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Employer That Promised Lifelong Retiree Health Insurance Could Not Change The Benefit To An HRA

CATEGORY: Client Update for Public Agencies
CLIENT TYPE: Public Employers
DATE: Jun 05, 2024

Alcoa USA Corporation had a history of collective bargaining agreements promising that Alcoa would provide employees with healthcare benefits when they retired.  Over time, Alcoa faced increasing healthcare costs and sought ways to limit or cap the retiree healthcare expenses.

In 2021, Alcoa unilaterally replaced the fixed group health insurance plan it provided to retirees with a health reimbursement arrangement (HRA).  A group of former Alcoa employees (retirees) filed a lawsuit claiming Alcoa had promised them lifetime healthcare benefits that could not be unilaterally diminished.  They argued the new HRA reduced their retiree healthcare benefits in violation of that promise.

The Southern District Court of Indiana first analyzed whether the retirees had a vested right to lifelong healthcare benefits.  It determined that the doctrine of judicial estoppel prohibited Alcoa from arguing that retirees did not have lifelong healthcare benefits.  Alcoa was in a rare situation where it had faced a prior lawsuit from a different group of retirees over their retiree healthcare benefits.  As part of that prior lawsuit, Alcoa had represented and made statements that retiree health benefits were guaranteed for life.  The District Court found that Alcoa could not now go back and argue that retirees did not have a vested right to lifelong healthcare benefits.

The District Court then reviewed whether the new HRA was “reasonably commensurate” with the retirees’ prior health insurance plan.  Alcoa argued that it did not violate the collective bargaining agreements because the new HRA was reasonably commensurate with the prior health insurance plan.  However, the District Court found that no reasonable jury could find that to be accurate.  The District Court addressed three reasons the new HRA was a significantly reduced benefit compared to lifelong healthcare benefits.  First, the terms of the new HRA stated that Alcoa could terminate it at any time, which was a substantial decrease in benefit compared to the retirees’ lifelong healthcare benefits.  Second, one-third of the retiree group was not eligible to participate in the HRA, despite Alcoa guaranteeing them lifelong healthcare benefits.  Third, the HRA shifted the burden of rising healthcare costs from Alcoa onto the retirees.  The District Court granted the retiree’s partial motion for summary judgment as to liability.

Note: This case presented an unusual situation where the employer was judicially estopped from arguing that its retiree healthcare benefits were not vested for the lifetime of the retiree.  Generally, whether or not a collective bargaining agreement or a memorandum of understanding has created a vested right to lifelong retiree healthcare benefits is a specific analysis that will depend on the exact contractual language and the history of prior contract language.

Kaiser v. Alcoa USA Corp., 2024 WL 1283535 (S.D. Ind. 2024).

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