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Retiree-Only Health Plan Exempt From Lifetime Dollar Limit, Court Rules

King v. Blue Cross and Blue Shield of Illinois, 2015 WL 2385684 (S.D. Cal. 2015)

A trial court has held that the ERISA rule exempting retiree-only plans from some group health plan requirements was not eliminated by health care reform, and also works to exempt retiree-only plans from certain health care reform mandates. A participant in a self-insured retiree-only plan challenged the plan’s imposition of a lifetime dollar limit on benefits, asserting that the limit violated health care reform’s prohibition on such limits for essential health benefits. (This prohibition has been effective since 2010; see our article.) The plan countered that, as a retiree-only plan, it was exempt from that prohibition.

The participant argued that ERISA § 732, which exempts retiree-only plans from certain group health plan mandates, conflicts with the Public Health Service Act (PHSA), which sets forth the mandates added by health care reform, because the PHSA no longer contains such an express exemption (although it did before the PHSA was revised under health care reform). According to the participant, the prohibition on lifetime dollar limits should apply to retiree-only plans as a result of ERISA § 715(a)(2), which generally provides that the health care reform rules take precedence over conflicting ERISA provisions. But the court disagreed, concluding that even though the PHSA no longer contains an explicit retiree-only exemption, this did not reveal a conflict between the provisions or indicate that Congress, in enacting health care reform, intended to eliminate the retiree-only exemption. Furthermore, the court pointed out, the retiree-only exemption by its terms exempts retiree-only plans from the conflict provisions of ERISA § 715(a)(2). Finally, the court noted that the DOL (and the IRS and HHS) indicated, albeit in a nonbinding regulatory preamble (see our article), that the retiree-only exemption remains in effect and applies to certain health care reform mandates, including the lifetime dollar-limit prohibition.

EBIA Comment: As the court noted, the earlier confirmation by the DOL, IRS, and HHS regarding the continued existence of the retiree-only exemption is not binding on courts. Although this court was persuaded, another might not be. And the fact that the court specifically noted the lack of a retiree-only exemption in the PHSA itself may give governmental plans added pause—although HHS has announced a nonenforcement policy with respect to the application of relevant PHSA provisions to those plans, a court would not necessarily be bound by this policy. For more information, see EBIA’s Health Care Reform manual at Sections V.E (“Small Group Health Plans, Including Retiree-Only Plans”) and IX.A (“Lifetime and Annual Dollar Limits”). See also EBIA’s HIPAA Portability, Privacy & Security manual at Section VI.E (“Small Group Health Plans, Including Retiree-Only Plans “) and EBIA’s Self-Insured Health Plans manual at Section XIII.F (“Dollar Limits and Durational Limits”).

Contributing Editors: EBIA Staff.

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