Insurance Fund Settles Suit on AIDS Health Benefits

In a settlement that attorneys say may have a national impact, an insurance fund has agreed to drop a $5,000 cap on AIDS-related health benefits.

Allied Services Division Welfare Fund, which provides health coverage for more than 20 companies nationwide, is withdrawing the cap to settle a lawsuit recently filed on behalf of two Southern California men.

The federal Equal Employment Opportunity Commission (EEOC) claimed that the cap on AIDS benefits violated the Americans with Disabilities Act, which bars job discrimination against disabled individuals, including those with AIDS or the virus that causes AIDS.

“This is an important test case,” said Amelia Craig, a staff attorney in Los Angeles for the Lambda Legal Defense and Education Fund, which represented one of the men. “It sends a message to all employers . . . that they cannot structure employee benefits to discriminate against people with disabilities.”

Passed in 1990, the disabilities act is only beginning to be tested in court. Although the settlement does not carry the legal weight of a judge’s ruling, EEOC attorney Peter Laura agreed that it is a signal to companies that have severely limited benefits for AIDS or other costly illnesses. “They are going to have to rethink what they’ve done,” Laura said.

The suit was filed on behalf of two men, one from Los Angeles and one from Long Beach, who were covered by the Allied plan and whose AIDS benefits were slashed to $5,000, compared to the customary $300,000 limit applied to other catastrophic illnesses.

Robert Swetnick, Allied’s attorney, said the fund continues to believe such caps are legal but agreed to drop the AIDS limit to avoid a long legal battle that would have probably cost more than the AIDS claims.

At the same time, Swetnick said, the trustees were waiting for the courts to determine the scope of the disabilities act and to see what happens with the adoption of a national health care plan.

If upheld, the EEOC’s interpretation that the disabilities act forbids discriminatory benefit caps would counter recent court rulings that self-insured companies can drastically cut payments for major illnesses.

The Supreme Court appeared to give companies that latitude last year when it refused to hear an appeal filed on behalf of an AIDS patient whose medical benefits were reduced from $1 million to $5,000 after he revealed his illness to his employer. That case revolved around a different federal law, the 1974 Employee Retirement Income Security Act.