Health benefits

Alcoa fights retiree ERISA lawsuit over Medicare

Evansville, INIn December 2020, retirees of Alcoa USA Corp. filed an ERISA lawsuit in the Southern District of Indiana to block Alcoa’s announced plan to change the way it provides collectively-bargained retiree health benefits. The changes in question in Kaiser vs. Alcoa USA Corp. (originally subtitled Simpkins vs. Alcoa USA Corp.) came into force in 2021 and affects approximately 3,000 pensioners and spouses. They were made unilaterally by Alcoa, apparently without negotiation with the workers’ collective bargaining representative.

Alcoa is now challenging the plaintiffs’ offer for class certification, arguing that the retirees are not in the same situation because they worked in different facilities, were covered by different collective agreements and had different levels of benefits. different. The plaintiffs maintain that they nevertheless suffered the same prejudice.

Health Reimbursement Account (HRA) Defined Benefit Plan

Prior to 2021, Alcoa provided lifelong health insurance benefits to Medicare-eligible retirees and their dependents under contracts with United Steel Workers. Under the new scheme, Alcoa provides funds through an annual HRA contribution. Previously covered individuals can use the HRA contribution to purchase their own healthcare plan through an insurance exchange. Disabled adult children of plan beneficiaries are not eligible for the HRA contribution and therefore lose all benefits paid by Alcoa.

Alcoa argues that it did not terminate benefits, as alleged in the complaint, and that with the tax-free HRA contribution, Alcoa retirees are actually better off because:

  • they can adapt the way they spend health care money according to their needs;
  • unused funds can be carried over to subsequent years; and
  • the dollar amount of its 2022 HRA contribution may be higher for some recipients than the sum previously required by labor agreements. Alcoa has increased the contribution of each alleged class member to $3,400 for plan year 2022.

The company also insists that retirees have indicated a preference for HRA benefits.

The biggest concern appears to be that retirees, in addition to losing coverage for disabled adult children, could lose the contractual right to apply the minimum contribution level required by collective agreements, notwithstanding any increase in 2022 initiated by Alcoa.

Can pensioners bring a class action?

The power of retirees is in their numbers. Alcoa has therefore, predictably, taken steps to deprive them of this procedural advantage by arguing that they do not qualify as a single class under the requirements of the Federal Rules of Civil Procedure (FRCP). Alcoa’s argument on retiree eligibility for class action status has 3 parts.

First, the company argues that there are insufficient issues of law or fact common to all members of the class, noting in particular that the retirees were covered by 48 different collective agreements and that they took their retreat in different facilities with different retreat dates. Alcoa further argues that the healthcare benefits promised under these contracts should not be taken as “given” because the terms of the contracts and the information disseminated to retirees are ambiguous.

Second, Alcoa argues that the named plaintiff does not have sufficient interest in vigorously pleading the issue on behalf of the other class members because they are not typical of the class. Lynnette Kaiser, now the sole representative of the class, is a wife whose husband worked and retired at only one of many establishments. Alcoa speculates that it may therefore have conflicts of interest with other retirees and covered spouses. Alcoa further argues that treating retirees and spouses as one class could result in inconsistent remedies.

Finally, Alcoa argues that the individual issues predominate over the common issues in the lawsuit, which makes it unsuitable for class certification. The company speculates that a separate damages hearing may be required for each class member.

The fundamental question

Procedural issues generally come first in any trial. The substantive issue will only be resolved at trial, and a trial can only proceed if the plaintiffs can survive the initial procedural challenge. It is clear that non-contracted employers can, within certain limits, convert health insurance schemes into healthcare reimbursement accounts. The question in Kaiser is however more complex, because it is a question of evaluating the impact of this conversion on the collective agreements.

The next step for complainants, both procedurally and substantively, is likely to be to gather all available information on the many different collective agreements that were applicable on different dates, as well as other forms of communication disseminated to employees and retirees on health benefits. It won’t be an easy task.