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High Court Allows Employers to Radically Change Benefits

By Joan Biskupic
The Washington Post


The Supreme Court Monday let stand a ruling that allowed an employer to slash the insurance benefits of a man who developed AIDS, a move that could have broad practical and political repercussions.

The high court refused to review a controversial federal appeals court decision that said federal law does not stop certain employers from making sudden benefit changes to save themselves money, irrespective of whether individual situations triggered the cutbacks.

The case involves employers who have self-funding insurance plans, under which more than 60 percent of Americans are insured.

The dispute arose after * & * Music Co. in Houston cut the medical benefits for worker John W. McGann from $1 million to $5,000 for lifetime treatment of AIDS. He died last year, while he was appealing a federal district court opinion in favor of his employer. The executor of his estate is carrying on the case of Greenberg vs. * & * Music Co.

In denying review of the case, the Supreme Court accepted the advice of the Bush administration, which last month said nothing in the federal pension law at issue prohibited * & * from adopting an insurance plan "that disadvantaged persons with AIDS for the purpose of reducing plan costs."

Justice Department lawyers said that the newly enacted Americans with Disabilities Act might block insurance-benefit discrimination against AIDS sufferers. But that law, which began taking effect last July, has yet to be tested.

The court's two-sentence order said that two of the nine justices, Harry A. Blackmun and Sandra Day O'Connor, wanted to hear the case. It takes four votes to have a case scheduled for oral argument.

Advocates for people with AIDS and others in the medical community expressed disappointment in the court's order, saying that the case exposes a loophole in the federal law known as ERISA (for the Employee Retirement Income Security Act), which governs certain health insurance plans.

But employer groups contended that unless companies have the flexibility to reduce health care benefits when they become too costly, they would be more likely to opt for minimal coverage at the outset.

"It means that nobody is safe," said U.S. Rep. William J. Hughes, D-N.J. "If employers can cut off benefits for AIDS, they could do it for terminal cancer."

Hughes asserted that the federal appeals court opinion exacerbates the country's health care situation in which "there are already 35 million Americans without health insurance and tens of millions who, unbeknownst to them are underinsured. This (appeals court) decision ... will add many to the ranks of the uninsured."

Hughes, who is chairman of the House Select Committee on Aging Subcommittee on Retirement, Income and Employment, is supporting legislation that would bar companies from cutting benefits while employees are undergoing medically necessary treatment.

The case began in December 1987, when McGann found out he had AIDS. He sought reimbursement for medical expenses under his group insurance plan. The company at the time provided up to $1 million in lifetime medical benefits for each employee. But in August of 1988, * & * changed its insurance plan and imposed a lifetime maximum payment for AIDS treatment of $5,000, among other changes.

McGann sued, alleging that the company was violating a provision of ERISA that says an employer may not "discriminate against" any employee for exercising his right to an employee benefit.

* & * asserted that it had to make the changes to keep its medical benefits plan financially viable. The company contended that it was within its right under ERISA as a self-insured company to alter its coverage at any time.

A federal district court ruled for * & H, and the 5th U.S. Circuit Court of Appeals affirmed.

The main intention of ERISA was development of employer pension programs. Congress secondarily included a provision that said if employers wanted to act as their own insurers -- paying premiums themselves rather than using an insurance company -- they would be exempt from all state taxes and regulations governing health insurance.

As a result, the law gives broad leeway to companies that act as their own insurers instead of using an insurance company. And it precludes people like McGann from suing under state laws.