¹ BILLIE HOLIDAY, Trav ‘lin’ Light, on BILLIE’S BLUES (Capitol Records 1942).

² See Freudenheim, Milt , A Doting Uncle Cuts Back, and a City Feels the Pain, N.Y. TIMES, Oct. 8 , 1995, at C1Google Scholar.

³ See id.

⁴ See id. Eastman Kodak has 58,000 employees and retirees in Rochester alone, accounting for 15% of the city’s privately insured population. See id. With 1994 revenues marked at $13.56 bil lion, Eastman Kodak spends a reported $200 million annually on employee medical costs. See id.

⁵ See id.

⁶ See id.

⁷ See id.

⁸ See id.

⁹ Id.

¹⁰ See id.

¹¹ See id. Eastman Kodak, in response to this and other protests, negotiated with and made concessions to the low-cost Medigap supplemental insurance program to include the two hospitals. See id. An Eastman Kodak vice president also now heads a Rochester Health Commission formed last year to address health care issues. See id.

¹² Id.

¹³ Eastman Kodak’s decision to alter the health insurance benefits for retirees is not unique. Unisys, a major information management company, stopped covering the full cost of health insurance for retirees in 1993. See Vongs, Pueng, Lowdown on Health Insurance, MONEY, Oct. 1995, at 92, 92Google Scholar. A similar situation was faced last summer during union negotiations between the Communications Workers of America and the seven former Bell system regional telephone companies. See Swoboda, Frank & Mills, Mike, Union Plans Campaign Against Bell Atlantic; Communications Workers Seek to Pressure Firm on Contract Accord, WASH. POST, Aug. 22 , 1995, at D10Google Scholar. Among the thorny issues at the bargaining table was a company proposal to cut health care benefits for retirees. See id.

¹⁴ A number of factors contributed to the high cost of medical care, including a persistent high rate of inflation in the health sector of the economy and increases in the quantity and quality of medical services provided. See, e.g., Health Care Reform Battle Far From Over, NAT'L UNDERWRITER PROP. & CASUALTY RISK & BENEFITS MGMT., Aug. 19 , 1996, at 20Google Scholar (noting two major contributors to health care’s escalating costs: the medical malpractice liability system, which scares physicians into practicing defensive medicine, and uninsured Americans, whose uncompensated medical care costs are ultimately passed on to employers in the form of higher insurance payments). Some of these factors could increase as the first of the post-World War II “baby boomers" reach retirement age early in the next century. See Cutter, John A., The Retirement Gap, ST. PETERSBURG TIMES, Nov. 12 , 1995, at 1AGoogle Scholar (noting that by 2030, there will be 65 million people over the age of 65—more than 20% of the population and nearly double today’s over-65 population).

¹⁵ See Fein, Rashi, MEDICAL CARE, MEDICAL COSTS: THE SEARCH FOR A HEALTH INSURANCE POLICY 22-23 (1986)Google Scholar.

¹⁶ See id.

¹⁷ Some retirees in this age group buy their own health insurance or choose to hold out until they are eligible for Medicare. See, e.g., Pension & Welfare Benefits Admin., U.S. Dep'T of Labor, RETIREMENT BENEFITS OF AMERICAN WORKERS 27 (1995)Google Scholar (listing reasons retirees gave in a 1994 population survey for discontinuing employment-based health benefits).

¹⁸ This Note generally focuses on issues affecting larger corporations, although it does not consider a particular number of employees. Undoubtedly, small businesses have special employee benefits concerns, but they are beyond the scope of this Note. Some distinction is made, however, among employers who offer benefits to its early retirees and those who do not. See infra Part IV.

¹⁹ See PENSION & WELFARE BENEFITS ADMIN., supra note 17, at 6. Union membership may influence this number. See Sclafane, Susanne, Union Influence on Retiree Benefits Remains Firm: Study, NAT'L UNDERWRITER PROP. & CASUALTY RISK & BENEFITS MGMT., Oct. 2 , 1995, at S18, S18Google Scholar. Sixty-nine percent of employers with 500 to 999 employees provide retiree health care cover age when at least half of their employees are union members. See id. That percentage drops to 27% if no employees are in unions. See id.

²⁰ See PENSION & WELFARE BENEFITS ADMIN., supra note 17, at 25, 29.

²¹ The Department of Labor attributes the drop to changes in supply (employer offers) and demand (workers’ acceptance). See id. at 27. For example, some retirees are simply not offered post- retirement health benefits, or if they are, not at the same pre-retirement cost for the employee. See id. Some workers drop their coverage when they retire for cost considerations, including Medicare eligibility and/or access to a cheaper source of coverage, or a willingness to go uninsured for a period prior to Medicare eligibility. See id. Yet another reason may be that the only forms of coverage available to retirees may only be short term, possibly due to mandates established in the Consolidated Omnibus Budget Reconciliation Amendment Act of 1985 (COBRA). See id. For a discussion of COBRA, see infra notes 56-57 and accompanying text.

²² See Employee Benefits Research Inst., Brief No. 150, Q AND AS ON EMPLOYEE BENEFIT ISSUES 21 (1994)Google Scholar.

²³ See Warshawsky, Mark J., FED. RESERVE BD., POST-RETIREMENT HEALTH BENEFIT PLANS: COSTS AND LIABILITIES FOR PRIVATE EMPLOYERS 2-3 (1989)Google Scholar.

²⁴ See FINANCIAL ACCT. STAND. BD., STATEMENT NO. 106, EMPLOYERS’ ACCOUNTING FOR POST-RETIREMENT BENEFITS OTHER THAN PENSIONS (1990).

²⁵ See id. at 1.

²⁶ See Crow, Nancy R., Design of Post-Retirement Health Benefits in Advanced Law of Pensions, Welfare Plans, and Deferred Compensation 659, 663 (ALI-ABA Course of Study, July 10 , 1995)Google Scholar, available in Westlaw, CA17 ALI-ABA 659. The amortization of future health benefit costs begins with each employee’s date of hire and ends on the date the employee is first fully eligible to receive benefits. See id.

²⁷ See id.; see also WARSHAWSKY, supra note 23, at 7.

²⁸ See Fuchs, Beth Carol, LIBRARY OF CONGRESS, HEALTH BENEFITS FOR RETIREES: EMPLOYER-BASED PLANS 6 (1993)Google Scholar. Approximately $335 billion in unfunded retiree health care coverage liability accumulated by 1991. See id. at 6 n.5.

²⁹ See id. at 7; Crow, supra note 26, at 665.

³⁰ See Fuchs, supra note 28, at 8; see also Siske, Roger C. et al., What’s New in Employee Benefits—A Summary of Current Case and Other Developments, in Pension, Profit-Sharing, Welfare, and Other Compensation Plans 1, 172 (ALI-ABA Course of Study, Mar. 22 , 1995)Google Scholar, available in Westlaw, C991 ALI-ABA 1 (observing that employers attempt to terminate benefits in order to cut their expenses and liability for retiree benefits).

³¹ See Fuchs, supra note 28, at 8; see also WARSHAWSKY, supra note 23, at 1, 8-9. “It is likely that the recognition of liabilities and expenses of this magnitude will elicit attempts by employers to cut back on benefit levels and restrict coverage.” Id. The author then states that post- retirement health benefits should be considered a form of deferred compensation, and as such, suggests an accrual accounting methodology. Id.

