EmployeeBenefits Report - Part 18 - Key Legal Findings on ERISA and AIDS Medical Benefit Caps

Oct 13, 2026

Employee Benefits Report analyzes a federal appeals ruling holding that an employer did not violate ERISA by changing an insured-to-self-insured health plan to reduce medical benefits for AIDS. The article summarizes the McGann v. H&H Music Co. dispute, explaining why the court rejected claims under ERISA Section 510 and found no evidence of retaliatory or individualized discriminatory intent. It also discusses broader implications and potential alternative legal theories, including ADA concepts of permissible limits.

LanguageEnglish

CategoryHealthcare

FormatPDF

Pages9

Reading Time23 min

AccessFree to download

Court Allows Company to Reduce Medical Benefits for AIDS

Case background and plan changes

Claims under ERISA Section 510

Appeals court reasoning and evidentiary limits

ERISA and possible recourse under other laws

# EmployeeBenefits Report Prepared by John D.Reynolds,Employee Benefits Consultant ## Court Allows Company to Reduce MedicalBenefits for AIDS In a decision that may ultimately have a major impact oncompany health benefits costs,a federal appeals court hasruled that an employer did not violate ERISA by changinghis health care plan to provide less medical benefits forAIDS.McGann v.H&H Music Co.,No.H-89-1995(S.D.Tex.June 27,1990).),which EBR first discussedin September 1990,involved an employee,McGann,whowas diagnosed as having AIDS and so notified hisemployer.(See "Pension and Benefit Trends,"EBR,Sept.1990,at 7.)At that time,the company sponsored an in-sured health care plan that had a lifetime cap of $1 million. Cap on AIDS Benefits.Seven months after the notifica-tion,his employer adopted a new health care plan—thistime self-insuring—that put a $5,000 cap on AIDS benefits.The employee filed suit against the employer,H&HMusic Company;the plan administrator,Brooks MaysMusic Co.;and the excess risk insurer,General AmericanLife Insurance Co. The employee claimed that the employer's action hadviolated his rights under Section 510 of ERISA.This sec-tion protects a person who exercises a right,or who wouldotherwise attain a right to which he is entitled under anemployee benefit plan,from being discharged,fined,suspended,expelled,disciplined,or discriminated against. McGann argued that the cap violated Section 510 in thatit discriminated against him(1)because he exercised theright to be reimbursed for medical expenses under the plan;and (2)because the cap interfered with a right to whichhe might have become entitled under the plan.He com-plained that the plan changes targeted him because the $5,000 limit applied only to AIDS,and that he was theonly employee of H&H Music Company who had AIDSat the time the limit was imposed. The district court found that the employer had properlynotified employees that the plan was subject to change Also in This Issue: ■ The Trouble with MEWAs... . 3 ■ Follow-up:Problems in the Canadian System CastDoubt on Proposed Health Care Reform 4 ■ Do Bare-Bones Benefits Cause More ProblemsThan They Solve?……… …… … 5 ■ The Future of Employment at Will …… 6 ■ Protecting Your Company From WrongfulDischarge Claims.… ………. 7 ■ Pension and Benefit Trends... …. 8 from year to year,so there was no violation of ERISA.In its decision,the court also noted that the financial strainof maintaining the plan had forced the employer to decidebetween reducing its exposure and ending health benefitsfor all employees. Appeals Court Concurs.The lower court's decisionwas upheld by the Court of Appeals for the Fifth Circuit.(McGann v.H&H Music Co.,No.90-2672(5th Cir.Nov.4,1991).)The appeals court rejected the idea thatMcGann had a continuing right to $1 million of coverage.To do otherwise: would mean that an employer could not effectivelyreserve the right to amend a medical plan to reducebenefits respecting subsequently incurred medicalexpenses...because such an amendment would haveas its obvious purpose preventing participants fromattaining the right to such future benefits as they other-wise might do under the plan absent the amendment. The appeals court also rejected the complaint that theamendment was an "individualized intent to discriminate"against McGann personally: WARREN,GORHAM&LAMONT Vol.18,No.5 January 1992 Although we assume there was a connection betweenthe benefits reduction and either McGann's filing ofclaims or his revelations about his illness,there isnothing in the record to suggest that defendent's motiva-tion was other than...to avoid the expense of payingfor AIDS treatment...no more for McGann than forany other present or future plan beneficiary who mightsuffer from AIDS. There was no evidence that the cap was a retaliatoryresponse to the plaintiffs filing of an AIDS-related claim.The court concluded that such a cap,when ap

FAQs

What was the core ruling about AIDS medical benefits and ERISA?

The court ruled that changing the employer’s health care plan to provide less medical benefits for AIDS did not violate ERISA.

How did the courts address the ERISA Section 510 discrimination claims?

They found no ERISA violation, concluding the cap applied equally to all employees and that the record did not support improper retaliatory or individualized discriminatory motivation.

What alternative legal issues were discussed beyond ERISA?

The report considers whether other laws, particularly civil rights and equal employment opportunity protections such as the ADA, could provide a basis for recovery when benefits restrictions have adverse impacts.

Oct 13, 2026

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