Court Lets Firms Cut Health Care : Benefits: Supreme Court gives leeway to self-insured companies. Case involves AIDS patient whose coverage fell from $1 million to $5,000 after illness was revealed.
The Supreme Court on Monday gave companies that fund their own health insurance the right to sharply cut the benefits paid for AIDS and other catastrophic diseases.
With only two dissenting votes, the justices refused to hear an appeal filed on behalf of an AIDS patient whose total medical benefits were slashed from $1 million to $5,000 after he revealed his illness to his supervisors.
His employer, H&H; Music Co. of Houston, said that it wanted to save money on its medical insurance, and two lower federal courts ruled that such companies have “an absolute right” to alter the terms of their medical benefits.
“The court’s refusal to even consider this appeal means that workers can’t be sure their health coverage will be there when they really need it,” said Suzanne Goldberg, staff attorney for the Lambda Legal Defense Fund in New York, which filed the appeal.
The case (Greenberg vs. H&H; Music, 91-1283) has revealed a large loophole in federal and state laws governing medical benefits underwritten by employers. The outcome indicates that these companies may not only refuse to provide coverage for certain costly illnesses--whether AIDS, cancer, Alzheimer’s disease or many others--but may drop the coverage after an employee reveals his illness.
Many state laws prohibit insurers from selling health coverage that fails to cover all diseases equally. But when companies provide the insurance, it is considered a benefit not governed by state law. According to business surveys, an estimated 60% of large companies now fund their own medical coverage for employees, thereby benefiting from the loophole.
By one estimate, 70 million Americans receive health care benefits through such self-insurance plans. In California, 50% to 60% of all people who have health insurance through their jobs are covered by self-insured plans, said Elena Stern, a spokeswoman for the California Department of Insurance.
One federal law, the Employee Retirement Income Security Act of 1974 (ERISA), regulates pensions and employee benefits and specifically says that employers may not “discriminate against (any employee) for exercising any right to which he is entitled” under the company’s plan.
But in this case, a federal judge in Houston and the U.S. 5th Circuit Court of Appeals in New Orleans ruled that medical care is not a right to which employees are entitled.
Just two weeks ago, lawyers for the Bush Administration filed a brief supporting the lower courts and urging that the appeal be dismissed. The Supreme Court’s refusal to hear an appeal does not carry the same weight as a written ruling upholding the lower court, but the justices usually intervene in a significant dispute when at least four of them believe that the lower court judges have erred.
Officials of the AIDS Action Council called on Congress and the new Clinton Administration to move quickly to plug the loophole in the 1974 law. During the presidential campaign, President-elect Bill Clinton stressed his support for health coverage that would not discriminate against those with high-cost diseases.
The decision could prompt self-insured employers to restrict coverage of other illnesses requiring costly health care, said J Craig Fong, director of the Los Angeles office of the Lambda Fund. “It’s easy to pick on AIDS, but next time it could be cancer, and the time after that it could be kidney dialysis. That’s the scary part. And the court doesn’t seem to care.”
Still, some attorneys said that a new federal law may well forbid discrimination against employees based on their illnesses. The Americans With Disabilities Act of 1990 says that employers may not discriminate against disabled individuals in compensation or “other terms, conditions and privileges of employment.”
Linda Kilb, an attorney with the Disability Rights Education and Defense Fund in Berkeley, contended that the new law prohibits employers from “singling out” one type of illness and excluding it from its medical coverage. “We believe it is illegal to offer different levels of coverage for different conditions,” she said.
But others have said that the law does not extend to insurance benefits. “The statute is quite vague. It’s not clear” whether it applies to a situation where an employer limits the medical coverage for an illness such as AIDS, said Sharon Rennert, an attorney for the Equal Employment Opportunities Commission.
The EEOC is charged with enforcing the new law, which took effect in July, but it has not taken a position on whether the act forbids discrimination in medical benefits, she said. Experts in employee benefits said it will take several years for the courts to decide whether the new law bars the kind of discrimination that the Houston worker suffered.
The Lambda Legal Defense Fund plans to file a suit shortly to test whether the Americans With Disabilities Act will protect AIDS patients in that situation.
“Most employers are appalled at what H&H; Music did,” said Kristin Bass, manager of human resources policy at the U.S. Chamber of Commerce. “If many others follow that lead, it will put real pressure on Congress to open up ERISA” and rewrite the law, she said.
But George J. Pantos, a lawyer for the Self-Insurance Institute of America trade group, said the “real culprit” is the nation’s skyrocketing health care expenses. “If the cost of health care wasn’t as astronomical as it is today, an employer might be able to absorb these costs.”
Pantos, whose Santa Ana-based group represents 1,700 U.S. employers and insurance administrators, said the Supreme Court’s decision will help some employers protect themselves from potentially ruinous increases in medical expenses.
“When costs reach such a point where the employer can no longer afford them, something has to give,” he said.
In any event, any changes in either ERISA or the Americans With Disabilities Act will be too late to help Jack McCann and his survivors. In December, 1987, McCann was hospitalized for pneumonia and learned he had the AIDS virus. When he returned to work, he informed his supervisors of his illness.
Four months later, the company announced two dramatic changes in its medical benefits. First, it said it was dropping its group health plan with General American Life Insurance Co. and undertaking self-insurance. Second, it said, the maximum coverage for AIDS related conditions would be reduced from $1 million to $5,000.
McCann filed suit, contending that he was a victim of retaliation because of his illness in violation of the 1974 federal law. He died in June, 1991, but the executor of his estate, Frank Greenberg, pursued the lawsuit.
Only Justices Harry A. Blackmun and Sandra Day O’Connor voted Monday to hear the appeal.
Times staff writer Stuart Silverstein in Los Angeles contributed to this story.