³² See Neikirk, William, Global Economy Changing the Ways of Doing Business, CHI. TRIB., Apr. 30 , 1989, § 4, at 1Google Scholar. Compared with other western, industrialized nations such as Canada, France, Germany, the Netherlands and the United kingdom, only the United States relies on voluntary private health insurance to finance care for most of the population. See Chollet, Deborah J., Health Care Financing in Selected Industrialized Nations: Comparative Analysis and Comment, in TRENDS IN HEALTH BENEFITS 9, 11 (Turner, John P. et al. eds., 1993)Google Scholar. “Instead, voluntary private insurance either supplements public coverage or can be purchased as primary coverage in place of a universally available public insurance plan.” Id. at 11. Because the United States spends nearly 12% of its gross domestic product (GDP) on health care, or 40% more than the country with the next highest rate (Canada spends nine percent of its GDP on health care), it is likely that employers here must bear some of that cost. See id. at 9.

³³ “In 1960, only one in four workers had retired at 63; by 1990 that number had doubled.” Strouse, Charles, To Many, Early Retirement Only a Dream, BOSTON GLOBE, Oct. 29 , 1995, at 41Google Scholar.

³⁴ See id. In 1993, 1.4 million men aged 50 to 65 took bridge jobs, up from one million in 1984. See id. Bridge jobs offer early retirees the financial and health benefits they once received from their former employers, thus traversing the gap in benefits until they are eligible for Social Security and Medicare. See id.

³⁵ See Gruber, Jonathan & Madrian, Brigitte C., HEALTH INSURANCE AVAILABILITY AND THE RETIREMENT DECISION 1-3 (National Bureau of Econ. Research Working Paper No. 4469, 1993)CrossRefGoogle Scholar. The typical couple in their late 50s pays $4,000 to $9,000 a year for a policy with an $800 deductible and an unlimited lifetime maximum benefit. See Vongs, supra note 13, at 92.

³⁶ See Gruber & Madrian, supra note 35, at 1-3.

³⁷ See, e.g., id. at 2.

³⁸ See Telephone Poll by Gallup Organization for Employee Benefit Research Institute (Nov. 1993), available in DIALOG, Poll File. Interviewers asked whether participants would retire before the age of 65 if their employer did not provide health benefits. See id. Sixty-one percent responded “no.” See id; see also Gruber & Madrian, supra note 35, at 29

Id.

³⁹ See Langbein, John H. & Wolk, Bruce A., PENSION AND EMPLOYEE BENEFIT LAW 526 (2d ed. 1995)Google Scholar. The exception is Hawaii, which requires coverage for both active and retired employees. See id..

⁴⁰ 29 U.S.C. §§ 1001-1461 (1994).

⁴¹ See id. § 1002(1) (defining an employee welfare benefit plan as “any plan, fund or program which . . . was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, [or] disability . . ..”).

⁴² See id. §§ 1021-1030.

⁴³ See id. §§ 1101-1114.

⁴⁴ See id. § 1132.

⁴⁵ See id. § 1051(1); see also Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 732 (198S) (“ERISA imposes on pension plans a variety of substantive requirements relating to participation, funding and vesting .... It does not regulate the substantive content of welfare benefit plans.”)

Funding and vesting rights are important in the pension context because they protect the employee’s rights of access to the pension funds after a designated period of employment (known as “vesting”) and ensure that the employees’ pension funds will receive consistent employer contributions. ERISA also imposes fiduciary obligations on pension plan administrators to invest an employee’s pension funds in good faith and in light of the employee’s interests. See 29 U.S.C. §§ 1101-1114 (1994). Employees and retirees could benefit tremendously from vesting requirements if employers were obligated to provide health benefits. Alternatively, however, such a cost could financially cripple many companies and could prevent others from even offering health benefits. See Employee Benefits Research Inst., FUNDAMENTALS OF EMPLOYEE BENEFIT PROGRAMS 30 (4th ed. 1994)Google Scholar [hereinafter FUNDAMENTALS].

⁴⁶ See 29 U.S.C. §§ 1301-1461. The Pension Benefit Guaranty Corporation (PBGC) insures payment of certain pension plan benefits in the event a private-sector defined benefit plan terminates with insufficient funds to pay the benefits. See FUNDAMENTALS, supra note 45, at 34. “Covered plans or their sponsors must pay annual premiums to PBGC to provide funds from which the guaranteed benefits can be paid.” Id.

⁴⁷ See Schmidt, K. Peter, Retiree Health Benefits: An Illusory Promise?, in RETIREE HEALTH BENEFITS: WHAT IS THE PROMISE? 53, 53-54 (1989)Google Scholar.

⁴⁸ See 29 U.S.C. § 1022(b).

⁴⁹ See 29 C.F.R. § 2520.102-2(a) (1995).

⁵⁰ See id. § 2520.102-30(2); see also id. § 2520.102-3(s) (Summary plan description (SPD) must include a statement describing “the procedures to be followed in presenting claims for benefits under the plan and the remedies available under the plan for the redress of claims which are denied in whole or in part.”).

⁵¹ Id. § 2520.102-3(1).

⁵² See WARSHAWSKY, supra note 23, at 2-3. Two factors typically must be met before employees are eligible for post-retirement health benefits: (1) if a pension plan is offered, the employee must have become eligible (vested) for benefits in that plan; and (2) the employee must have retired from the company. See id. Moreover, some companies require ten years of service, and in some cases, attainment of a specific age (usually 55 or 60). See id. Spouses or qualified dependents of retirees may also be eligible. See id.

Of the eight million retirees covered under a former employer’s plan in 1994, almost 4.9 million paid at least some of the premium costs. See PENSION & WELFARE BENEFITS ADMIN., supra note 17, at 26.

⁵³ See WARSHAWSKY, supra note 23, at 2-3. The difference can be explained as whether a retiree receives, for example, $Y of coverage instead of X days of hospitalization. See id. Depending on the composition and structure of the health benefit program involved, a retiree would presumably have greater health care choices under the first option, but the retiree also could be required to budget and plan her health care expenditures.

⁵⁴ See id. at 2-3.

⁵⁵ See id. Medicare excludes coverage for routine dental services and dentures, routine physicals, vision exams and eyeglasses, hearing tests and hearing aids, and most forms of preventive care (excluding influenza and pneumonia vaccines). See American Ass'N of Retired Persons, MEDICARE: WHAT IT COVERS, WHAT IT DOESN'T 4 (1995)Google Scholar. Over-65 retirees who do not receive Medicare wrap-around plans may purchase similar supplemental (Medigap) coverage through private insurers. See id. Over ten forms of Medigap coverage are available today. See Crow, supra note 26, at 690.

⁵⁶ This is because of Title 10 of the Consolidated Omnibus Budget Reconciliation Amendment Act of 1985 (COBRA), which amended ERISA. Pub. L. No. 99-272, 100 Stat. 82, 222. COBRA’s purpose is to:

Langbein & Wolk, supra note 39, at 540. Employees who retire are typically classified under section (2). See id.

⁵⁷ Cf. Langbein & Wolk, supra note 39, at 541 (stating that the period of coverage is either 18 or 36 months depending on the type of qualifying event). A couple in their late 50s typically pays $4,500 per year if they elect employer-sponsored coverage under an HMO as part of their COBRA arrangement. See Vongs, supra note 13, at 92.

⁵⁸ The Hospital Insurance (HI) program, also known as Medicare Part A, helps pay for inpatient hospital care, home health care and hospice care, among other services. See Board of Trustees, Federal Hosp. Ins. Trust Fund, 1996 ANNUAL REPORT 1 (1996)Google Scholar [hereinafter TRUST FUND].

