Ruling could trigger stampede to self-insurance; local AIDS group expresses concern for ill workers.

A widely publicized Supreme Court ruling last month that allowed a small business to drastically cut the health benefits of a worker afflicted with AIDS has alarmed the leadership of AIDS Project L.A.

The 10-year-old nonprofit, which is dedicated to fighting for the rights of AIDS victims, expressed concern that the court decision will prompt many companies to quickly move to self-funded insurance plans. Such moves are expected because of recession-wracked companies' desire to cut health care costs, said Jacques Chamber, program manager of the benefits program for AIDS Project L.A.

Health care costs can skyrocket when employees contract AIDS or other deadly diseases.

The ruling lets employers with self-funded plans limit coverage for catastrophic illnesses. In turn, it protects self-funded companies from the exorbitant costs often associated with treating such illnesses. The same ruling preserves employers' right to decrease a worker's coverage once the employee is found to be terminally ill.

The Supreme Court ruling for self-funded plans runs contrary to federal laws governing group plans. The Employee Retirement Income Security Act of 1984, also known as ERISA, prohibits insurance companies from denying insurance and prohibits them from cutting benefits for group-plan members who develop deadly diseases. ERISA also prohibits insurers from screening group employees.

For example, a self-insured company can cut maximum health benefits from $1 million to little or nothing for employees who are found to be terminally ill, said Chamber of AIDS Project L.A.

Some industries are jumping to self-insured plans quicker than others, he said.

"The construction industry has been quick to jump to self-insured plans to dodge the liability for members who develop catastrophic illnesses," Chamber asserted.

Bob Sutton, a spokesman for Building Industry Association of Southern California, a trade group with 1,950 member companies, agreed that many construction companies have adapted self-insured plans. But he cautioned that the moves were not aimed against the gay community. Sutton declined to name any member companies that have switched to self-insured plans.

"Companies are looking for price," he said. "They will do anything they can to cut their price of operations."

That often includes limiting coverage for their employees, Sutton conceded. "But I think the same is true in all other industries," he added.

Elena Stern, a spokeswoman for California Insurance Commissioner John Garamendi, said employers' move toward self-insured plans goes far beyond the building industry. She predicted more and more companies will turn to the self-insured plans to limit benefits and save premium dollars. Stern predicted the present trend will continue until ERISA is modified.

"We aren't pleased at all with the situation," she stated. "But it (self-funded plans) doesn't fall under California jurisdiction. It will take legislation at the national level to correct the problem."

In the meantime, employees are powerless to stop their employers from switching to self-insured plans, Stern said.

Grady Smith, senior manager of the compensation and benefits practice at KPMG Peat Marwick, said there hasn't yet been a rash of companies moving from traditional group insurance plans to self-insured plans to dodge claims. But he admitted the potential for a problem exists.

"So far, the companies that employ more than 500 workers who self insure tend to offer coverage like most of the major insurers," Smith said. "But in the long term, as more employers feel the pressure to contain costs, they will have to look at lowering coverage for employees diagnosed with grave illnesses."

The smaller the group, the fewer premium dollars collected, and the more one or two major claims can drain the company bank account, Smith said. So for smaller companies, the lure of potential savings offered by self-funded plans becomes especially attractive.