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Health Reform Bill Passed by House Restricts Employer Curtailment, Termination of Retiree Benefit

The health reform bill that passed the House of Representatives on Saturday, November 7, contains a provision that, if enacted, would limit severely the ability of employers to curtail or terminate retiree medical benefits provided to retired individuals and their beneficiaries. Moreover, the new rule (Section 110 of H.R. 3962) would be effective upon enactment. 

Proposal

Under the proposal, every group health plan is prohibited from reducing the benefits of a retired participant and his or her beneficiaries below the levels in effect at retirement, unless such reduction also is made with respect to active participants.  However, the plan still can enforce a total aggregate cap on amounts paid for retiree health coverage that is part of the plan at the time of retirement.  

Further, every group health plan also must contain express language effecting the above prohibition.

A prohibited reduction occurs when, as the result of a cost-sharing or premium increase or benefit reduction, the overall value of the package is reduced on an actuarial basis by more than 5%.

The Department of Labor can grant waivers from this provision to employers showing that compliance will result in undue hardship.

The provision would be effective upon enactment.  It is unclear whether plan amendments made now, but with a delayed effective date falling after enactment, or amendments whose effectiveness is conditioned upon enactment, will be sufficient to avoid application of the above prohibition.

At this time, the date of enactment of a health reform law containing this provision, or indeed, whether any law that may be passed will contain this provision, is unknown. While informal reports state a goal of passage by year end, some sources believe this unlikely.

Recommendations

(i) Consider how the potential enactment of this provision may affect your company.

(ii) Review your company’s retiree medical arrangements with a view to making a decision soon whether to retain or alter the current arrangement.  Part of the review would entail determining whether and when retiree benefits can be curtailed or terminated in light of plan documents and collective bargaining agreements and obligations.

(iii) Form an evaluation of the business effects of a prohibition on curtailing or terminating retiree medical benefits and determine a course of action.

For More Information

Please contact a member of the Employee Benefits group for information as to legal issues in curtailing or terminating retiree health benefits.