Does Your Health-care Plan Discriminate

June 1, 1996
To battle rising health-care costs, employers are introducing more caps and drawing more coverage lines. Yet employees are growing increasingly disaffected—and ready to challenge those constraints. The tension is coming to a head, fostering ugly lawsuits in which plaintiffs attack medical exclusions with charges of discrimination.

Does federal discrimination law mandate insurance coverage beyond pregnancy? Stay tuned. For now, employers should do a little troubleshooting by examining their plans for potentially discriminating caps and exclusions. Mark A. Casciari, a partner with Chicago-based law firm Seyfarth, Shaw, Fairweather & Geraldson, offers insight on the implications of these types of lawsuits—and advice on avoiding them.

How can a discrimination suit focus on a medical plan?
A female plaintiff could challenge an exclusion in her health-care plan that says there will be no coverage for experimental breast cancer or fertility treatments. She says that's discrimination, because she has breast cancer or is infertile. She says [in essence]: "You're harming me because of my disability. You're covering [people for] heart attacks, but you're not covering me with my medical condition."

So she says her medical condition is the target of discrimination because it's a disability?
She could say she's being discriminated against in two respects. One: I have a disability, and you're picking on my disability. Two: Breast cancer and infertility [are medical conditions] that are female-based. In the fertility context, infertility is like pregnancy, so if you say you're not going to pay for infertility, it's just like saying you're not going to pay for pregnancy. That's discrimination against women.

What's the real issue here?
The issue is whether federal discrimination law mandates any insurance payments besides pregnancy. And there's a lot of interest in exclusions in medical plans generally—for high-dose or experimental chemotherapy, AIDS, cosmetic surgery and mental illness. There's a real tension here. On one hand, employers want to have more exclusions because insurance costs so much. On the other hand, people with disabilities say they want fewer exclusions so they're not being [treated unfairly].

What are the broader implications of this phenomenon?
As employers cut back on plan coverage, people are going to use discrimination statutes to attack limitations in insurance plans. And they're going to do it through the ADA and Title VII of the Civil Rights Act in particular.

What are some examples of these discrimination charges?
There could be any number. Say a person has AIDS and the medical plan won't pay for all of his or her AIDS treatments. The employee says, "You're [unfairly excluding] my disability, because you pay for heart attacks." Or take mental illness. Someone says, "You won't pay for my mental illness, but you'll pay for someone who has cancer."

Could the discrimination attacks be expanded to include discrimination based on age—for instance, exclusions for a condition primarily affecting older people?
It's possible, but not likely, because if your plan says it's not going to cover medical expenses for employees older than 50, that's illegal. [Even for a condition specifically affecting older people], such an age discrimination claim would still be less likely than a sex-discrimination claim.

What would be the difference?
What makes a sex-discrimination [claim different] is that [plans] don't directly say they're not going to cover women. But there may be certain treatments that affect women more than men—for example, high-dose chemotherapy, because that's primarily associated with breast cancer, and only women get breast cancer. You can argue that your plan's not directly excluding women from coverage. But indirectly, a plan might, if only women have a particular condition or, of all the people who have a certain kind of cancer or need a certain kind of treatment, women predominate.

Is that going to be the major area of litigation?
I think the first major attack is going to be disability discrimination. That's the big issue, the No. 1 issue. And the second is sex discrimination.

What can employers do?
One thing the employer can do is cover everything to make everybody happy. In that regard—if you take the argument to its logical extreme—you might even have to cover cosmetic surgery. For instance, liposuction: It's a procedure women buy much more than men. So if you exclude liposuction, is that sex discrimination? It gets kind of silly, but the point is, employers have various options. One is to cover everything, so everybody is happy. But the problem with that is the premiums for all this would have to increase. If the employer covers everything, the cost of insurance for employees will go up.

What are other options?
The employer can say, "We're not going to give you insurance anymore. Go out and get it in the marketplace. We'll give you a $1,000 check, go buy your own." Now, it's much harder for people to get insurance on their own than through a group, so that's probably not good social policy. And the good people will go to a competing employer.

What about maintaining the status quo with regard to exclusions?
That's another option. An employer can keep these exclusions in the plan, on the theory that this is what insurance is all about—you do the greatest good for the greatest number. It's legitimate for the employer to say, "Listen, some of these procedures [such as fertility treatments] are just too elective. They're not really necessary to keep you working." So, the employer can refuse to cover that.

Could the same reasoning be applied to other treatments?
The same goes for liposuction. Or mental health: Employers can say they're not going to cover mental health the same as physical [illnesses], because there's a lot of abuse associated with it. So the employer could choose to keep its limitations. That's where most employers are going to fall, because they don't want to cover everything; it's too expensive. So then the question is: How do you draft your plan and your exclusions to limit the chance you're going to get sued?

So how do you avoid being sued?
There are a few things you can do. You can word your exclusion so it doesn't [focus on] people who have disabilities in a narrow way. For example, an exclusion on AIDS treatments looks more like a disability-based distinction than does an exclusion on fertility treatments. So the AIDS exclusion is more subject to being challenged in court. The reason is because all the courts have held that AIDS is a disability, and your exclusion singles out people with AIDS. But in the fertility context, the exclusion affects both people with disabilities and without. For example, a 60-year-old woman who wants fertility treatments isn't disabled under any condition. Her infertility is a function of her age, and aging isn't a disability. So that exclusion is more defensible in court than not paying for AIDS treatment.

What's another example of broad vs. narrow exclusions?
Another example is depression. To rule out paying for treatment for clinical depression would be a narrow exclusion. Instead, you could say in your plan the company won't pay for more than $1,000 of psychological counseling. That doesn't single out people whose clinical depression is a disability, because some people who have therapy aren't clinically depressed.

And that's the safest route?
The less you write these exclusions to focus on particular disabilities, the better chance you have in court. For example, saying you're not going to pay for eyeglasses affects some people who are disabled because their eyesight is so bad, but it also affects people who aren't, who just have normal glasses needs. That certainly would be more defensible than refusing to pay for eyeglasses for people who are legally blind, because that [targets] people with a disability. So the first point is to make your exclusion as broad as possible.

What's another good area of defense?
The second way you can defend yourself is to have justification for the exclusion that shows a cost rationale for it. A lot of insurance plans have actuaries that will prepare reports saying they recommend a certain exclusion because of expense. Smoking's a good example. Your actuary may be able to write up a report that says smokers have higher-than-usual medical expenses than non-smokers. Then, if you put in a requirement that smokers have to pay more for their insurance, you have some documentation that says you have a cost-based justification for doing it. I'm not saying you absolutely must find an actuary to defend your company. But I am saying that's a good thing to have for defense.

What's the third way an employer can protect itself?
The third way to lessen your company's chances of being sued is to pay close attention to legal developments in the courts and in federal and state legislature, because this is an emerging area. Employers should understand this tension is out there. Medical-care coverage is a political issue that's nowhere near being resolved.

Personnel Journal, June 1996, Vol. 75, No. 6, pp. 159-162.