⁵⁹ See id. at 16. Without legislative reform, HI could become insolvent by 2001. See id. at 9. A host of situations contributed to HI’s precarious financial situation. For example, while HI hospital payments in recent years have increased eight percent annually, hospital costs have grown faster than inflation for more than 20 years. See id. at 5; Koitz, David & Kollmann, Geoffrey, LIBRARY OF CONGRESS, THE FINANCIAL OUTLOOK FOR SOCIAL SECURITY AND MEDICARE 5 (1995)Google Scholar. “Increases in enrollment of 2% a year and heavier use of services by an aging society contributed to the growth.” Id. at 5. See generally Conte, Christopher , Routing Out the Medicare Riffraff, AARP BULL., Feb. 1996, at 4Google Scholar (citing a General Accounting Office estimate that Medicare loses $17 billion annually to waste, fraud and abuse).

The Trustees estimate either that HI outlays must be reduced by 39% or that HI income must be increased by 63%, or some combination thereof, over the next 25 years to bring the HI program into “actuarial balance.” See TRUST FUND, supra note 58, at 15.

⁶⁰ The Supplemental Medical Insurance Program (SMI), also known as Medicare Part B, helps cover physician services, outpatient hospital care and lab services. Board of Trustees, Federal Supplementary Med. Ins. Trust Fund, 1996 ANNUAL REPORT 1 (1996)Google Scholar.

⁶¹ See id. at 14. The Trustees attributed SMI’s rapid program cost growth to equally rapid growth in the volume and intensity of health care services provided per beneficiary. See id. Pro gram costs are expected to increase again in 2010 when the “post World War II baby boom generation" reaches retirement age. Id.

⁶² See Koitz & Kollmann, supra note 59, at 2. Approximately one in seven Americans currently receives some form of Medicare assistance. See id. Starting in 2010, when the baby boomers reach retirement age, the ratio of workers to HI beneficiaries, currently about four to one, is projected to begin declining rapidly to about two to one. See TRUST FUND, supra note 58, at 15.

⁶³ See, e.g., Conte, supra note 59, at 4. Medicare reform is part of the Republican congressional majority’s seven-year plan to balance the federal budget. See H.R. 2491, 104th Cong. §§ 8000-8708 (1995). President Clinton, however, vetoed the Bill, partially in opposition to Congress’s Medicare reform plans. See, e.g., Wines, Michael & Pear, Robert, President Finds Benefits in Defeat on Health Care, N.Y. TIMES, July 30 , 1996, at A1Google Scholar.

The President and Congress continue to make overtures about Medicare reform. Health and Human Services Secretary Donna Shalala recently said she wanted to work with Congress on a bipartisan Medicare rescue plan, an idea House Speaker Newt Gingrich welcomed. See Tax, Medicare Reconciliation Bills Now Being Eyed, NAT'L J. CONG. DAILY, Aug. 1 , 1996, at 1Google Scholar.

⁶⁴ This Note focuses on certain provisions within the Conference Committee’s reconciliation bill, as well as other ideas considered during early Medicare reform deliberations. At the very least, these proposals indicate the attitudes of some policymakers as to how Medicare could operate—if not in the present, then possibly at some point in the future.

⁶⁵ See Koitz And Kollmann, supra note 59, at 2. Employers pay a flat-rate tax of 1.45% for HI, which is matched by their employees (through payroll deductions). See id. In 1995, taxes com posed 89% of HI’s estimated income. See id. The rest comes from government credits, the largest of which is for interest on federal securities held by their trust funds. See id.

⁶⁶ See Reischauer, Robert D., Medicare: What to Do?, BROOKINGS REV., Summer 1995, at 50, 50CrossRefGoogle ScholarPubMed.

⁶⁷ See, e.g., Regalia, Martin A. & Barr, Robert D., U.S. CHAMBER OF COMM., ECONOMIC POLICY DIV., THE MEDICARE CRISIS: THE "TAX SOLUTION" IS NO SOLUTION 8-10 (1995)Google Scholar. Higher taxes, when aggregated across the entire economy, would lower the real GDP by $179.4 billion within two years and by $95 billion ten years later. See id. at 9. “This amounts to a 3.1% decline in GDP in the short run, and with economic growth projected to average less than 3% over the next five years, this decline could easily result in a recession.” Id. at 1. The Medicare Board of Trustees recommended gradually raising the payroll tax from the current rate of 2.90% to 6.42% over a 75- year period, a suggestion that American businesses owners did not welcome. See id.

⁶⁸ See Pear, Robert, Retirees’ Group Attacks GOP Health Plan, N.Y. TIMES, Oct. 6 , 1995, at A22Google Scholar.

⁶⁹ See id. Cost-shifting has ramifications elsewhere. Because the Medicare reform package does not address coverage of the uninsured and would not change the liability of hospitals to care for the uninsured, billions in uncompensated costs may simply transfer to other payers. This could create a vicious cycle: "[a]s cost-shifting boosts the premiums for health insurance, fewer employers will offer medical benefits; the ranks of the uninsured will then swell, which will boost premiums even further, leading to even fewer insured, and so on.” Segal, David, Will GOP Medicare Cuts Backfire on Business?; Corporate America Backs Plan Despite Signs that it Could Shift Cost Bur dens to Employers, WASH. POST, Nov. 5 , 1995, at H1Google Scholar.

⁷⁰ See Segal, supra note 69, at H1.

⁷¹ See Merline, John, Will Medicare Reforms Boost Employers’ Health Costs?, INVESTOR’S BUS. DAILY, Nov. 14 , 1995, at A4Google Scholar.

⁷² See id. The House version of the Bill contained a fail-safe provision that would kick in if the Medicare choice program did not save enough money. See id. The plan would automatically cut payments to doctors and hospitals which, in turn, would shift more costs on to insurers and employers (and private payers). See id.

⁷³ See Segal, supra note 69, at H1.

⁷⁴ See id. This “insulation" is not widespread, however. Small businesses, for example, would likely have to join health care purchasing groups that would give them more bargaining power. See Freudenheim, Milt, Business May Pay More for Health as Congress Cuts, N.Y. TIMES, Nov. 4 , 1995, at A1Google Scholar. But such groups are scarce in many parts of the country and are prohibited in some states. See id.

⁷⁵ See H.R. 2491, 104th Cong. § 15021 (1995). Provider service networks (PSNs) are exempt from antitrust considerations when exchanging information “among health care providers relating to costs, sales, profitability, marketing, prices, or fees of any health care product or service if the ex change of information was solely for the purpose of establishing a provider-sponsored organization and reasonably required to do so.” H.R. CONF. REP. No. 104-350, at 1154. (1995).

⁷⁶ See Fletcher, Meg, Medicare Reform Costs Questioned, BUS. INS., Nov. 13 , 1995, at 69Google Scholar.

⁷⁷ See supra text accompanying notes 68-70.

⁷⁸ See Crow, supra note 26, at 690.

⁷⁹ See HHS’ Approval of NAIC Statements Relating to Duplication of Medicare Benefits, 60 Fed. Reg. 30,877, 30,878 (1995). “This coverage includes Medicare supplemental (‘Medigap’) insurance; employer group health plans based on active employment or retiree coverage; hospital indemnity insurance; nursing home or long-term care insurance; and specified disease insurance.” Id.

⁸⁰ This problem could have been exacerbated. The Senate Medicare plan originally contained a provision that would gradually raise the Medicare eligibility age from 65 to 67. This idea was widely opposed, however, and was eventually stripped from the Bill during floor consideration. See Dodge, Robert, Republicans Push Vole on Senate Budget Plan, Democrats Force Delays, DALLAS MORNING NEWS, Oct. 28 , 1995, at 1AGoogle Scholar. Employers feared that the provision would increase corporate liabilities for retiree health benefits by shifting costs from the government to companies by adding two years of Medigap coverage, where it was already offered to retirees. See Pear, supra note 68, at A22.

⁸¹ See generally Freudenheim, supra note 74, at Al (noting that “business organizations have been the prime supporters of the Republican program to shrink the federal government and cut taxes”).

