The Acme chemical plant was concerned about two things. The first was terrorism. The production crew routinely handled dangerous, flammable and toxic materials feeding the reactors that maintained a steady flow of finished product going out the door and revenue coming into the till. The second concern was health care costs. Regardless of which insurance carrier Acme used, the premiums seemed to rise faster than the nation’s inflation rate and the consumer price index.
Addressing the first concern was relatively easy. A security guard opened the gate only after inspecting a driver’s identification and copying the details to a form carried on a clipboard. Few of the 600 employees on either shift drove into the plant. Most walked in, and the guard wrote down as many serial numbers from employee ID cards as he could during shift changes. The second concern was more problematic.
Medical care was important to Petey and Geri Atrique, a couple who worked in the Acme plant. Petey had been working there for nearly 25 years and Geri had been on the staff for about eight years. They chose to work for Acme for one reason. The company’s benefit package provided medical coverage for Barry, their preteen son, a cancer patient who was dealing with a metastasized tumor but was holding his own against the disease.
Medical care also was important to Acme. Every year, Acme and its employees’ union met to discuss the details, cost and performance of the health care plan. The outcome was an agreement about employee cost-sharing. Participants contributed to the plan through payroll deductions in an amount that was a function of the number of family members enrolled in the plan.
Nevertheless, medical care costs spiraled out of control. In an attempt to minimize its own costs and employee premiums, Acme had been changing insurance nearly every year. But this year, the company couldn’t find coverage at a reasonable cost. The HR department conducted a study and found that fewer than 20% of the employees accounted for more than 80% of the medical claims. So, Acme elected to eliminate the middleman and become self-insured, which meant the company would pay any claims the employees filed. HR also noted that only two people enrolled in the plan were being treated for a terminal illness: Barry Atrique and Terry Hote, the wife of Acme’s CEO.
If this money-saving initiative was to be a success, Acme would need to influence employee behavior. This initiative started with Acme’s management conducting a series of employee meetings to explain the newest health care plan. Executives displayed historical charts showing most medical claims were relatively small. In fact, many employees never filed a claim. Acme warned that having to pay large medical claims would only increase the overall cost of health care coverage, which would result in larger deductions from their weekly paychecks.
Soon after the meetings, Barry suffered a relapse and his parents were advised that the child probably had entered the final stages of cancer. The oncologist recommended an aggressive six-week experimental treatment regimen to begin immediately. Petey and Geri agreed to the program at a cost of nearly $10,000 per week.
About halfway through the treatment schedule, Acme felt obligated to open an investigation into Petey’s time cards because management believed he falsely reported the hours he was in the plant during a recent chaotic plant shutdown. This was motivated by an apparent discrepancy between the number of hours Petey listed on his time cards and the in/out time the security guard logged at the gate.
When his supervisor confronted Petey about several differences going back about one year, Petey replied that he couldn’t recall the details and wasn’t sure about the times shown on either set of records. He said that having an only child in the cancer ward fighting for his life was stressful. In addition, Petey admitted to taking antidepressants for some time. One week later, Acme fired Petey, citing a dozen instances of falsified time cards, equivalent to about 20 regular hours and half a dozen overtime hours, during the previous month.
After hours one night, HR called Geri at her son’s hospital room to ask about apparent discrepancies in her time cards. Geri was adamant that the security guard’s logs weren’t necessarily accurate because she often went to her car to retrieve belongings. The guard knew who she was and many times didn’t require her to display a gate pass when she reentered the plant.
During a second call to her son’s hospital room, Geri couldn’t convince the investigator that she had done nothing wrong. The next day, Acme terminated Geri, citing intentional falsification of time cards amounting to about eight hours of straight time and six hours of overtime.
This left them, and Barry, without medical coverage. Petey and Geri sued, claiming Acme terminated them in violation of the Americans with Disabilities Act of 1974. Their son died six months after they were terminated.
How could this situation have been avoided? How should Acme have handled its transition to health care self-insurance? Should employees be obligated to use time cards? Is becoming self-insured a risky proposition? Does a self-insured company have an inherent conflict of interest? How does the Americans with Disabilities Act of 1974 (ADA) apply in this case?
An academician says:
There really are two issues here, which might be related. The first is the falsifying of time cards. The second is the loss of medical benefits. The Atriques think the two are related, with the medical cost their son incurred as being the cause of the firing. The company probably will argue that falsifying time cards was the cause of the firing and their son’s medical condition wasn’t a factor.
