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January 27, 2015 12:00 AM

Fallout from retiree health plan ruling could send more to exchanges

Lisa Schencker
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    A U.S. Supreme Court decision in a case involving healthcare benefits for retirees could potentially have implications for insurers and beneficiaries, experts say.

    “The implications of this case may well be we are going to see more and more retirees turning to the exchanges for their healthcare coverage,” said Nancy Ross, a partner at the Mayer Brown law firm in Chicago.

    The court Monday, in a unanimous decision, vacated a lower court's ruling that allowed M&G Polymers USA's retirees' healthcare benefits to continue indefinitely because the duration of the benefits wasn't explicitly spelled out in a collective-bargaining agreement. The court sent the case, M&G Polymers USA, LLC v. Tackett, back to the lower court, the 6th U.S. Circuit Court of Appeals, for reconsideration.

    That appeals court has had a rule that retiree health benefits should last indefinitely unless a contract contained language explicitly to the contrary, said Andrew Holly, a partner at the Dorsey & Whitney law firm in Minneapolis. The Supreme Court's opinion Monday effectively invalidates that rule, he said.

    It's a decision that's a “game changer,” in many ways, Ross said. Mainly, the case has ramifications for how collective bargaining agreements should be interpreted, but it also could affect healthcare, she said.

    Employers already have been re-evaluating their healthcare benefits for retirees because of the availability of private plans to people with pre-existing conditions under the Patient Protection and Affordable Care Act, Ross said.

    But cases involving issues such as the one decided Monday often arise because many labor contracts were negotiated before employers understood they were going to have to be specific about the duration of employee benefits.

    In the 1950s and 1960s, when many contracts were negotiated, healthcare benefits for retirees were a relatively “inexpensive perk,” Ross said. “What nobody saw was the cost of these benefits was going to escalate.”

    It's also possible, Holly said, that the principles that will be used moving forward to interpret collective bargaining agreements might also be used to interpret some employee benefit plans.

    “The decision here is going to provide the framework for how to interpret those types of contracts in different ways,” Holly said.

    Follow Lisa Schencker on Twitter: @lschencker

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