⁸² See Segal, supra note 69, at H1. One reason may be that businesses see the alternative— higher payroll or income taxes—as less desirable. See supra notes 65-68 and accompanying text.

⁸³ Medicare reform proponents argue that legislation limiting medical malpractice claims and supporting new hospital and doctor sponsored health plans would produce efficiencies that would make cost-shifting less likely. See Fletcher, supra note 76, at 69. These efficiencies concern businesses that fear hyperinflation and unaccountability for quality, particularly because the Medicare reform plan would ease antitrust restrictions on PSNs. See id. Businesses worry that Medicare could set a market-wide standard, making it far more difficult for plan sponsors to promote innovative arrangements that differ from the Medicare standard. See id.

⁸⁴ See H.R. CONF. REP. No. 104-350, at 1447 (1995); News Conference: Secretary Reich, Commerce Secretary Ron Brown, Treasury Secretary Robert Rudin Discuss Legislation Which Would Allow Companies to Raid Pension Funds (Fed. Doc. Clearing House, Inc. 1995), transcript available in 1995 WL 570606. The funds were transferred into a special account known as 401(h) arrangements. See id.

⁸⁵ See H.R. 2491, 104th Cong. §11307(1995).

⁸⁶ Excess assets is defined as the excess of the value of plan assets over the greater of (1) 125% of termination liability; or (2) the plan’s accrued liability. See H.R. CONF. REP. NO. 104-350, at 592-94.

⁸⁷ See id. at 591. The employer would pay regular federal income taxes on the amounts re moved, however. See id.

⁸⁸ See id.

⁸⁹ See id.

⁹⁰ See Geisel, Jerry, Tax Bill Holds Reversion Surprise, BUS. INS., Nov. 27 , 1995, at 1Google Scholar (citing a joint study by the U.S. Dep't of Labor and Actuarial Sciences Assocs., Inc.).

⁹¹ See id.

⁹² See id.

⁹³ See supra text accompanying notes 24-31.

⁹⁴ See Siske et al., supra note 30, at 172.

⁹⁵ See, e.g., Pocchia v. NYNEX Corp., 81 F.3d 275, 280 (2d Cir. 1996) (holding that an employer does not need to tell its employees about upcoming changes in benefits before adopting them); John Morrell & Co. v. United Food and Commercial Workers, 37 F.3d 1302, 1308 (8th Cir. 1994) (holding that an employer may unilaterally modify or terminate health benefits unless it has previously contracted to provide them); Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 855 (4th Cir. 1994) (holding that an employer does not waive its right to modify or terminate employees’ health benefits if such benefits are not contractually vested).

⁹⁶ See SCHMIDT, supra note 47, at 54. This is because the employee could sue the employer for violating ERISA. See infra note 98 for a list of ERISA remedial devices available to employees. Currently, employees have no statutory right to employer-sponsored health benefits. Although state law might provide contractual remedies to employees when their employers discontinue health coverage, ERISA would preempt such claims. See infra notes 101-04 and accompanying text.

⁹⁷ Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 148 (1988).

⁹⁸ See 29 U.S.C. § 1132 (1988). ERISA’s remedial scheme includes:

ERISA’s antidiscrimination provision confers other remedial relief. One provision guards against interference with rights protected under ERISA and makes it unlawful

29 U.S.C. § 1140(1988).

⁹⁹ Russell, 473 U.S. at 146 (quoting Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 361(1980)).

¹⁰⁰ See Lee v. Burkhart, 991 F.2d 1004, 1011 (2nd Cir. 1993); see also Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) (holding that ERISA’s legislative history permits lower courts to develop a federal common law regarding rights and obligations under ERISA-regulated plans).

¹⁰¹ See Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 856-57 (4th Cir. 1994) (holding that employees’ health policy unambiguously reserved the company’s right to modify or terminate the plan, and that plaintiffs’ extrinsic evidence would not be considered to determine the extent of the company’s rights and obligations under the plan). At least one contract principle is found within ERISA itself: ERISA prohibits informal written or oral amendments of employee benefit plans. See 29 U.S.C. § 1102(b)(3); see also Alday v. Container Corp. of Am., 906 F.2d 660, 665 (11th Cir. 1990) (detailing requirements for plan descriptions, communications and modifications).

¹⁰² See 29 U.S.C. § 1144(a). Title I of ERISA, which applies to welfare benefit plans, “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Id.; see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (“The deliberate care with which ERISA’s civil enforcement remedies were drafted and the balancing of policies embodied in its choice of remedies argue strongly for the conclusion that ERISA’s civil enforcement remedies were intended to be exclusive.”); In re White Farm Equip. Co., 788 F.2d 1186, 1191 (6th Cir. 1986) (“ERISA’s broad preemption provision makes it clear that Congress intended to establish employee benefit plan regulation as an exclusive federal concern, with federal law to apply exclusively, even where ERISA itself furnishes no answer.”).

ERISA’s preemption of state regulation increased the attractiveness of self-insurance to many employers. See Sokolovsky, Joan, LIBRARY OF CONGRESS, HEALTH BENEFIT PLANS: ERISA AND THE STATES 4 (1993)Google Scholar. At least half of all employers that offer health benefits to their employees do so through partially or fully self-insured health plans. See id.

¹⁰³ See 1 Rothstein Et Al., supra note 98, § 4.28.

¹⁰⁴ See Averhart v. U.S. West Management Pension Plan, 46 F.3d 1480, 1486-87 (10th Cir. 1994). This is because “State law" is broadly defined to include “all laws, decisions, rules, regulations, or other State action having the effect of law, of any State.” 29 U.S.C. § 1144(c)(1). “State" is further defined to include a “State, any political subdivision thereof, or any agency or instrumentality of either, which purports to regulate, directly or indirectly, the terms and conditions" of ERISA-covered plans. Id. § 1144(c)(2). Thus, ERISA preempts state common law that relates to covered plans, as well as state statutes and regulations. This view serves as an obstacle for plaintiff- retirees seeking relief under a federal common law estoppel theory. See infra notes 118-46 and accompanying text.

¹⁰⁵ See supra notes 102-04 and accompanying text; infra notes 112-17 and accompanying text.

¹⁰⁶ 29 U.S.C. §§ 1132(a)(1)(B), (a)(3).

¹⁰⁷ See Payne, William T., Lawsuits Challenging Termination or Modification of Retiree Welfare Benefits: A Plaintiff’s Perspective, 10 LAB. LAW. 91, 93 (1994)Google Scholar. Union employees or retirees who can rely on a collective bargaining agreement for their contract typically invoke section 301 of the Labor Management Relations Act. However, the review by courts is the same, and the results apparently do not differ. See 1 Rothstein Et Al., supra note 98, § 4.26, at 426-27. For purposes of this Note, non-union retiree claims are not distinguished from union retiree claims.

¹⁰⁸ See UAW v. Yard-Man, Inc., 716 F.2d 1476, 1479 (6th Cir. 1983), cert. denied, 465 U.S. 1007 (1984); see also Biggers v. Wittek Industries, Inc., 4 F.3d 291, 295 (4th Cir. 1993) (ERISA does not prohibit a company from terminating or modifying previously offered benefits that are not vested.); Wise v. EI Paso Natural Gas Co., 986 F.2d 929, 934-35 (5th Cir. 1993), cert. denied, 114 S. Ct. 196 (1993) (The strict vesting, accrual, participation and minimum funding requirements which ERISA imposes on pension plans do not apply to welfare benefits.); Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 856-57 (4th Cir. 1994) (A plan participant’s interest in welfare benefits is not automatically vested; employers have a “statutory right" to amend or terminate a plan.).

¹⁰⁹ See supra notes 39-47 and accompanying text.

