Kentucky Employment Law Blog

Retroactive Termination of Medical Insurance Violates FMLA

The Family Medical Leave Act (FMLA) prohibits an employer from interfering with or retaliating against an employee who asserts or exercises her rights to take leave from work under the FMLA. Both these prohibitions were violated by the employer's retroactive termination of an employee's medical insurance the Seventh Circuit has ruled in Ryl-Kuchar v Care Centers, Inc., No. 08-2688 (May 11, 2009).

Kathleen Ryl-Kuchar had worked for Care Centers, Inc. for over 17 years when she became pregnant with triplets in late 2002. She worked all the way up to delivery on July 17, 2003, although during the later part of her pregnancy, she worked from home and in some weeks less than 35 hours per week. Ryl-Kuchar returned to work right after delivery but began FMLA leave a short time later. A few weeks later, she elected to terminate her employment effective October 1.

About six weeks after resigning, Ryl-Kuchar learned that her health insurance had been retroactively cancelled on June 15 -- just at the point where, as the court observed, she really began "piling up" the medical bills related to her pregnancy. The employer asserted that it had retroactively cancelled her medical insurance on the grounds that she had become ineligible for the coverage by having worked for less than 35 hours some weeks prior to delivery.

Ryl-Kuchar sued under the FMLA and claimed that the retroactive cancellation of her medical insurance was based on her decision to take FMLA leave. She presented evidence "that Care Centers was concerned with rising health care costs, as evidenced by an article in the company newsletter," and that the claim she had become a part-time employee was groundless, since she was a salaried employee and had kept, at all times, the same rate of pay. Only after she took FMLA leave, Ryl-Kuchar pointed out, was there an audit of her payroll records and a claim of "mistake" regarding her eligibility for medical insurance. This proof, the court ruled, was enough to show that Care Centers retaliated against Ryl-Kuchar for taking FMLA leave by retroactively cancelling her medical insurance.

The court also ruled that Ryl-Kuchar had easily show unlawful interference with her rights under the FMLA. The court explained that the FMLA requires that an employee on FMLA leave is "entitled to have health benefits maintained while on leave as if the employee had continued to work instead of taking the leave."

Robert L. Abell
www.RobertAbellLaw.com

Breach of Fiduciary Duty Suit Arising From Medical Insurance Overcharges Settled

Hospital employees, who were charged higher fees by a group health plan it owned than it charged employees of other client companies, have settled a lawsuit alleging that the overcharges violated the employer's fiduciary duties under ERISA reports the Winston-Salem Journal, "Baptist Hospital Settles Suit On Health Plan."

The lawsuit claims that the hospital, North Carolina Baptist Hospital (NCBH) charged its employees higher fees for services rendered at the hospital through a group health plan, MedCost, which was owned by the hospital, than those charged to employees of other corporate clients. The hospital employees also had higher co-pays and lower discounts.  The report is:

"NCBH selected its subsidiary, MedCost, as the network provider for the plan knowing that MedCost would include NCBH in its provider network at substantially inflated reimbursement rates," according to the lawsuit. "The selection was made not on the basis of quality or cost from a fiduciary standpoint, but rather was based on NCBH's own economic interests."

The settlement will allow employees to recover damages for their overpayments going back to 2002 and will limit their charges in the future.  

Robert L. Abell
www.RobertAbellLaw.com

Insurance Company's Payment Of Claim Is Notice of Claimant's Condition

More than three years after its initial payment to treat a claimant's hemophilia an insurance company brought suit seeking to recover its payments.  The Sixth Circuit ruled in Medical Mut. of Ohio v. k. Amalia Enterprises, Inc., No. 07-4422 (6th Cir. December 2, 2008) that the suit was untimely and ruled that the initial claim provided "sufficient information to place it on notice" that the claim's coverage should be investigated.  

Medical Mutual of Ohio provided group health insurance to employees of k. Amalia Enterprises.  An employee, Loan A. Tran, and her husband, Khanh B. Luu, submitted forms, as part of the initial application process that did not indicate that their son had a pre-existing condition, hemophilia.  Four months after coverage began the insurance company paid the first of a series of claims to treat the child's hemophilia.  About two and a half years later and after having paid some $525,000 in claims, the insurance company did an audit and claimed that only then did it realize the child had a preexisting condition.  It filed suit seeking to recover some or all of its payments.

The court ruled that the insurance company waited too long to file its suit, ruling that "it reasonably should have discovered the fact" of the child's preexisting condition when it paid the first of many claims more than three years before it filed suit.  

