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Guest Article

Employer's Firing of Employee After Stop Loss Policy Changed May Be ERISA Violation


Summary: A federal district court ruled that substantial evidence existed that could reasonably indicate that a self-funded employer violated both ERISA and the Americans With Disabilities Act (ADA) when it fired an employee whose wife incurred significant medical expenses as the result of a liver transplant.

(July 19, 2000)A self-funded employer whose health plan costs increased dramatically after the stop-loss attachment point of a covered spouse was hiked may have violated ERISA when it allegedly fired the employee/husband because of the spouse's medical expenses, a federal district court determined. The court also noted that the employer may have also violated the Americans With Disabilities Act (ADA) by discriminating against the employee because of his "association" with a disabled person. The case is Jackson v. Service Engineering, Inc., 2000 U.S. Dist. LEXIS 6410 (S.D. Ind., March 17, 2000).

Facts of the Case

Robert Jackson, an employee of Service Engineering, Inc., and his wife Marcella were covered under the company's self-insured health plan. Under the plan, a stop-loss policy paid for claims above $25,000 per person.

In March 1995, Jackson told company president Robert Jennings that his wife needed a liver transplant. Because of the high medical costs of Marcella's liver disease, upon policy renewal the stop-loss carrier raised her attachment point to $100,000, but kept it at $25,000 for other covered persons.

In late 1995 and early 1996, Jennings and an insurance broker suggested that Marcella agree to drop coverage and enroll in Medicare, a state insurance pool or an individual policy. However, the insurance pool would not cover a liver transplant, and Marcella refused to enroll in Medicare because the Service Engineering plan had more comprehensive drug coverage. (Federal law prohibits employers from dropping covered individuals from health plans because of their Medicare coverage or offering incentives to persons not to enroll in a group health plan so they can be covered by Medicare.)

Jennings said that he could solve the insurance problem by firing Jackson or by setting him up as an independent contractor and giving him a $10,000 incentive. No conclusion was made, however.

Marcella had her transplant in June 1996. Upon policy renewal, the stop-loss carrier continued her $100,000 attachment point. In the fall of 1997, a new stop-loss carrier provided her with a $40,000 attachment point.

Service Engineering fired Jackson in November 1997. Jackson then sued the company for violating Section 510 of ERISA by firing him for exercising his and his wife's rights under an employee benefit plan. Service Engineering then sought a ruling in its favor.

Ample Evidence of ERISA Violation

In reaching its decision, the court found "ample evidence" that could reasonably conclude that Service Engineering fired Jackson because of his wife's medical condition. Including the two meetings with Jennings and the insurance broker, that evidence consisted of:

  1. A supervisor telling Jackson that he did not receive an annual wage increase in 1996 because Jennings said he had paid enough for Marcella's insurance.
  2. Another Service Engineering employee falsely telling a Medicare fiscal intermediary that Jackson wanted to drop health coverage for his wife.
  3. A September 1997 conversation in which Jennings told Jackson that had he paid a lot of money for Marcella and was not going to pay more, and either Jackson would do something about insurance or Jennings would do something.
  4. Circumstances surrounding Jackson's actual termination of employment which could reasonably indicate that even if Jackson deserved to be disciplined, no one else would have been fired for comparable conduct, and Jennings decided to use the situation to fire Jackson and eliminate the burden of Marcella's future medical expenses.

Service Engineering contended that it resolved the insurance problem before Jackson was fired by finding a new stop-loss policy. However, the court determined that it could be reasonably concluded that even though the new policy was not as bad as the old one, Jennings still thought he and Service Engineering had paid enough for Marcella's care and the only viable solution was to fire Jackson.

Service Engineering also contended that the 1995 and 1996 discussions between Jackson, Jennings and the insurance broker were "too remote in time" from the November 1997 firing to be relevant. The court rejected this argument, noting that Jennings approached Jackson regarding his wife's medical expenses in September 1997. Therefore, the court declined to rule in the company's favor.

ADA Claim Continues

Jackson had also sued Service Engineering for violating the ADA by discriminating against him because of his "association" with a person with a record as an individual with a disability. Service Engineering countered that, based upon a strict legal analysis of an "actual disability," Marcella did not have an ADA-defined disability when it fired Jackson. By that time, Marcella had her successful transplant, was working full time and playing golf two times a week.

The court noted that taking a strict approach would not be consistent with the ADA's provisions to prevent discrimination based on perceived disabilities. However, the U.S. Supreme Court has held that persons substantially impaired in the major life activity of working must prove that they are unable to perform a broader class of jobs beyond a particular job. Therefore, the key question was how broadly did Service Engineering view the degree of Marcella's impairment?

The court concluded that circumstantial evidence indicated that, among other things: (1) Jennings knew that Marcella's liver disease was a serious medical condition; (2) she had retired because of her illness; and (3) she was receiving Social Security disability benefits. Therefore, the court determined that a jury would not be unreasonable in finding that Service Engineering had a record of, or regarded Marcella as substantially limited in the major life activity of working and unable to perform a broad class of jobs. Therefore, the court declined to rule in the company's favor on the ADA claim.

Excerpted from the Employer's Guide to Self-Insuring Health Benefits, ©Thompson Publishing Group, Inc., 2000. All rights reserved.

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