¹¹⁰ Gable, 35 F.3d at 855; see also Boyer v. Douglas Components Corp., 986 F.2d 999, 1005 (6th Cir. 1993) (finding that “[e]ven though a welfare benefit plan is not subject to mandatory vesting requirements, the parties can agree to vest a welfare benefit plan”).

¹¹¹ See Gable, 35 F.3d at 855 (Vesting language should be clear so that “an individual employee reading the official plan documents could reasonably believe" that the benefits are vested.).

¹¹² See Armistead v. Vernitron Corp., 944 F.2d 1287, 1293 (6th Cir. 1991); Yard-Man, 716 F.2d at 1479-80; see also Sprague v. General Motors Corp., 843 F. Supp. 266, 306-07 (E.D. Mich. 1994) (stating that interpretation of an employee benefit plan begins with the official written instrument or the summary plan description). But see Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1517 (8th Cir. 1988) (reasoning that where the terms of the agreement are ambiguous or inconsistent, the court must look to extrinsic evidence).

¹¹³ See Gable, 35 F.3d at 857. The ambiguity must be tied into the pertinent issue, however. If the reservation of rights clause is deemed sufficiently expansive, the plan will not be considered ambiguous. “It is of no consequence . . . that [the employer] did not specifically provide for the right to change premium shares. ERISA does not require such particularized reservation of rights clauses, and to do so would be impractical.” Etherington v. Bankers Life & Cas. Co., No. 90-3125, 1992 U.S. App. LEXIS 17666, at *20-21 (7th Cir. July 21, 1992); see also John Morrell & Co. v. United Food and Commercial Workers, 37 F.3d 1302, 1304 (8th Cir. 1994) (stating that while the express terms of an ERISA plan determine benefits, “it is usually unwise to construe collective bargaining agreements without regard to their bargaining history”); RESTATEMENT (SECOND) OF CONTRACTS §§ 209(a), 210 (1981).

¹¹⁴ See, e.g., Sprague, 843 F. Supp. at 273-74.

¹¹⁵ See Ryan v. Chromalloy Am. Corp., 877 F.2d 598, 603 (7th Cir. 1989); Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988); 1 Rothstein Et Al., supra note 98, § 4.24; see also Yard-Man, 716 F.2d at 1479-80 (citations omitted):

¹¹⁶ See, e.g., Jensen v. Sipco, 38 F.3d 945, 950 (8th Cir. 1994); Bidlack v. Wheelabrator Corp., 993 F.2d 603, 607 (7th Cir. 1993), cert. denied, 114 S. Ct. 291 (1993). What constitutes an unambiguous reservation of rights is not altogether clear. See Jensen, 38 F.3d at 950 (finding the plan document’s reservation of rights provisions were not “so unambiguous as to make unnecessary any reference to other Plan provisions and extrinsic evidence”); Bidlack, 993 F.2d at 607 (rejecting the argument that a collective bargaining agreement “must either use the word ‘vest’ or must state unequivocally that it is creating rights that will not expire when the contract expires" to rebut the presumption that the contractual obligation ceases on expiration of the agreement).

ERISA prohibits informal written or oral amendments of employee benefit plans. See 29 U.S.C. § 1102(b)(3) (1994). This has been an obstacle when extrinsic evidence is important to the case. Cf. Gable, 35 F.3d at 857 (recognizing that “references to lifetime benefits in nonplan documents cannot override an explicit reservation of the right to modify contained in the plan documents themselves”); Alday, 906 F.2d at 665 (holding that any retiree’s right to lifetime medical benefits at a particular cost can only be established by contract under the terms of the ERISA-governed benefit plan document).

¹¹⁷ See 1 Rothstein Et Al., supra note 98, § 4.24. The Sixth Circuit first embraced this idea. In dicta, that court noted that “retiree benefits are in a sense ‘status’ benefits which, as such, carry with them an inference that they continue so long as the prerequisite status is maintained.” Yard-Man, 716 F.2d at 1482. The court reasoned that retirement benefits were a type of deferred compensation for the employee’s work prior to retirement. See id. Moreover, recognizing retirement benefits as vesting fulfills the parties’ expectations, because retirees typically do not have any bargaining power and union membership does not guarantee that the union will continue to represent the interests of its retired members. See id.

Other circuits, notably the Fifth and Eighth Circuits, have rejected this idea. See 1 Rothstein Et Al., supra note 98, § 4.24.

¹¹⁸ See Fiduciary Responsibility: Court Split Over ERISA Fraud Discussed at ABA Benefits Session, 22 Pens. & Benefits Daily (BNA) (Aug. 15 , 1995), at D7Google Scholar. [hereinafter Fiduciary Responsibility].

¹¹⁹ See, e.g., In re Unisys Corp. Retiree Med. Benefit “ERISA" Litig., 57 F.3d 1255, 1268-69 (3d Cir. 1995); Armistead v. Vernitron Corp, 944 F.2d 1287, 1300 (6th Cir. 1991); Alday, 906 F.2d at 666; Black v. TIC Investment Corp., 900 F.2d 112, 115 (7th Cir. 1990). Other circuits, however, fail to recognize these claims. See, e.g., Averhart v. U.S. West Management Pension Plan, 46 F.3d 1480, 1486-87 (10th Cir. 1994); Blau v. Del Monte Corp., 748 F.2d 1348, 1356 (9th Cir. 1984).

¹²⁰ See Crow, supra note 26, at 692 (citing Black, 900 F.2d at 112). The elements of estoppel are: (1) material representation, (2) reliance and (3) damage. See Lee v. Burkhart, 991 F.2d 1004, 1009 (2nd Cir. 1993).

¹²¹ See Alday, 906 F.2d at 666. Moreover, representations cannot modify a plan; only interpretations will be considered. See Novah v. Irwin Yacht & Marine Corp., 986 F.2d 468, 472 (11th Cir. 1993). For a representation to be an interpretation, “the relevant provisions of the plan must be ambiguous, that is to say, ‘reasonable persons could disagree as to the [provisions'] meaning and effect.’” Id. (quoting Kane v. Aetna Life Ins., 893 F.2d 1283, 1285 (11th Cir. 1990)).

¹²² See Fiduciary Responsibility, supra note 118, at 1-4.

¹²³ For a list of recent cases in which courts recognized estoppel claims, see Watson, Roberta Casper, Issues in the Administration of Health Plans, in Employee Retirement and Health Care Plans of Tax-Exempt and Governmental Employers 303, 354-62 (ALI-ABA Course of Study, Sept. 7 , 1995)Google Scholar, available in Westlaw, CA40 ALI-ABA 303.

¹²⁴ See Siske et al., supra note 30, at 175.

¹²⁵ See id.

¹²⁶ See Langbein & Wolk, supra note 39, at 825.

¹²⁷ Id.; see also Leonhardt v. Holden Bus. Forms Co., 828 F. Supp. 657 (D. Minn. 1993) (granting preliminary injunction against plan administrator who denied coverage for autologous bone marrow transplant treatments); Wilson v. Group Hospitalization and Med. Serv., Inc. 791 F. Supp. 309 (D.D.C. 1992) (granting preliminary injunction against insurer that denied coverage for a patient’s high dose chemotherapy treatment with autologous bone marrow transplant). Trustees have also been enjoined from further dealings with a pension plan’s holdings except with the court’s approval. See Langbein & Wolk, supra note 39 at 754.

¹²⁸ 866 F. Supp. 1034 (E.D. Mich. 1994).

¹²⁹ See id. at 1037-38. The defendant allegedly promised retirees lifetime health benefits at no cost. See id. at 1037. Plaintiffs argued that the defendant breached the promise when the company stated that Kelsey-Hayes would no longer pay premiums and deductibles. See id.

