Employer Entitled To Make “Reasonable Modifications” To Retiree Health Care Benefits, Sixth Circuit Rules

 

An employer was entitled to make “reasonable modifications” to its retiree health care benefits, the Sixth Circuit ruled, reversing a district court’s grant of summary judgment to the retirees finding that the employer lacked the ability to modify any benefits except with the approval of the union that once represented them. The Sixth Circuit majority concluded that whatever else vesting in the health care context means, it does not mean that beneficiaries receive a bundle of services fixed once and for all. Judge Bernice Donald filed a separate dissenting opinion. The case was Reese v. CNH America, LLC (Nos. 11-1359, 11-1857 and 11-1969).

Managed care. In their 1998 CBA, the parties imposed managed care on all retirees, which represented a reduction in the effective choices of coverage available for all retirees. Pre-1998 retirees saw their coverage downgraded because they generally had to pay more for choosing an out-of-plan doctor. In view of the distinction between vesting of eligibility for a benefit and the scope of that commitment, and in view of the parties’ 1998 CBA altering health care benefits, the appeals court concluded that the employer could make “reasonable” changes to the health care plan covering eligible retirees.

The Sixth Circuit concluded that the retirees and the district court misread a prior ruling of the panel. In holding that the employer could reasonably alter the retirees’ benefits, the Sixth Circuit recognized that the employer could alter them on its own, not as part of a new collective bargaining process. In answering the question “what does vesting mean in the health care setting?”, the Sixth Circuit rejected the suggestion that the employer could make no changes to the health care benefits provided to retirees. Unlike pension obligations, health care benefits cannot readily be monetized at retirement, explained the court. Thus, vesting in the context of health care benefits provides an evolving, not a fixed, benefit.

In this instance, the Sixth Circuit observed that past changes to retiree health care benefits had not been collectively bargained, which comes as no surprise because “a union does not represent retired employees when it bargains for a new contract for its employees.” Thus, the district court erred when it disregarded the appeals court’s holding that the company may make reasonable modifications to the retirees’ health care benefits.

In remanding the decision, the Sixth Circuit noted that to gauge whether the employer has proposed reasonable modifications to its health care benefits for retirees, the district court should consider whether the new plan provides benefits “reasonably commensurate” with the old plan, whether the changes are “reasonable in light of changes in health care,” and whether the benefits are “roughly consistent with the kinds of benefits provided to current employees.

Dissent. In dissent, Judge Donald argued that the majority’s approach to modifying the scope of retirees’ vested health care benefits involved a misapprehension of the relevant law. She observed that while reasonableness is a common standard in the law, she could not agree that resorting to what is reasonable provides the proper analytical framework in the instant case. Because the retirees had demonstrated that they were entitled to judgment as a matter of law, the dissent would affirm the district court’s grant of summary judgment in favor of the retirees, and overrule the holding that the employer could unilaterally modify the scope of their retirement health care benefits under the 1998 CBA.

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