Ruling jeopardizes some health coverage Millions seen losing insurance for costly diseases

WASHINGTON — WASHINGTON -- At least 34 million Americans -- and probabl many more -- who work for companies with self-insured health plans could be deprived of their coverage for such costly illnesses as AIDS or cancer, health care specialists warned yesterday.

They were speaking in light of the Supreme Court's decision Monday to let stand a federal appeals court ruling that allows companies with self-funding health care schemes to slash coverage for expensive treatments after their workers develop catastrophic illnesses.


While there are no indications that cutting the benefits of seriously ill employees has become a widespread practice, health care specialists say workers are vulnerable, particularly if a self-insured company faces financial difficulties.

"It indicates a meltdown in the [health care] system," said U.S. Chamber of Commerce health care spokeswoman Kristin Bass.


"This clearly underscores the need for comprehensive health care reform," said Ron Pollack of the consumer group Families USA.

"It shows cause for a great deal of anxiety -- not only for the uninsured but also for those people who are insured," he said.

Members of Congress vowed to pursue legislation to amend the 1974 federal Employee Retirement Income Security Act (ERISA), which governs certain health insurance plans, and which frees companies with self-funding health insurance from the constraints of state regulation.

The legislation, which would have strengthened requirements that companies pay full benefits, was introduced in the House last month but failed to go anywhere before adjournment.

But a spokesman for Rep. Sherwood Boehlert, a New York Republican who is minority leader of the House Subcommittee on Retirement Income and Employment, said it would be reintroduced early in the new term.

Meanwhile, California Democratic Rep. Henry Waxman, who has been a leader on AIDS issues, said yesterday he would work with the administration of President-elect Bill Clinton to "figure out a complete reform of the entire health care issue."

Mr. Clinton made comprehensive health care reform a core component of his campaign, advocating a market-based system that would seek to cover all Americans, check spiraling costs, equalize premiums and link payments to the resources of specific communities.

It was an apparent loophole in ERISA that allowed a small Houston company, H&H; Music, to cut its plan for $1 million in lifetime medical coverage to $5,000 for workers with acquired immune deficiency syndrome. The company made the change after one of its employees, John W. "Jack" McGann, developed AIDS in 1988.


In a ruling a year ago, the 5th U.S. Circuit Court of Appeals in New Orleans said there was nothing in the federal pension law that makes it illegal for an employer to change a plan to reduce coverage for a specific disease.

The Supreme Court let that decision stand Monday.

Spokesmen for big companies with private health insurance, however, were quick to draw a line between the security of their benefits and those of small companies, such as H&H; Music.

"This is not a problem that's going to arise in the universe we represent," said Mark Ugoretz, president of the ERISA Industries Committee, a Washington-based representative for companies with 10,000 or more employees.

He argued that large companies with self-insured health plans ,, have the money to absorb large claims far more easily than small companies. Health care reform should concentrate on encouraging small companies to purchase health insurance in large pools, enabling them to buy health care more cheaply and absorb large claims, he said.

Mr. Ugoretz maintained that in refraining from issuing a ruling on the H&H; Music case, the Supreme Court had not set a precedent. But the American Medical Association disputed this, saying that a precedent had been implied and that the original appeals court decision was a precedent.


"The fact is, there is nothing to stop companies [with self-funded health insurance] from reneging on their promises," said a lawyer for a major health-care lobbying group.

While the Supreme Court did not explain why it refused to consider the case, it did consider testimony from the Bush administration urging the court not to take it up.

The administration argued that a relatively new law, the Americans with Disabilities Act of 1990, which protects people with disabilities from discrimination, would cover the rights of workers with AIDS.

Legal experts in health care, however, say it is too early to be sure of that, since the law has not been tested.

Health care specialists are divided over how many American workers could be affected by the loophole in the federal pension law.

The latest figures available from the Department of Health and Human Services show that 44 percent of nearly 77 million people with health insurance coverage -- 34 million -- worked for companies with self-funded schemes in 1987.


The Employee Benefits Research Institute, meanwhile, says that percent of large employers operated self-insurance plans in 1991 -- a figure which suggests the number of workers with disputable coverage may be far higher than the 34 million cited by the government.