2026.
On June 25, the Department of Health and Human Services (HHS)/Centers for Medicare & Medicaid Services (CMS) issued a final rule removing gender-affirming care from the Affordable Care Act’s (ACA) Essential Health Benefits (EHB) package starting with the 2026 plan year.
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Under the ACA. also known as “Obamacare”, EHBs form the baseline of services that individual and small-group marketplace plans must cover. That includes everything from hospitalization and mental health care to prescription drugs. Beginning next year, gender-affirming surgeries, hormone therapy, puberty blockers, and other “sex-trait modification” services, as defined by HHS, will no longer fall under those protections.
The bottom line is simple: insurers can keep covering gender-affirming care, but they’re no longer obligated to. Marketplace plans will be free to drop coverage altogether, raise deductibles and co- pays, or restrict which procedures they’ll pay for. And for any plans that are affected by the rule, states would have to pick up the tab for any gender-affirming services they choose to keep covering, since those would no longer qualify as EHB services. Large employer plans, ERISA-regulated self- funded plans (Employee Retirement Income Security Act), Medicare, and Medicaid are not automatically affected by the EHB change.
What it means for Michigan.
But in Michigan, the picture is far more complicated.
The state’s Elliott-Larsen Civil Rights Act (ELCRA), amended in 2023, explicitly prohibits discrimination based on sex, including gender identity and sexual orientation. In a March 16, 2023 bulletin, the Department of Insurance and Financial Services (DIFS) told insurers they may not deny coverage, limit benefits, add cost-sharing, or restrict access on the basis of gender identity. Those rules are still in force.
Attorney General Dana Nessel reinforced the state’s position on August 26, 2025 warning insurers that they have an “obligation to comply with Michigan laws, including those that prohibit discrimination against individuals based on their membership in a protected class, such as religion, race, color, national origin, age, sex, sexual orientation, disability, gender identity or expression, or marital status.”
She added in her statement, “Refusing healthcare services to a class of individuals based on their protected status, such as withholding the availability of services from transgender individuals based on their gender identity or their diagnosis of gender dysphoria, while offering such services to cisgender individuals, may constitute discrimination under Michigan law.”
State budget leaves a funding gap.
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Medicaid could be the next battleground. If federal dollars for gender-affirming care continue to be restricted, Michigan would have to either fund those services entirely with state dollars or eliminate coverage, triggering additional civil-rights disputes.
The state’s FY26 budget contains no targeted funding for gender-affirming care, leaving lawmakers little room to maneuver should federal funding run dry. Currently, gender-affirming care is covered by Medicaid in Michigan for eligible beneficiaries diagnosed with gender dysphoria, as long as it’s deemed medically necessary.
Lansing quiet on transgender spending.
Meanwhile, the state won’t say how much it has actually spent on gender-affirming care through Medicaid and ACA plans over the past two years. Officials told Michigan News Source in August that the numbers were “in progress,” but nothing has been produced in response to a FOIA request – leaving the true financial impact anyone’s guess.
However, a report from the UCLA School of Law’s Williams Institute provides at least some clarity on the numbers. According to its “Medicaid Coverage for Gender-Affirming Care” analysis, Michigan is home to an estimated 33,000 transgender adults, and roughly 9,000 received gender-affirming care through Medicaid. The report also found that 28.1% of the state’s LGBT population is enrolled in Medicaid.
Another lawsuit against the Trump administration.
Michigan is also part of a multistate lawsuit challenging the CMS rule. Filed July 17 in federal court, the suit argues the regulation violates the Administrative Procedure Act and could push up to 1.8 million Americans off coverage. On October 1, the judge denied a preliminary injunction requested by the plaintiffs. He said states did not adequately show “imminent, irreparable harm” and the states exaggerated the extent of the predicted decrease in enrollments. Because of the judge’s decision, the rule remains in effect while the case moves toward the merits stage.
Michigan now sits at the center of a federal–state showdown with enormous implications for insurers, regulators, and patients. With the federal rule moving forward and the state’s civil-rights protections still in place, 2026 will determine how these obligations are reconciled – in court, through regulation, or both.