Robert L. Abell

www.RobertAbellLaw.com  

Retirement Plan Manager Breached Fiduciary Duty By Secretly Increasing Retirees' Medical Insurance Premiums

A retirement plan manager breached its fiduciary duty under ERISA by increasing without notice to the plan's participants their medical insurance premiums, the United States Court of Appeals ruled in Orth v. Wisconsin State Employees Union, No. 07-2778 (7th Cir. October 22, 2008).  When the plaintiff, Orth, retired a collective bargaining agreement provision required the plan to apply the monetary value of his accrued and unused sick leave toward his portion (10%) of his medical insurance premium.  However, the plan manager without notifying Orth or other retirees increased his premium portion to 100%, a practice that Orth learned of when the plan manager told him to send more money to pay his medical insurance premium.  This court ruled that this change breached the plan manager's fiduciary duty because ERISA required the plan manager to notify the retirees of any changes to their plan.  Also, the court noted that ERISA requires that "a plan's participants and beneficiaries must be notified in writing of all modifications to the plan."  Therefore, the court concluded that the change was "doubly unlawful -- as unwritten and as secret."  

The court also ruled that Orth was properly awarded restoration of his accrued sick leave benefits.  In addition, the court upheld an award of attorneys' fees to Orth, asserting that the "use of deceptive conduct toward the retired employees as a basis for trying to duck liability was shabby."  And the court added that "one purpose of allowing an award of attorneys' fees to a prevailing plaintiff is to disable defendants from inflicting with impunity small losses on the people whom they wrong." 

Robert L. Abell
www.RobertAbellLaw.com

Fired Because of A Sick Family Member: Protection Against "Association Discrimination"

One of the most important benefits most people get from their jobs is health care insurance for themselves and their families.  This health insurance becomes of vital importance when a family member falls into a prolonged illness.  From the employer's perspective, especially where the employer is self-insured, a prolonged illness for an employee's family member becomes a cost liability which can create an incentive for the employer to rid itself of both the employee and their sick family member.  Where this occurs the Americans With Disabilities Act (ADA) may provide some protection for the employee and their family.

The ADA prohibits discrimination against an employee "because of the known disability of an individual with whom the [employee] is known to have a relationship or association."  This is commonly referred to as protection against association discrimination.  Two recent cases, one decided by the United States Court of Appeals for the Seventh Circuit DeWitt v Proctor Hospital, and Trujillo v Pacificorp  decided by the United States Court of Appeals for the Tenth Circuit illustrate this protection and in both cases the employer was self-employed.

In Dewitt, the employee's husband became ill with prostrate cancer.  The employer paid medical costs up to $250,000 per year before a "stop loss" policy kicked in.  Each quarter the employer had compiled a roster of all employees whose claims had exceeded $25,000.  When the bills for the employee's husband's treatment began mounting she was confronted about them and asked what type of treatment he was receiving and whether less expensive alternatives had been considered.  The hospital became concerned about the costs, its own overall financial situation and resolved to be "creative" in cutting costs.  And so the employee was fired. 

The Court ruled that a jury should consider the employee's claim of "association discrimination" in violation of the ADA.  It noted that the firing followed close in time expressions of concern to the employee regarding the costs of her husband's medical care and the employer's resolution to be "creative" in cutting costs.  Therefore, the court ruled that a reasonable juor could conclude the employer was concerned that the husband's illness could linger for years and at great cost to the employer and so therefore the employee was fired in violation of the ADA. 

Trujillo v. Pacificorp presents a similar sad story.  The Trujillos, husband and wife, both worked for Pacificorp and had for many years, he for 25 and she for 8 years.  Their son developed a brain tumor that metasized into his spine.  Aggressive and costly (in excess of $62,000) experimental chemotherapy was undertaken but was unsuccessful.  Pacificorp designated claims exceeding $50,000 as high-dollar and healthcare costs for each employee were factored into the plant's budget line item for labor costs. 

Eleven days after the Trujillos' son suffered a relapse and began the final chemotherapy regiment the employer began an investigation into alleged time theft by the Trujillos.  The evidence showed that the company did not use a time clock, that supervisors usually approved employees' time sheets based on their observations during the work day, that time sheets were somtimes filled out in advance, that supervisors sometimes allowed employees to leave early but to record a full shift, and that employees frequently used a "piggyback" procedure to pass through a security gate in which one employee would use his security card to get the gate to open and other employees would walk in as well.  Nonetheless, Pacificorp accused both of the Trujillos with time theft and terminated them.

The court ruled that evidence that Pacificorp had general concerns about the rising cost of healthcare, that the claims for the Trujillos' child were considered "high dollar," that there was only one other "high dollar" claim during the relevant time frame on which the employer kept close tabs, that insurance costs were factored into the budget line item for labor costs of each employee, and that the investigation regarding the Trujillos' alleged time theft was one-sided and incomplete was enough for a jury to find in their favor at trial. 

The DeWitt and Trujillo cases also illustrate general problems that arise from the United States' system of employer-based healthcare insurance.  It seems reasonable for employers to be concerned about rising healthcare costs and the effects those costs have on their ability to compete in their business fields.  And yet it is horribly unfair to fire an employee because they have an ill family member that is generating substantial insurance costs for the employer.  The current system and the ADA mandate that cost be borne solely by the employer who is unlucky enough to employ an individual unlucky to have a family member suffering from a serious illness.  One might reasonably suggest that a single-payer system in which the costs were borne more widely would be more equitable and fair to both the employer and the employee.  It may also eliminate the impulse for "association discrimination" behind both of these cases. 

Robert L. Abell
www.robertabelllaw.com