Herrmann v. Cencom Cable Associates, Inc.
| Decision Date | 02 November 1992 |
| Docket Number | No. 92-1415,92-1415 |
| Citation | 978 F.2d 978 |
| Parties | 15 Employee Benefits Cas. 2810 Tamera HERRMANN, Plaintiff-Appellant, v. CENCOM CABLE ASSOCIATES, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Lawrence O. Taliana, Crowder & Taliana, Edwardsville, Ill. (argued), for plaintiff-appellant.
Cawood Bebout, Gallop, Johnson & Neuman, St. Louis, Mo. (argued), for defendant-appellee.
Before EASTERBROOK and KANNE, Circuit Judges, and PELL, Senior Circuit Judge.
In 1986 Congress added a new chapter to the Employee Retirement Income Security Act of 1974. 29 U.S.C. §§ 1161-68. Employers providing health care as a fringe benefit must permit some former employees and their dependents to continue participating in the health plan. (We call all qualified persons "ex-employees," glossing over the cases of dependents and divorced spouses that are not important here.) Ex-employees must be given an opportunity to elect coverage, and the plan may charge them a price based on the costs it incurs in covering an average employee. Such coverage is attractive to persons who are ill at the time of their separation from employment or fall ill soon after, for insurers charge higher-than-average prices to persons with known medical problems.
Former employees choose continuation coverage only when that is cheaper than insurance at market prices. Self-selection means that employers effectively subsidize their ex-employees. Health care as a fringe benefit for productive workers is one thing, and as a gift to persons who have been laid off or fired is another. Employers thus would like to make coverage as scarce as possible. For their part, former employees would like to treat continuation coverage as an option, to be exercised only if they are sure that they face medical costs exceeding the premiums. If they turn out to be healthy, they do not enroll and pay nothing. If medical needs loom, they exercise their option. Such an option destroys the character of the coverage as insurance. Congress attempted to set limits on both kinds of opportunism. It obliged employers to notify separated employees of their options and give them two months to decide. Section 605(1), 29 U.S.C. § 1165(1). Having opted in, employees must pay the first premium within 45 days. If an employee elects coverage, the employer may not throw the insured person out on a technicality--for example, a premium paid one day late.
In defining the persons covered, and limiting opportunities for each side to exploit the other, Congress wrote a web of cross-references. Our case arises out of one of these--s 602(2)(C), 29 U.S.C. § 1162(2)(C), which defines how late a payment may be before the employer can terminate the ex-employee's benefits. This section provides that coverage ceases
by reason of a failure to make timely payment of any premium required under the plan with respect to the qualified beneficiary. The payment of any premium (other than any payment referred to in the last sentence of paragraph (3)) shall be considered to be timely if made within 30 days after the date due or within such longer period as applies to or under the plan.
The corresponding version of paragraph (3) provided:
The plan may require payment of a premium for any period of continuation coverage, except that such premium--
(A) shall not exceed 102 percent of the applicable premium for such period, and
(B) may, at the election of the payor, be made in monthly installments.
If an election is made after the qualifying event, the plan shall permit payment for continuation coverage during the period preceding the election to be made within 45 days of the date of the election.
Thus the reference in § 602(2)(C) to the "last sentence" of paragraph 3 was to the 45 days a departing employee had to pay the initial premium. ("Qualifying event" is an elaborately defined term, see § 603, 29 U.S.C. § 1163, the details of which need not detain us.) There is a 30-day grace period for ordinary premiums, but the employee has 45 days to make the initial payment. Tacking the 45 and 30 day periods is not legally required (although an employer could allow it). The upshot is that the ex-employee has 3 1/2 months from the notice of eligibility to elect and pay (60 days to elect, 45 more to pay), but an employer need not tolerate longer delay while the employee waits to see whether ailments make the price a bargain.
