December 3, 2009Client Alert

Retiree Medical Benefit Reductions Limited under Proposed Health Care Reform

House Proposal

On November 7, 2009, the House of Representatives approved H.R. 3962, the Affordable Health Care for America Act (the “House Bill”). Section 110 of the House Bill amends the Employee Retirement Income Security Act of 1974 (“ERISA”) to require all group health plans, including union plans, to add a provision that expressly bars post-retirement reductions in the benefits provided to retirees or their beneficiaries unless the reduction is also made with respect to active participants. This prohibition would override any plan provision that reserves the right to amend or terminate the plan or specifically authorizes the plan to make post-retirement reductions in retiree medical benefits. A group health plan would not be prohibited from enforcing a total aggregate cap on amounts paid for retiree health coverage, provided the cap is part of the plan when the participant retires.

A “reduction in benefits” under this proposal would occur when there are:

  • Changes in premiums: a participant’s or beneficiary’s share of the total premium (or for self-insured plans, costs of coverage) for the plan increases by more than 5%, or

  • Changes in other cost-sharing and benefits: the actuarial value of the benefit package decreases by more than 5%.

An employer could apply to the Secretary of Labor for a waiver from the above requirements if the employer can reasonably demonstrate that the requirements would impose an “undue hardship” on the employer. The House Bill does not define what constitutes an “undue hardship” so additional guidance will be necessary.

On November 18, 2009, Senate Majority Leader Reid released the Patient Protection and Affordable Health Care Act, H.R. 3590, for consideration in the Senate (the “Senate Bill”). As currently drafted, the Senate Bill does not contain a provision similar to Section 110 of the House Bill.

Effective Date

The law changes proposed by the House Bill would become effective on the date the bill is enacted into law.

Action Steps

As currently drafted, the House Bill does not prohibit employers from reducing or terminating retiree medical benefits prior to its enactment or reducing total aggregate caps for retiree benefits prior to its enactment. The Senate Bill does not contain a similar provision which creates uncertainty as to whether Section 110 of the House Bill will ultimately be included in the final version of the bill after conference committee reconciliation.

Employers with retiree medical plans should contact their legal counsel to discuss whether and when to amend retiree medical plans, although all employers should be mindful that as the legislative process on health care reform generally continues, the effective date of this change may be made retroactive in any final legislation passed. Naturally, if the retiree medical plan is subject to a collective bargaining agreement, an employer would need to consider whether an amendment would be permitted under the collective bargaining agreement.

If you have any questions about the issues raised in this alert or the proposed health care reform legislation generally, please contact the author of this alert, Kelli A. Toronyi, at 312.596.5811, or, or a member of our Employee Benefits Practice Group listed below. 

Michael Best is pleased to announce that Kelli A. Toronyi has joined the firm as a partner, primarily practicing in employee benefits, executive compensation, employment, business, and tax law.

Ms. Toronyi advises clients in all aspects of employee benefits and executive compensation law, including qualified retirement plans, non-qualified deferred compensation plans, welfare benefit plans, Code Section 409A, executive employment agreements and change in control agreements, equity-based and incentive compensation arrangements, ERISA litigation, and ERISA fiduciary and prohibited transaction issues. She also advises public companies with respect to executive compensation disclosure obligations under the SEC’s proxy disclosure rules.

Ms. Toronyi has substantial experience representing clients in asset and stock mergers, acquisitions and sales, including negotiations, drafting, and advising with regard to pre- and post-closing benefits issues.

Employee Benefits Practice Group

John L. Barlament 414.225.2793 

David W. Croysdale 414.271.6560 

Charles P. Stevens 414.225.8268 

Kelli A. Toronyi 312.596.5811 

John C. Lapinksi 414.225.4941 

Kirk A. Pelikan 414.223.2529 

Circular 230 Notice

: Any Federal tax advice contained in this Client Alert is not to be used for, and cannot be used for, the purpose of avoiding any penalties that may be imposed under Federal tax laws.

Client Alerts are issued periodically to keep Michael Best & Friedrich LLP clients and other interested parties informed of current legal developments that may be of interest to them. This Alert should not be considered as, or as a substitute for, legal advice. Nothing in this Alert is intended to create or creates an attorney-client relationship. You should always consult with professional counsel prior to taking or refraining from taking any action based on the content of this Alert. For ­further information, feel free to contact the article author or other members of the firm. We welcome your comments and ­suggestions regarding this publication. © 2009 Michael Best & Friedrich LLP. All rights reserved.

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