¹³⁰ The requisite elements that justify a temporary injunction include: (1) irreparable harm and imminent future harm; (2) no adequate remedy at law; (3) balance of private and public interests; (4) judicial administrability and (5) likelihood of success on the merits. See, e.g., Lawson Prods., Inc. v. Avnet, Inc., 782 F.2d 1429, 1431 (7th Cir. 1986).

¹³¹ See Hinckley, 866 F. Supp. at 1044.

¹³² See id. at 1045. The court appeared to look for evidence that the injunction would “force [the defendant] into bankruptcy or similar economic distress.” Id. Even with this kind of evidence, however, the court noted that a portion of Kelsey-Hayes’s financial loss during pendency of the litigation would be mitigated if the defendant ultimately prevailed at trial. See id.

¹³³ See id. at 1042-44.

¹³⁴ See id. at 1046. The same court granted a preliminary injunction to plaintiff-retirees in a similar situation in Sprague v. General Motors Corp., 857 F. Supp. 1182, 1184, 1192-93 (E.D. Mich. 1994). In that case, the court enjoined General Motors from making further modifications to early retirees’ health care benefits and from requiring early retirees to pay monthly contributions or premiums for their health care benefits. See id. at 1192-93.

¹³⁵ See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56 (1987). “The expectations that a federal common law of rights and obligations under ERISA-regulated plans would develop . . . would make little sense if the remedies available to ERISA participants and beneficiaries under § 502(a) could be supplemented or supplanted by varying state laws.” Id.

¹³⁶ Some courts do not recognize extra-contractual damages under § 502(a)(3). See United Steelworkers of Am. v. Connors Steel Co., 847 F.2d 707, 718 (11th Cir. 1988); Sokol v. Bernstein, 803 F.2d 532, 534 (9th Cir. 1986); Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enter., Inc., 793 F.2d 1456, 1462-64 (5th Cir. 1986); Powell v. Chesapeake & Potomac Tel. Co. of Va., 780 F.2d 419, 424 (4th Cir. 1985).

¹³⁷ 116 S. Ct. 1065, 1066(1996).

¹³⁸ See id. at 1074.

¹³⁹ See id. at 1068.

¹⁴⁰ See id. at 1079, aff'g 36 F.3d 746 (8th Cir. 1994).

¹⁴¹ Id. at 1074. Citing ERISA’s fiduciary responsibilities section, 404(a), the Court held that a fiduciary breaches his duty when he “participate[s] knowingly and significantly in deceiving a plan’s beneficiaries in order to save the employer money at the beneficiaries’ expense .. . .” Id. The Court reasoned that by doing so, the fiduciary does not “act ‘solely in the interest of the participants and beneficiaries.’” Id.

¹⁴² See id. at 1075-79. The Court appeared to be concerned that a contrary ruling would leave no appropriate remedy. See id. at 1079. Because the transferred employees and retirees were no longer members of the new employer’s benefit plan (when the company failed, the transferred workers and retirees stopped receiving benefits), they could not recover under ERISA section 502(a)(1)(B). See id. at 1079. Relief under section 502(a)(2) failed, because that section cross- references ERISA’s fiduciary duties and does not provide a remedy for individual beneficiaries. See id. That left ERISA section 502(a)(3), which the Court found broad enough to encompass individual relief for breach of a fiduciary obligation. See id. at 1076, 1079. “We are not aware of any ERISA- related purpose that denial of a remedy would serve. Rather, we believe that granting a remedy is consistent with the literal language of the statute, the Act’s purpose, and pre-existing trust law.” Id. at 1079.

¹⁴³ See id.

¹⁴⁴ Justice Thomas expressed this sentiment in his dissent. He argued that the ruling should be confined to its facts and be understood as “modest" in its effect. See id. at 1091 (Thomas J., dissenting). “Application of the Court’s holding in the many cases in which it may logically apply could result in significantly increased liability, or at the very least heightened litigation costs, and an eventual reduction in plan benefits to accommodate those costs.” Id. at 1090-91.

¹⁴⁵ See id. at 1074.

¹⁴⁶ How lower courts ultimately decide to interpret Varity Corp., however, could impact the availability of court relief for retirees whose post-retirement health benefits are terminated or altered.

¹⁴⁷ Cf. Sellers, Herschel V. III, Health Care Reform: A Corporate Employer’s Perspective, 46 WASH. U. J. URB. & CONTEMP. L. 53, 53 (1994)Google Scholar (noting that “[t]he role of the modern American corporation has been gradually transformed from benevolent provider of insurance to provider of insurance as a required component of employment compensation”).

¹⁴⁸ See Rose, Henry & Rosenzweig, Linda E., Legal Considerations for Postretirement Health Plans, in FUNDING POST-RETIREMENT HEALTH BENEFITS: WHO WILL PAY? 66, 76 (Tort & Ins. Practice Section, A.B.A. ed., 1990)Google Scholar.

¹⁴⁹ See id. (concluding that “[C]ongressional action regarding rights and responsibilities for retiree health benefits should provide a measure of certainty in this area, reduce litigation, and facilitate long-term planning for employers and employees”).

¹⁵⁰ See supra text accompanying notes 39-51, 93-104.

¹⁵¹ See Enthoven, Alain C., Retiree Health Benefits as a Public Policy Issue, in RETIREE HEALTH BENEFITS: WHAT IS THE PROMISE? 3, 6 (1989)Google Scholar. Cost containment is important. “We certainly would not want to force employers to say, ‘We will pay only for technology that was available the year you retired,’ or to force them to drop benefits altogether.” Id. at 9.

¹⁵² Some argue that public policy should encourage job mobility, or at least avoid creating artificial barriers to it. See id. at 13. “For economic efficiency, workers should be able to move to jobs best suited to their skills. From this point of view, tax-favored savings plans should include instant full vesting and portability.” Id.

¹⁵³ Acceptance of this idea appears unlikely, given most circuits reluctance to recognize the benefits as deferred compensation or “status" benefits unique to retirees. See supra note 117 and accompanying text.

¹⁵⁴ Cf. Enthoven, supra note 151, at 12. Employers would learn that “they should be careful, definite, and precise about promises for future benefits and they should factor the present values of future costs into present decisions about wages.” Id.

¹⁵⁵ This may not ensure a limitation on duration, but failure to be specific in the documents may result in an obligation to provide benefits for an extended period. See Crow, supra note 26, at 692.

¹⁵⁶ See supra notes 24-31 and accompanying text.

¹⁵⁷ Cf. Chollet, Deborah J., Retiree Health Insurance Benefits: Trends and Issues, in RETIREE HEALTH BENEFITS: WHAT IS THE PROMISE? 19, 35 (1989)Google Scholar (predicting that benefit receipt among future retirees would rise significantly if employers were required to vest health benefits using the five-year pension vesting standard effective in 1989 under the Tax Reform Act of 1986). Vesting would increase employer costs and raise the federal revenue cost of tax incentives to fund such benefit promises.

¹⁵⁸ Congressional efforts to secure retiree health benefits have largely been crisis-driven. Most enacted measures have been short-term, stopgap provisions principally aimed at assisting the retirees of large companies that have used Chapter 11 reorganization to dissolve their plans. See FUCHS, supra note 28, at 12.

During initial House Ways and Means Committee consideration of Medicare reform proposals, House Republicans dropped a plan that would have used a Medicare allowance to permit workers to retain their company health plans after they turned 65. See Rosenblatt, Robert A., GOP Said to Scrap Plan That Gives Retirees Health Benefits, L.A. TIMES, Sept. 20 , 1995, at A24Google Scholar. Pressure from the business community may have prevented this idea of “seamless coverage" from materializing. See id.

