In King v. Blue Cross & Blue Shield of Illinois, a district court concluded that a retiree health plan's $500,000 lifetime maximum benefit limit did not violate the prohibition on lifetime limits on essential health benefits (EHBs) under the Affordable Care Act (ACA) (No. 3:13-CV-1254-CAB-JMA (S.D. Cal. May 13, 2015)).

The plaintiff in this litigation, the covered spouse of a retiree-participant under an employer-sponsored retiree health plan, incurred nearly $950,000 in medical expenses related to back surgery. The spouse had sought pre-approval for some of her medical procedures, and letters from the plan's insurer indicated conditional approval for the procedures, as medically necessary and subject to applicable plan limits, exclusions and cost-sharing. Following the spouse's surgery, an explanation of benefits (EOB) provided by the insurer stated that although the plan would cover some of the surgery-related expenses, the spouse could be responsible for over $578,000 of the total expenses. According to the EOB, the spouse's portion of these expenses reflected amounts that exceeded the retiree plan's $500,000 lifetime benefits limit.

In 2010, prior to the spouse's claims, the plan had issued a summary of material modifications (SMM) containing plan amendments to implement requirements under the ACA, including the ACA's prohibition of lifetime limits on EHBs (see Affordable Care Act (ACA) Toolkit and Practice Note, Lifetime Limits, Annual Limits, and Essential Health Benefits Under the ACA). The SMM, which applied to both the employer's retiree health plan and its plan for active employees, included a provision that eliminated lifetime dollar limits on aggregate plan benefits. According to the employer and insurer, the SMM also provided that elimination of the lifetime maximum benefit limit did not apply to the retiree health plan. The parties disagreed, however, regarding whether the SMM clearly conveyed that the lifetime limit prohibition did not apply to retirees and their covered dependents.

After receiving a letter from the plan indicating that the spouse's surgery expenses exceeded the plan's $500,000 lifetime limit on benefits, the spouse filed suit against the plan, its insurer and the employer in federal district court. The spouse sought payment for the surgery-related expenses and a declaration that the retiree health plan could not impose a lifetime limit. The district court denied the plan's motion to dismiss, finding that the 2010 SMM was ambiguous regarding whether the plan was subject to a lifetime limit for retirees. After additional steps involving the plan's internal administrative review of the spouse's claim, the plan moved for summary judgment in district court. (The spouse died in late 2014 and her husband was substituted as plaintiff in the litigation.)

Rejecting the plaintiff's argument, the court concluded that the plan's $500,000 lifetime maximum benefit limit did not violate the ACA. The court noted that:

The ACA provision that added the PHSA's prohibition on lifetime limits to ERISA included a special rule addressing potential conflicts between the statutes. This rule generally provided that in the event of a conflict between ERISA's then-existing group health plan requirements and the changes that became part of ERISA under the ACA, the ACA rules would apply. The plaintiff argued that under this rule, the ACA's lifetime limit prohibition applied to ERISA group health plans.

The court was not persuaded by the plaintiff's argument that Congress repealed ERISA's retiree plan exception by implication when it enacted the ACA. The court reasoned that under ERISA's retiree plan exception, the provision cited by the plaintiff involving conflicts between the ACA's changes to the PHSA (as added to ERISA) and ERISA's pre-ACA group health plan requirements, did not apply to retiree-only plans.

The court also noted that the government agencies responsible for implementing the ACA (that is, the Departments of Labor, Health and Human Services and Treasury (collectively, the Departments)) had taken the position in a preamble to regulations that:

As this court notes, the Departments' position regarding the post-ACA applicability of ERISA's retiree plan exception, which was announced in the preamble to its June 2010 interim final grandfathered health plan rules, is not binding on the courts. (Regarding grandfathered health plans, see Practice Note, Grandfathered Health Plans Under the ACA.) As a result, employers that sponsor retiree health plans may find this district court's analysis helpful.