Imposition of New Lifetime Maximum

[Guest kbs]

Hello -- we have a health plan that currently does not impose a lifetime maximum. We want to start imposing a lifetime maximum. I know that we will avoid any nondiscrimination issues if we make the effective date the first day of the first plan year after the amendment is adopted. But can we then include expenses in prior years to determine when the participant hits the lifetime maximum? Or do we have to start everyone at $0 next plan year for determining when the lifetime maximum is hit?

Thanks.

[Kirk Maldonado]

If you take into account (1) expenses that a participant had occurred at the time the amendment was adopted, and/or (2) expenses that were reasonably forseeable (at the time the amendment was adopted) that the participant will incur after the date the amendment was adopted, I think you could be vulnerable to a claim that you adopted the amendment in retaliation to the participant incurring those expenses in violation of section 510 of ERISA.

Here's an example. Assume that the employer knows that the spouse of one of its employees was horribly injured in a car accident, and while the person will live, will incur massive medical bills for several years. Shortly after learning of the accident, the employer adopts a lifetime cap. The fact that the cap doesn't become effective until the first day of the second plan year would not protect the employer from a charge of a violating section 510 of ERISA if it takes into account previously incurred expenses.

In fact, there is a risk of getting sued under those circumstances even if expenses incurred prior to the effective date of the amendment are disregarded.

[Although the facts were changed, this is based on an situation that actually occurred.]

[Steve72]

Kirk:

Did the situation you described go to court?

My understanding of 510 is that it prevents employment actions. I would be curious as to the logic the court used to consider a plan amendment an employment action.

[Guest kbs]

Steve72, I don't think that ERISA Section 510 is limited to employment related actions. Section 510 provides that any person is prohibited from discharging, fining, suspending, expelling, disciplining or discriminating against a participant for excercising any right. It looks like some courts will allow these cases.

However, Kirk, can you please provide more information about the case to which you are referring? This morning, I found the case of Blake v. H2-A and H2-B Voluntary Employees' Beneficiary Association (952 F.Supp. 927 (D.C. Conn. 1997)), where the court dismissed plaintiff's claim concerning ERISA Section 510. In that case, the court permitted the plan to amend a plan to impose a lifetime limit and to count benefits paid before the effective date of the amendment toward that limit. The court determined that ERISA Section 510 could apply to the case, but then determined that the amendment did not interfere with the existence of a right to which the plaintiff was entitled under the plan. There's no continued right to a certain level of medical benefits under the plan, if the plan contains a provision permitting the employer to amend the plan.

Thanks.

[Guest Stepper]

Sounds like McGann v. M&M Music. There, the US S.Ct. allowed the plan to change the lifetime max from $1 million to $5,000 for treatment for AIDS. While the result would be different now because of the discrimination regs, the rule about changing terms would still apply.

[Guest kbs]

Stepper, you are correct, it is pretty close to McGann, except that it looks like the company in McGann did not count any health care costs that were incurred prior to the effective date of the amendment lowering the lifetime cap. The company allowed the participant to incur $5,000 in claims after the effective date before cutting the participant off completely.

Thanks.

[Steve72]

I believe it's actually McGann v H&H Music, and I don't think it ever made it to the Supreme Court.

The Supreme Court case was Intermodal Rail v. Atchison.

Based on a re-reading of those cases, I agree that 510 isn't employee decisions only. I was incorrect above.

However, I think those cases made it clear that an amendment, even if it negatively impacts one individual, won't be considered 510 discrimination unless there is a "specific intent to discriminate". Given the specificity with which the HIPAA nondiscrimination regs address this very situation, I think a court would be hard pressed to find 510 discrimination in such a case (absent some sort of smoking gun evidence of retaliation against an individual employee or some similar horror story.)

[Kirk Maldonado]

If it had been a reported case, it wouldn't have been necessary for me to change the facts.

How about this as a smoking gun? The lifetime limit takes into account prior reimbursements and the new lifetime limit is less than the amount of reimbursements that the participant has already received. Also, assume a small employer who was acutely aware of the participant's medical bills.

[Guest Stepper]

True, it was H&H. I was shooting from memory, and had just put on my first pair of bifocals (no line). Also, the Supreme Court denied cert, letting the 5th Circuit decision stand.

[mbozek]

Kirk: Under your hypothetical every employer action to reduce future benefit liability for current participants would be suspect under 510, e.g, elimination of retiree health or termination of pension plan.