¹⁵⁹ See, e.g., Wines & Pear, supra note 63, at Al. Universal health care would especially help early retirees who are ineligible for Medicare benefits. See supra notes 33-38 and accompanying text.

¹⁶⁰ See Health Security Act of 1993, H.R. 3600, 103d Cong. § 1608. The President’s plan would initially be costly to employers. Starting in 1998, companies would pay 20% of their early retirees’ health benefit costs plus a “transition assessment" through 2000. See id. §§ 1608, 7121. The federal government would pay the remainder. See id. After the year 2000, when the transition assessment would end, companies would pay 20% and the government, 80%. See id.

¹⁶¹ See generally Shillinger, Kurt, Coming Soon: Dueling Big Shots, CHRISTIAN SCI. MONITOR, Apr. 11 , 1995, at 4Google Scholar (detailing the political contest between President Clinton and Speaker of the House, Newt Gingrich); Wines & Pear, supra note 63, at Al (tracing the transformation in health care since the President’s health care proposal).

The President made some progress in health care reform with the recently enacted Health Insurance Portability and Accountability Act, Pub. L. No. 104-191, 110 Stat. 1936 (1996). The Act, however, provides little assistance to early retirees. The Act primarily benefits workers who change or lose jobs to qualify for insurance from private insurers. See id. § 703. It also limits the extent to which insurers can exclude people because of preexisting conditions. See id. § 701. Given that the Act does not require employers to provide health benefits, only early retirees who switch from one job with health benefits to another can be guaranteed uninterrupted coverage. See Jeffrey, Nancy Ann, Health Switch: New Law Eases Job-Hops, Sometimes, WALL ST. J., Aug. 30 , 1996, at C1Google Scholar.

¹⁶² See H.R. 1293, 104th Cong. (1995); S. 588, 104th Cong. (1995). The Bills simply “make sure retirees can keep their health insurance while they wait for their day in court,” presumably through a preliminary injunction. 141 CONG. REC. S4367 (daily ed. Mar. 22, 1995) (statement of Sen. Daschle). These bills, however, did not receive any committee attention.

¹⁶³ Paragraph two of House Bill 1293 and Senate Bill 588 exempts two types of employer behavior from the scope of the legislation:

• (A) [when] the termination or reduction of retiree health benefits is substantially similar to a termination or reduction in health benefits (if any) provided to current employees which occurs either before, or at or about the same time as, the termination or reduction of retiree health benefits, or

• (B) [when] the changes in benefits are in connection with the addition, expansion, or clarification of the delivery system, including utilization review requirements and restrictions, requirements that goods or services be obtained through managed care entities or specified providers or categories of providers, or other special major case management restrictions.

While (A) properly takes into account the flexibility employers need to plan and manage their health care benefits, (B) is sufficiently vague to cover a wide range of scenarios.

¹⁶⁴ Subsection (b) of House Bill 1293 and Senate Bill 588 requires the plan or plan sponsor to establish by a preponderance of the evidence that the summary plan description or other retiree benefit-related documents:

• (1) were distributed to the participant at least 90 days in advance of retirement or disability;

• (2) did not promise retiree health benefits for the lifetime of the participant and his or her spouse; and

• (3) clearly and specifically disclosed that the plan allowed such termination or reduction as to the participant after the time of his or her retirement or disability. The disclosure ... must have been made prominently and in language which can be understood by the average plan participant.

¹⁶⁵ See, e.g., Retiree Continuation Coverage Act of 1995, H.R. 2168, 104th Cong. (extending the duration of COBRA continuation coverage for retirees and their dependents); S. 827, 104th Cong. (1995) (limiting an employer’s tax deduction for employee health care costs “if the employer fails to honor its commitment to provide health care to its retirees.”); Health Partnership Act of 1995, S. 308, 104th Cong. (giving states more flexibility in reforming health care, and establish commission to review ERISA’s impact on health care); H.R. 318, 104th Cong. (1995) (granting retirees priority for their health benefits in liquidation cases under chapters 7 and 11).

¹⁶⁶ This solution only considers options for employees retiring from companies that already offer health benefits. Any final solution, of course, will have to take into account the large number of early retirees who leave companies without a health benefit program. Cf. Enthoven, supra note 151, at 13 (noting that “horizontal equity" requires tax-sheltered savings opportunities to be available to all workers, not just “long-service" employees retiring from large companies). The final solution should also consider that mandating a benefit will add to the competitive disadvantage of benefit-providing employers, or at least force them to cut back other benefits and/or wages. See Sellers, supra note 147, at 61.

¹⁶⁷ See Sellers, supra note 147, at 66-67.

¹⁶⁸ This conception of medical savings accounts (MSAs) is based on the program offered to county employees in Ada County, Idaho. See Lim, Paul J., A New Way to Pay for Health Care— Medical Savings Accounts Put Money, Decision-Making Power into the Hands of Employees, SEATTLE TIMES, Nov. 12 , 1995, at F1Google Scholar. While MSAs vary to some degree, their underlying goals and policies are the same. See, e.g., Ferris, Andrew & Seiler, Griffin, Health Care Reform: A Free-Market Proposal, 7 LOY. CONSUMER L. REP. 45, 53-54 (1995)Google Scholar.

¹⁶⁹ See Ferris & Seiler, supra note 168, at 52. The retiree could also deposit pretaxed income into the MSA. See id. at 52-53.

¹⁷⁰ See Lim, supra note 168, at F1. The employer’s responsibility would end once the employee is eligible for Medicare.

¹⁷¹ Cf. id. (stating that MSAs give consumers control to decide what kinds of health services they will receive); Employee Benefits Research Inst., Brief No. 147, HEALTH REFORM: EXAMINING THE ALTERNATIVES 14 (1994)Google Scholar [hereinafter EBRI BRIEF NO. 147] (noting that “[i]n con junction with the MSA, individuals could also purchase a catastrophic health plan ...”). It would be extremely difficult and unrealistic to have the MSA set up as a defined benefit plan. Rapid changes in medical technology and services make it impossible to predict with accuracy what services a retiree will be able to choose from in the future.

¹⁷² See EBRI BRIEF NO. 147, supra note 171, at 14.

¹⁷³ See Medical Savings Accounts Come Out of the Wilderness, HEALTH LEGIS. & REG., Jan. 25 , 1995Google Scholar, available in 1995 WL 8354903 [hereinafter MSAs Out of the Wilderness].

¹⁷⁴ The MSA would also be portable. See Lim, supra note 168, at Fl.

¹⁷⁵ See infra notes 194-98 and accompanying text.

¹⁷⁶ See MSAs Out of the Wilderness, supra note 173. Although the federal government would play a role, it would be minor. See id. A third party like the federal government may have to monitor whether MSA withdrawals were used properly (for health reasons) or should otherwise be taxed. See id. This role would need to be more carefully defined, however, as monitoring every MSA disbursement would create administrative burdens and could raise potential compliance issues. See id.

¹⁷⁷ See id.

¹⁷⁸ See Ferris & Seiler, supra note 168, at 46; Lim, supra note 168, at Fl.

¹⁷⁹ See Blevins, Sue, MSAs: Everybody Wins, INVESTOR’S BUS. DAILY, Nov. 13 , 1995, at A2Google Scholar. According to the National Center for Health Statistics, 16% of Americans aged 65 and older considered their health “excellent,” while 55% thought they were in “good" or “very good" condition. See id.

¹⁸⁰ Generally, about 0.5% of the people in an insurance pool account for 20% to 30% of the total costs of caring for that pool. See Lim, supra note 168, at F1. A 1987 National Medical Expenditures Survey came up with similar results: the sickest one-tenth of the population receive 72% of health disbursements. See id.

