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Appeals Court Ruling on AIDS Insurance Could Affect Non-AIDS Patients

November 27, 1991

NEW ORLEANS (AP) _ A federal appeals court has ruled that employers who provide self-insured health plans for their workers have the right to substantially reduce medical benefits to those with AIDS-related illnesses.

The Nov. 4 decision by the U.S. 5th Circuit Court of Appeals could hurt patients with other illnesses, lawyers involved in the issue said in interviews this week.

″If this ruling stands, it’s a question of any illness that an employer decides to exclude from their health plan, not just AIDS,″ said Thomas B. Stoddard, executive director of Lambda Legal Defense and Education Fund in New York City.

″A self-insured employer could decide leukemia is too expensive, or for that matter any type of cancer or any other illness.″

It was the first federal appeals court ruling of its kind and becomes law in Louisiana, Texas and Mississippi, states in the 5th Circuit’s jurisdiction, unless overturned by the U.S. Supreme Court. A decision on whether to ask the high court to review the ruling will be made by Dec. 5, Stoddard said.

The ruling, in one of two cases in the federal system, focused on whether employers can legally deny health benefits to a few of their sickest employees in order to continue benefits for the rest of their work force.

The ruling stemmed from a lawsuit John McGann filed against a Houston music store that cut his medical benefits after he told them he had acquired immune deficiency syndrome. He died earlier this year, but his lawyers, including Stoddard, are pursuing the lawsuit.

McGann’s lifetime benefits went from $1 million to $5,0000 when the H&H Music Co. dropped its group insurance plan and became self-insured.

The company’s self-insurance plan adopted in 1988 excluded treatment for alcohol and drug abuse and placed a $5,000 cap on treatment for AIDS-related illnesses while offering a $1 million total in other cases, said the store’s attorney, Mark Huvard.

Huvard said plaintiff’s attorneys argued, in effect, ″that the company retaliated because they knew he had AIDS and they did it to punish him. H&H disputes that.″

Supporters said the ruling backs the right of self-insured employers to choose between providing catastrophic care for a few seriously ill workers or providing benefits for all employees by limiting coverage needed by a few.

The appeals court interpreted the Employment Retirement Income Security Act, the only federal statute that provides protection against discrimination by companies that self-insure, Stoddard said this week.

If it is ruled to have little or no meaning, he said, companies that self- insure can escape both federal and state regulation.

″In essence, under this ruling, a company can set one group of employees against another by deciding what are acceptable illnesses to cover and what aren’t,″ Stoddard said.

Marie Healy, a health plan lawyer in New Orleans, said the McGann ruling will prompt more employers to begin limiting their health-care benefits ″just in case″ the Supreme Court doesn’t overturn it.

″It’s a question of you’ve got so much money in the pot and how are you going to spend it,″ Healy said.

Atlanta AIDS Project Attorney Chip Rowan, who is handling a similar case before the 11th Circuit Court of Appeals in Atlanta, agreed the decision could be used to eliminate coverage for other expensive diseases.

″This leaves anyone with a catastrophic illness vulnerable to having their benefits cut off,″ said Rowan, who expects a spring ruling in his case.

The 5th Circuit said federal law does not dictate what type or level of benefits employers must offer workers. The H&H music store argued that by reducing benefits to McGann, it saved health benefits for other employees.

Under the law governing self-insured plans, employee benefits are not written in stone, Huvard said. Employers would not offer health benefits if they were locked into them forever, because there is no way to know if they can afford them forever, he said.

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