Unlike most industrialized countries, the U.S. does not provide universal government-sponsored health insurance coverage to all of its citizens and residents.

Instead, most Americans receive coverage through their employer, while older Americans and people of lesser means receive either Medicare or Medicaid benefits.

For self-employed individuals, the Affordable Care Act has made health insurance more accessible, but by no means guaranteed, as illustrated by a ruling last month from the U.S. District Court for the Central District of California in Asner v. SAG-AFTRA Health Fund.[1]

Although the ruling does not question the ongoing viability of employer-sponsored, rather than government-sponsored, health insurance, the circumstances of the case suggest the issue needs further examination.

The Asner case was brought as a class action by a group of actors and their dependents in relation to so-called senior performer coverage, available to performers 65 and older who were members of the union.

In 1960, the SAG health plan was created to provide health benefits to all Screen Actors Guild members and was initially funded by actors surrendering their rights to residual earnings from movies made prior to 1960.

In 2012, the Screen Actors Guild merged with another union, the American Federation of Television and Radio Artists, or AFTRA.

The proposed merger was challenged at that time on the ground that the SAG funds were better financed than the AFTRA funds, although the opposite was also alleged. Ultimately, the merger was consummated.

Thereafter, the merged health plan was funded through contributions by employers based on collective bargaining agreements with the union that provided for payment of a percentage of a performer’s sessional earnings, i.e., wages earned for services performed that day, and residual earnings, i.e., compensation for prior work when it is exhibited at a later point in another medium or in television reruns.

Following the SAG-AFTRA merger, the plan continued to provide senior performer coverage for members older than 65 who were receiving a pension from either the SAG or AFTRA pension plan.

The senior performer coverage provided benefits that were secondary to Medicare coverage, so long as the performer was only receiving residual earnings.

By 2018, the SAG-AFTRA health plan was running a growing deficit, and in response, the plan announced amendments in 2020 eliminating the senior performer coverage.

The plan directed those who were losing coverage to a private broker to secure Medicare supplement coverage, which the plaintiffs claimed was significantly more costly than what the participants had previously been paying in insurance premiums.

Those who were impacted by the amendment sued the plan, alleging a number of violations under the Employee Retirement Income Security Act relating to the plan trustees’ fiduciary obligations that were owed to them and the other class members.

Most of the claims were centered around allegations that the plan fiduciaries failed to conduct a premerger investigation as to the future funding of the merged plan, and that they failed to disclose the plan’s financial condition during collective bargaining negotiations in 2019 and 2020.

The plan, however, asserted that plan design decisions are not fiduciary acts, citing U.S. Supreme Court precedents that have distinguished decisions regarding plan design issues and the right to amend benefit plans from claims involving fiduciary breaches.[2]

Indeed, in Curtiss-Wright Corp. v. Schoonejongen,[3] the Supreme Court ruled in 1995 that an amendment of a

plan to deprive respondents of health benefits is not a cognizable complaint under ERISA; the only cognizable claim is that the company did not do so in a permissible manner.

Thus, providing false or misleading communications about plan amendments as they would affect the plan’s future would implicate fiduciary duties.

In that respect, the court found that the plan’s representations that the merger would lead to a financially strengthened plan potentially violated the trustees’ fiduciary duty, just as similar representations were found to have violated fiduciary duties in the Supreme Court’s 1996 Varity Corp. v. Howe decision.[4]

The Asner court explained:

In Varity, the Supreme Court held that “making intentional representations about the future of plan benefits” which are, in context, “materially misleading … is an act of plan administration” subject to ERISA-imposed fiduciary obligations.[5]

The court further observed, though, that it would be

inappropriate to grant defendants’ motion to dismiss on the basis of fact-intensive contentions regarding the relative strength of the SAG and AFTRA plans prior to the Health Plans Merger, whether a diligent pre-merger investigation would have revealed the Health Plans Merger was imprudent, and why the SAG-AFTRA Health Plan began to suffer financial difficulties less than two years after the Health Plans Merger.

Thus, the court permitted the entire matter to proceed.

The underlying lawsuit and this ruling raise several issues relating to the duties and obligations of plan sponsors, but while the claims survived dismissal, it appears doubtful that the plaintiffs will ultimately be successful.

Peeling away the details from what was really at stake, this case is about whether union members, or any employees who participate in retiree health plans, for that matter, who are no longer actively working, have a right to lifetime health benefits.

Under the so-called Medicare as secondary payer rules,[6] actors who continued working after age 65 had a right to remain in the SAG-AFTRA health plan, and for the plan to be their primary coverage instead of Medicare.

However, as to the senior performers who were not actively working, Medicare was their primary coverage.

Surely, the impetus for the 2020 amendments was that senior performers who were receiving only residual payments were not paying for the actual cost of maintaining their health insurance.

So long as the U.S. lacks a national health insurance program, and the burden of providing coverage is placed on employers, there will continue to be cases like this.

Indeed, there have been many cases brought that have challenged the denial of retiree health benefits,[7] but the vast majority were won by employers who were found to have acted within their legal authority to amend their plans.

Many major pieces of federal welfare legislation have had unintended adverse consequences, and the Medicare law is no exception.

While Medicare constitutes government-guaranteed health insurance for the elderly and disabled, it has also given employers a means to discontinue the health care coverage that was previously promised to employees.

Once an employee age 65 or over ceases working, Medicare is their primary coverage, even if they maintain retiree health insurance.

Given ever-rising costs for health insurance, it makes little sense to require employers to remain obligated to continue such health insurance for former workers when their primary coverage is with Medicare.

A broader question, though, is how long the model of employer-sponsored health care will persist, since the cost of health insurance coverage is increasing at a galloping pace.[8]

Thus, while the plaintiffs in the Asner case won the opening skirmish in this battle, the war in that case, and in other cases that raise similar issues, is far from over.

Mark DeBofsky is a member at DeBofsky Law.

This article was first published by Law 360 on September 13th, 2021.

[1] Edward Asner v. SAG-AFTRA Health Fund, 2021 U.S. Dist. LEXIS 166222, 2021 WL 3913173 (C.D. Cal. August 30, 2021).

[2] See, Lockheed Corp. v. Spink, 517 U.S. 882, 890, 116 S. Ct. 1783, 1789, 135 L. Ed. 2d 153 (1996).

[3] Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995).

[4] Varity Corp. v. Howe, 516 U.S. 489 (1996).

[5] Asner, 2021 U.S. Dist. LEXIS 16222 at *31 (citing Varity Corp., 516 U.S. at 505).

[6] See, “Medicare Secondary Payer” at https://www.cms.gov/Medicare/Coordination-of-Benefits-and-Recovery/Coordination-of-Benefits-and-Recovery-Overview/Medicare-Secondary-Payer/Medicare-Secondary-Payer

[7] Frahm v. Equitable Life Assur. Soc’y Of the U.S., 137 F.3d 955 (7th Cir. 1998); Sullivan v. CUNA Mut. Ins. Soc’y, 649 F.3d 553 (7th Cir. 2011).

[8] See, Miller, “Inflation, Other Factors, Drive Up Health Care Costs,” SHRM, available at https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/rising-inflation-will-affect-health-care-costs.aspx.

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