Reference no: EM13321831

Essay.

1. Brief the case of McGann v. H and H Music Company on page 27

Law versus Ethics

McGANN v. H & H MUSIC COMPNAY

GARWOOD,J.

Plaintiff-appellant John McGann (McGann) filed this suit under … the Employee Retirement Income Security Act of 1974, [citation] (ERISA), against defendants-appellees H & H Music Company (H &H Music), Brook Mays Music Company (Brook Mays) and General American Life Insurance Company (General American) (collectively defendants) claiming that they discriminated against McGann, an employee of H & H Music, by reducing benefits available to H & H Music’s group medical plan beneficiaries for treatment for acquired immune deficiency syndrome (AIDS) and related illness. The district court granted defendants’ motion for summary judgment on the ground that an employer has an absolute right to alter the terms of medical coverage available to plan beneficiaries. [Citation]. We affirm.

McGann, an employee of H & H Music, discovered that he was afflicted with AIDS in December 1987. Soon thereafter, McGann submitted his first claims for reimbursement under H & H Music’s group medical plan, provided through Brook Mays, the plan administrator, and issued by General American, the plan insurer, and informed his employer that he had AIDS. McGann met with officals of H & H Music in March 1988, at which time they discussed McGann’s illness. Before the change in the terms of the plan, it provided for lifetime medical benefits of up to $1,000,000 to all employees.

In July 1988, H & H Music informed its employees that, effective August 1, 1988, changes would be made in their medical coverage. These changes included, but were not limited to, limitation of benefits payable for AIDS-related claim to a life-time maximum of $5,000. No limitation was placed on any other catastrophic illness. H & H Music became self-insured under the new plan and General American became the plan’s administrator. By January 1990, McGann had exhausted the $5,000 limit on coverage for his illness.

McGann’s allegations show no promised benefit, for there is nothing to indicate that defendants ever promised that the $1,000,000 coverage limit was permanent. The H & H Music plan expressly provides: “Termination or Amendment of Plan: The Plan Sponsor may terminate or amend the Plan at any time or terminate any benefit under the Plan at any time.” There is no allegation or evidence that any oral or written representations were made to McGann that the $1,000,000 coverage limit would never be lowered. Defendants broke no promise to McGann. The continued availability of the $1,000,000 limit was not a right to which McGann may have become entitled…..

McGann appears to contend that the reduction in AIDS benefits alone supports an inference of specific intent to retaliate against him or to interfere with his future exercise of rights….McGann characterizes as evidence of an individualized intent to discriminate the fact that AIDS was the only catastrophic illness to which the $5,000 limit was applied and the fact that McGann was the only employee known to have AIDS. He contends that if defendants reduced AIDS coverage because they learned of McGann’s illness through his exercising of his rights…by filing claims, the coverage reduction therefore could be “retaliation” for McGann’s filing of the claims. Under McGann’s theory, any reduction in employee benefits would be impermissibly discriminatory if motivated by a desire to avoid the anticipated costs of continuing to provide coverage for a particular beneficiary. McGann would find an implied promise not to discriminate for his purpose; it is the breaking of this promise that McGann appears to contend constitutes interference with a future entitlement.

McGann effectively contends that section 510 was intended to prohibit any discrimination in the alteration of an employee benefits plan that results in an identifiable employee or group of employees being treated differently from other employees.

The Supreme Court has observed in dictum: “ERISA does not mandate that employers provide any particular benefits, and does not itself proscribe discrimination in the provision of employee benefits.” [Citation] To interpret “discrimination” broadly to include defendants’ conduct would clearly conflict with Congress’s intent that employers remain free to create, modify and terminate the terms and conditions of employee benefits plans without governmental interference.

As persuasively explained by the Second Circuit, the policy of allowing employers freedom to amend or eliminate employee benefits is particularly compelling with respect to medical plans:

“With regard to an employer’s right to change medical plans, Congress evidenced its recognition of the need for flexibility in rejecting the automatic vesting of welfare plans. Automatic vesting was rejected because the costs of such plans are subject to fluctuating and unpredictable variables. Actuarial decisions concerning fixed annuities are based on fairly stable data, and vesting is appropriate. In contrast, medical insurance must take account of inflation, changes in medical practice and technology, and increases in the costs of treatment independent of inflation. These unstable variables prevent accurate predictions of future needs and costs.”

MaGann’s claim cannot be reconciled with the well-settled principle that Congress did not intend that ERISA circumscribe employers’ control over the content of benefits plans they offered to their employee. ERISA does not broadly prevent an employer from “discrimination” in the creation, alteration or termination of employee benefits plans; thus, evidence of such intentional discrimination cannot alone sustain a claim. It does not prohibit an employer from electing not to cover or continue to cover AIDS, while covering or continuing to cover other catastrophic illnesses, even though the employer’s decision in this respect may stem from some “prejudice” against AIDS or its victims generally. The same, of course, is true of any other disease and its victims. That sort of “discrimination” is simple not addressed by [ERISA]. Under [ERISA], the asserted discrimination is illegal only if it is motivated by a desire to retaliate against an employee or to deprive an employee of an existing right to which he may become entitled. The district court’s decision to grant summary judgment to defendants therefore was proper. Its judgment is accordingly Affirmed.