Employer Can Deny Coverage to Better-Paid Spouse : Penney Wins Case on Worker Health Benefits
A federal appeals court last week dealt another blow to work benefits of two-income couples, upholding a plan by which an employer can deny health insurance to the spouse of an employee if the spouse makes more money than the employee.
The case involves J. C. Penney Co., which requires employees seeking health coverage for a spouse to certify that the employee is head of the household and that the spouse supplies less than 50% of the couple’s income.
The decision comes at a time when employers are vigorously seeking ways to curb benefit costs. Many have already instituted “coordination of benefits” clauses in insurance policies that restrict the ability of employees to obtain payments from both the husband’s and the wife’s policies.
The decision appears to give a new weapon to large employers with generous benefit programs, which have long complained that they are in effect subsidizing smaller employers. Small companies, particularly in areas dominated by one large firm, may offer little or no coverage, relying instead on employees’ having a family member with the big company.
Likewise, employees themselves often drop one spouse’s coverage when the other’s either is more generous or better suits their needs.
But Barbara Hammer, a group benefits specialist with Hewitt Associates, said she believes that companies could achieve much the same results as Penney through coordination of benefits and other more traditional techniques. The fact that Penney has had to defend its plan in court may make other employers “a little sensitive” about trying its approach.
Penney’s policy, which dates from the early 1970s and was sustained by the Ninth U.S. Circuit Court of Appeals in an earlier case, was challenged by the Equal Employment Opportunity Commission on the grounds that its impact was disproportionately severe on women and thus was discriminatory.
On April 4, a divided three-judge panel of the Sixth U.S. Circuit Court of Appeals in Cincinnati held that Penney had a valid business reason for its policy, and that even if it did hurt more women than men, it did not violate federal law. The key, the court ruled, is a provision that allows employers to differentiate between men and women if that differentiation is based on something other than sex.
“We hold that the ‘head of household’ requirement is a valid factor ‘other than sex’ justifying a differential in benefits . . . . The requirement is therefore not an unlawful employment practice,” Judge Danny J. Boggs wrote for the majority.
Noting that there is dispute over how to interpret the law’s “factor other than sex” provision, the court held that a “legitimate business reason standard is the appropriate benchmark,” and “that Penney has satisfied this standard.” Penney had argued that its policy allowed it to “provide the greatest benefits for the people who needed the coverage.”
“Any employer choosing a comprehensive fringe-benefit package faces the challenge of maximizing employee satisfaction while minimizing or controlling cost,” the court added.
Douglas W. Hillman, a district judge sitting on the panel, dissented, arguing that “cost alone is no defense once discrimination . . . has been shown.” He added that “by endorsing cost minimization as a ‘legitimate business reason’ ” that would legalize a discriminatory policy, the court would “facilitate an employer’s disguising all but the most blatant discrimination.”
EEOC attorney Peggy Mastroianni said the agency is concerned, since the decision “suggests that the desire to minimize costs is a defense even where discrimination has been shown.”
She questioned Penney’s argument that it was helping employees most in need, since an executive earning $70,000 could get coverage for a wife earning $60,000, whereas a clerk earning $10,000 could not obtain the benefit for a husband earning $12,000. She noted that the original challenge was brought by a low-paid woman whose husband, who earned slightly more, was self-employed and had no insurance.
A spokesman for Penney said the company had just received the opinion and had no immediate comment.