Cencom Cable Associates discharged Tamera Herrmann under circumstances that made the separation a "qualifying event." Cencom informed Herrmann of her opportunity to elect continuation coverage. On the 59th day she returned the enrollment form. Cencom promptly advised Herrmann that her first payment was due no later than July 2, 1990, exactly 45 days from the date she enrolled. She did not pay. Fifteen days beyond the outer limit, Herrmann's lawyer demanded that Cencom accept a tardy initial payment. It refused, and this suit followed. The district judge granted summary judgment to Cencom, ruling that an ex-employee who fails to pay the initial premium within 45 days of the election forfeits entitlement to coverage.
If § 602 still read as originally enacted, no one would have bothered to litigate. Unfortunately Congress made a mess of things in the Omnibus Budget Reconciliation Act of 1989, Pub.L. 101-239, a mammoth collection of unrelated provisions (386 pages in the Statutes at Large) enacted on the last day it met that year. In their rush to get out of town with a bundle of seasonal goodies for their constituents, the Members of Congress neglected such details as cross-references. Section 6703(b), 103 Stat. 2296, provided:
Section 602(3) of such Act (42 [sic] U.S.C. 1162(3)) is amended in the matter after and below subparagraph (B) by adding at the end the following new sentence: "In the case of an individual described in the last sentence of paragraph (2)(A), any reference in subparagraph (A) of this paragraph to '102 percent' is deemed a reference to '150 percent' for any month after the 18th month of continuation coverage described in clause (i) or (ii) of paragraph (2)(A)."
The amended paragraph 3 then read as follows:
The plan may require payment of a premium for any period of continuation coverage, except that such premium--
(A) shall not exceed 102 percent of the applicable premium for such period, and
(B) may, at the election of the payor, be made in monthly installments.
If an election is made after the qualifying event, the plan shall permit payment for continuation coverage during the period preceding the election to be made within 45 days of the date of the election. In the case of an individual described in the last sentence of paragraph (2)(A), any reference in subparagraph (A) of this paragraph to "102 percent" is deemed a reference to "150 percent" for any month after the 18th month of continuation coverage described in clause (i) or (ii) of paragraph (2)(A).
Paragraph 3 now had a new "last sentence", but the cross-reference in § 602(2)(C) did not change. Recall that § 602(2)(C) says that "[t]he payment of any premium (other than any payment referred to in the last sentence of paragraph (3)) shall be considered to be timely if made within 30 days after the date due or within such longer period as applies to or under the plan." The new "last sentence" of paragraph 3 does not refer directly to any "payment".
The maze of cross-references and deemers in the new last sentence permits employers to raise the premium for continuation coverage from 102% of the average cost of their current workforce to 150% of this cost for ex-employees who are entitled to disability benefits under titles II or XVI of the Social Security Act. "[A]n individual described in the last sentence of paragraph (2)(A)" is one who has been found totally disabled and entitled to benefits under that statute. Although most ex-employees are entitled to continuation coverage for a maximum of 18 months, a disabled employee is entitled to coverage for 29 months. The new "last sentence" of paragraph 3 permits the employer to raise the charge to these employees, who have higher than average costs of medical care, during months 19 through 29 of continuation coverage. But this affects the amount to be paid, not when to pay, which renders the cross-reference in § 602(2)(C) nonsensical, unless understood to mean that during months 19 through 29 paying even a single day late permits the employer to yank the disabled person's insurance. That would be an odd thing to attribute to Congress, even granting that the statute is the product of scissors, tape, and handwritten interlineations by Members rushing to make their planes. It is, however, what Herrmann says the statute means. Thousands of disabled persons will lose their benefits, but she will become eligible.
When it enacted § 6703(b), Congress was not done tinkering with § 602(3). Section 7862(c)(4)(A), 103 Stat. 2433, provides:
The last sentence of section 602(3) of ERISA is amended to read as follows: "In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage."
Combine this amendment with the text of § 602(3) § 6703(b)--including the new last sentence--and you get:
The plan may require payment of a premium for any period of continuation coverage, except that such premium--
(A) shall not exceed 102 percent of the applicable premium for such period, and
(B) may, at the election of the payor, be made in monthly installments.
If an election is made after the qualifying event, the plan shall permit payment for continuation coverage during the period preceding the election to be made within 45 days of the date of the election. In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the...
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