¹⁸¹ An MSA’s flexibility also stems from the fact that the employer will play a role “other than a conduit for cost.” Sellers, supra note 147, at 64. “Employers need to control their own destiny; how they handle benefits given to employees is no exception. Benefits are an important component in developing a positive employer/employee relationship. Legislation that would remove this employer from the equation ... would impair this mutually beneficial nexus.”

¹⁸² Under the Internal Revenue Code, an employer can set up a tax-exempt Voluntary Employees’ Beneficiary Association (VEBA) for the purpose of funding certain employee benefits, including retired employee health care. See I.R.C. §§ 419(a), 401-20, 512(a)(3)(e) (1996). However, employer contributions to VEBAs are taxable. See Rep. Chandler, Rod, Congressional Perspective on Mandating Health Benefits, in GOVERNMENT MANDATING OF EMPLOYEE BENEFITS 135, 137 (1987)Google Scholar. Employers are further discouraged from prefunding retiree health benefits because of a limit on the amount an employer may deduct as re serves and because of a tax on the earnings on the reserves. See Crow, supra note 26, at 665-71.

Congress considered a proposal to modify these laws. See Retiree Health Protection Act of 1987, H.R. 2860, 100th Cong. Under that bill, employers receive incentives to create Voluntary Retiree Health Plans (VRHPs) to prefund retiree health benefits. See id. § 431. Contributions to VRHPs would be tax-deductible, and the interest accumulated in each account would not be subject to federal taxation. See id. § 432. Employers could choose five-year, 100% vesting or three-to-seven-year vesting schedules similar to those typically associated with pension law. See id. § 433(g). When an employee retires, he or she is entitled to health insurance coverage that could be purchased with the accumulated funds. See id. § 433(b). The reasons for tying this account to employers include increasing the likelihood that benefits will be funded and connecting the retiring employee with a sponsored group. See Enthoven, supra note 151, at 15.

¹⁸³ See U.S. Gen. Accounting Office, Employee Benefits: Companies‘ RETIREE HEALTH BENEFITS LARGE, ADVANCE FUNDING COSTLY 23-31 (1989)Google Scholar.

¹⁸⁴ As one commentator noted, corporate employers with “extensive retiree medical liabilities generally favor portions of the health care reforms that will eliminate their obligation to provide retiree medical benefits.” Sellers, supra note 147, at 66.

¹⁸⁵ Lim, supra note 168, at F1. There is some indication that retirees may accept a smaller pension in return for post-retirement health benefits. A 1993 Gallup/Employee Benefit Research Institute poll found that 57% of those questioned believed that employers ought to be required to provide health benefits to their retirees even if it meant that retirees received a lower pension benefit. See Telephone Poll by Gallup Organization for Employee Benefit Research Institute (Nov. 1993), available in DIALOG, Poll File.

¹⁸⁶ This Note does not address some of the major uncertain issues surrounding MSAs in general, such as the impact of MSAs on controlling health care costs. For reasons why creating MSAs will lower national health care costs, see Sen. Roth, William V. Jr., Medical Savings Accounts, 11 J. CONTEMP. HEALTH L. & POL'Y 149, 152-57 (1994)Google ScholarPubMed. For a list of commonly cited MSA criticisms, see Hey, Robert P., Who Gets a Ride on the MSA? Critics See Winners: ‘Healthy and Wealthy,’ AARP BULL., June 1996, at 4, 5Google Scholar.

¹⁸⁷ See Hey, supra note 186, at 5.

¹⁸⁸ If a retiree used all of his or her money in the MSA and still needed additional medical care, the retiree would have to pay for that care until he or she reached the deductible limit of the catastrophic insurance plan. See id.

¹⁸⁹ See Lim, supra note 168, at F1.

¹⁹⁰ See Hey, supra note 186, at 5; see also Roth, supra note 186, at 151-52 (“[B]ecause the money is yours [the beneficiary’s], and because you will get to keep it if you do not waste it, I believe taxpayers will make smarter, more informed and better decisions about when, how and where to seek their health advice.”).

¹⁹¹ States that enacted MSA laws include Arizona, Colorado, Idaho, Mississippi, Nevada, Oklahoma, Utah and West Virginia. See ARIZ. REV. STAT. ANN. § 43-1028 (West Supp. 1996); COLO. REV. STAT. ANN. § 39-22-504.7 (Bradford 1995); IDAHO CODE § 63-3022K (1996); MISS. CODE ANN. § 71-9-5 (1995); NEV. REV. STAT. § 608.1591 (1995); OKLA. STAT. ANN. tit. 63, § 2621 (West Supp. 1996); UTAH CODE ANN. § 31A-32-104 (Michie Supp. 1996); W. VA. CODE § 33-15-20 (Michie 1996). Some states either currently examine the feasibility of MSAs or delayed enactment of laws establishing MSAs until comparable federal legislation passed. See LA. REV. STAT. ANN. § 22:9 (West 1995) (creating a Louisiana Health Care Commission to study and promulgate recommendations for MSAs and other programs); VA. CODE ANN. § 38.2-5600 (Michie 1996) (implementing an MSA plan on congressional authorization).

¹⁹² See Lim, supra note 168, at Fl. Certain public employers reported savings once they made an MSA option available to employees. See id. In conjunction with an MSA, Ada County, Washington buys its employees catastrophic health insurance that is cheaper than the traditional comprehensive insurance it used to purchase and puts the difference into employees’ accounts. See id. The company reports saving about $300 a month per family, or $3,600 a year. See id. Last year, Jersey City, New Jersey offered MSAs to its management employees, 180 of which accepted. See id. The city reports a savings of $21,000 in insurance premiums for the first quarter since the account was available and expects to save $250 per year per employee. See id.; see also Roth, supra note 186, at 154-57 (giving examples of successful private ventures into the MSA field).

¹⁹³ See Roth, supra note 186, at 154-57.

¹⁹⁴ See Pub. L. No. 104-191, 110 Stat. 1936 (1996) (codified in scattered sections of 18, 26, 29, 42 U.S.C.). The test is limited to 750,000 participants selected on a first-come, first-served basis. See id. One purpose of the MSA test is to determine whether MSAs restrain medical costs. See Rosenblatt, Robert A., Clinton Signs Major Package of Health Insurance Reforms Legislation, L.A. TIMES, Aug. 22 , 1996, at A16Google Scholar.

¹⁹⁵ Health Insurance Portability and Accountability Act § 301.

¹⁹⁶ See id.

¹⁹⁷ See id.

¹⁹⁸ See id.

¹⁹⁹ See Sperry, Paul, Rethinking Age, INVESTOR’S BUS. DAILY, Nov. 1 , 1995, at A4Google Scholar, available in LEXIS, News Library, Invdly File.

Id.

²⁰⁰ See Contract with America Advancement Act of 1996, Pub. L. No. 104-121, § 102, 110 Stat. 847 (codified at 42 U.S.C. § 1305). Until recently, the earnings limit for 1996 was $11,520. See 42 U.S.C. § 403(f)(8)(D) (1994). The increase was approved as part of an agreement reached by Congress and President Clinton to raise the nation’s debt ceiling to $5.5 trillion. See Contract with America Advancement Act of 1996 § 303. Under the agreement, the earnings limit climbs over the next five years so that by 2002, over-65 workers can earn $30,000 in Social Security benefits during that year without penalty. See id. § 102.

²⁰¹ Retirees age 62 to 64 lose one dollar for every two dollars they earn above their earnings limit, which is $8,280. See 42 U.S.C. § 403(b)(1), (f)(3). There is no penalty for beneficiaries age 70 and older who continue to work. See id. § 403(f)(3).

²⁰² See 42 U.S.C. § 1395y(b)(1)(A)(i).