Health care benefits for retirees under pressure

November 15, 2012

HealthcareMany retirees expect to receive continuing health care benefits for their lifetimes.  However, these expectations are often being dashed as employers respond to financial pressures by reducing these benefits.

Two current cases point out the legal struggles that may result, and the issues on which debates over retiree health benefits may turn.

In the Witmer v. Acument Global Technologies case, the issue was whether a company promised “lifetime, unchangeable health care benefits” to its retired employees.

The U.S. Court of Appeals concluded that the issue was to be decided as “a matter of contract.”

The collective bargaining agreement promised “continuous health insurance” at retirement.  However, it also contained a “reservation-of-rights” clause “reserving the right to amend. . .or terminate the Plan.”  The Plaintiff retirees argued that the reservation of rights applied only to “traditional pension benefits.”

The commitment read: “Employees who retire. . .shall be eligible for the Group benefits as described in the following paragraphs. . . .”

The Court concluded that the company had the right to terminate the health care benefits.

In a second case, Reese v. CNH America, the same issue arose, as to whether a company had the right to alter health care benefits for retirees.  For this situation, the Court found that the company could not terminate the benefits, as “eligibility for lifetime health care benefits had vested,” based on a collective bargaining agreement.

At issue was the question of “what does vesting mean in this setting?”  The Court concluded that “vesting in the context of health care benefits provides an evolving, not a fixed, benefit.”

The Court determined that the company could make “reasonable changes” to the Plan.  The remaining debate then focused on whether proposed changes the company made “on its own” met this standard.  The case was remanded for evaluation of this issue.

The Court provided a list of factors to be considered when determining whether changes to a health plan are reasonable.

In a dissent, one Judge found that confirming such a right by the company to make a unilateral change in benefits was an error by the Court, and argued that past benefits had to be “maintained precisely,” subject to collective bargaining revisions.

These cases illustrate the struggles being faced by the Courts when dealing with the revision or termination of retiree health benefits.  It is difficult to determine the meaning of a contract (no matter its form) as a matter of retrospective review.  And with extensive changes in health care delivery over a period of decades, it is also difficult to decide how past benefits should be modified for the present.

The situations presented here dealt with the rights of a company to terminate benefits; the legal duty of a company to prepare reasonable revisions to a Plan; and a requirement for all Plan revisions through collective bargaining.  It may be expected that many other similar issues will continue to evolve as companies attempt to reduce retiree expenses.

Attorneys Ferd and Cheryl Mitchell have written a recent book on implementation of the Affordable Care Act, listed as “Legal Practice Implications of the New U.S. National Health Care Plan” (July, 2012)