Two Recent Health And Welfare Cases Provide Important ERISA Reminders

• Published date: 17 August 2022
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Retirement, Superannuation & Pensions, Health & Safety, Employee Benefits & Compensation, Trials & Appeals & Compensation
• Law Firm: Foley & Lardner
• Author: Mr Michael Woolever

We usually focus most on significant ERISA court decisions, particularly those from the Supreme Court, that clarify important open legal issues under ERISA. However, some ERISA court decisions simply serve as important reminders to help us avoid problems in the future. In this article, we discuss two such recent cases.

Walsh v. Board of Trustees of Local 272 Welfare Fund and Local 272 Welfare Fund, 22-cv-592 (S.D.N.Y August 2, 2022)

This case involves a suit filed by the U.S. Department of Labor (DOL) against a Taft-Harley welfare plan and its trustees alleging violations of certain amendments that the Affordable Care Act (ACA) made to ERISA.

Pre-ACA, the Local 272 plan reimbursed 90% of covered benefit costs, but only up to a $125,000 maximum annual plan benefit, and also imposed a fixed dollar copay on prescription drugs (and certain other specified medical services), but only up to a maximum annual benefit of $5,000. There was no cap on the amount of a participant's out-of-pocket cost share over the applicable maximum benefit amounts. In other words, participants were responsible for 100% of the costs of most medical expenses they incurred over $125,000 (or over $5,000 for prescription drugs and certain other medical services).

The ACA imposed hard cost share caps on essential health benefits and prohibited dollar limits on specific benefits on plans that were not "grandfathered". Plans that were grandfathered under the ACA were not allowed to cap plan coverage for essential health services. Moreover, they lost grandfather status if they increased the cost share percentage in effect under the pre-ACA plan.

The Local 272 plan, which was grandfathered initially, applied for and obtained annual waivers (available under DOL regulations) of the ACA requirements through November 30, 2014. However, such waivers ceased to be available and the plan was required to fully comply with all ACA requirements applicable to grandfathered plans as of December 1, 2014.

Faced with having finally to comply with the ACA, the trustees met in September 2014 to discuss how to proceed. They ultimately adopted an amendment to the plan that eliminated the $125,000 cap on benefits (as required by the ACA for essential benefits under grandfathered plans), but at the same time increased the member's copayment obligation percentage from 10% to 90% for claims in excess of $125,000 (or of $5,000 for prescription drug claims). This second change caused the plan to lose grandfathered status and become subject to the normal ACA requirements.

As noted in the DOL's complaint, the board minutes from the meeting when the amendment was adopted show that the board approved these amendments even though the board had been advised about the potential penalties and other risks if the DOL were to audit the plan following the amendment.

Shortly thereafter, the trustees notified the participants of the amendment and its elimination of the $125,000 cap on benefits, as well as the increase in the copay obligation from 10% to 90% of covered charges without a cap on participant liability.

Roughly eight years later, on June 23, 2022, the DOL filed...