Let’s take the falsification issue first. The question concerns the most accurate indication of the Atriques’ time — the time cards the Artiques submitted or the security guard’s records. I was recently involved in a case of a police officer who had applied for a lot of overtime pay because of numerous court appearances on arrests he had made. To go to court, a police officer had to notify a sergeant, who had the officer dispatched to court in a patrol car, and picked up again. The police department said that the officer had falsified much of the overtime and hadn’t been in court on many of the days that appeared on his time sheet. The department filed a motion to have him dismissed.
The police department’s case was based on the sergeant’s records, many of which were incomplete or missing. The accused officer used the court records to show that he was in court on the days under question. The Hearing Officer refused to dismiss the officer, pointing out that court records were more valid than the sergeant’s records.
Acme’s case against the Atriques is based on the security guard’s records, which, like the sergeant’s records cited above, appeared to be flawed. At least that’s the approach I’d take if I were advising the Atriques. My strategy would be to push for reinstatement, given that they were terminated based on unreliable records.
Were the Atriques fired because of their child’s health? That would be tough to prove, however, the key piece of information here is determining which employees were investigated, as well as which were terminated because of the allegedly falsified time cards. If it was only the Atriques, or only employees in the similar situation, then the Atriques have a good case. Is it an ADA case? Yes, it is. It falls under the “association clause,” in that the Atriques were (allegedly) terminated because of their “association” with their ill son.
As for the question regarding being self-insured, I’m not a big fan of being self-insured, although it might make economic sense in specific cases. The reason insurance companies exist is to take risk off of the backs of people and companies. That especially makes sense in the medical area where medical costs are skyrocketing. Some of the problems with the current case could be caused by Acme’s attempts to control or cut medical costs, which I think is something they are ill-equipped to do. Better to focus their energies on their core business and making solid profits and let the insurance companies worry about the medical issues.
How could this have been avoided? The first problem could have been solved by instituting a better system for accounting for an employee’s time. The second problem could have been solved by farming out their health insurance to an outside insurance carrier.
Professor Homer H. Johnson, Ph.D.
Loyola University Chicago
An attorney says:
The old 80/20 rule lives. Acme’s experience is far from unique. Most employers face rising health care costs, often due to large claims from a small percentage of employees. The solution, however, isn’t to fire the employees responsible for increased health care costs on a trumped-up charge of falsified time cards.
Even worse were Acme’s insensitive calls to Geri about her time cards when she was with her son in the hospital. This is the kind of employer conduct that causes juries to award punitive damages.
Employers who turn from insured group health coverage to self-insurance often share Acme’s experience of increased cost. Becoming self insured for group medical coverage entails the same risk that not obtaining insurance involves in any other endeavor. If claims are low, the self-insured employer saves money. But if claims are high, the results can be disastrous.
Unfortunately, there’s nothing an employer can do to prevent employees and their dependents from contracting fatal diseases. No one asks to get cancer. What employers can do is offer employees incentives to adopt healthier lifestyles, which, in turn, should minimize some of the health care costs. Many companies offer smoking cessation programs, weight-reduction and exercise classes, and nutrition programs, all in an attempt to encourage employees to live in a healthier fashion. Often, the incentive to participate in these programs is a percentage reduction in the employee’s share of health care costs.
This kind of program wouldn’t have prevented Barry’s cancer, but it might prevent strokes and heart attacks, and minimize the effects of some diseases, like diabetes, with a resulting savings in health care costs both for the company and its employees.
Julie Badel, partner
Epstein Becker & Green, P.C.
A corporate consultant says:
On the comparatively minor work-hour logging issue, RFID security tags and a tag reader at the plant gates can eliminate human error. Even without a technological solution, management could have spent a couple of hours checking other employee attendance records against pay records. This would resolve the gate guard’s record inaccuracy. Given the risk of wrongful termination lawsuits, you’d think Acme would have done some investigating.
Regarding the major issue of treatment for the two employees, it seems likely that Acme used private medical information to target high-medical-cost employees. This is illegal and should never be done. To some, it might seem unfair that the average health care costs are elevated because of a handful of people. But, it’s the law.
How should Acme have handled its transition to self-insurance? Acme could have had a third-party administrator managing the self-insurance plan. This would have insulated Acme from access to private medical information. With that insulation, they perhaps wouldn’t have been tempted to use private information to reduce health care costs. Secondly, Acme should or could have had stop-loss insurance to back up higher-than-expected health care program expenses.
Should employees be obligated to use time cards? The company is responsible for paying employees for their labor. Employees need to monitor time logs and pay records to ensure the company has accurately accounted for their hours. Mistakes happen, so awareness is your first line of defense.
An additional reason for accurate attendance is for personnel safety. In case of emergency such as a fire or toxic release, it’s a means to account for individuals.
I believe that self-insurance is a risky proposition in three areas. First, from a business perspective, you are basically playing a statistical game. Do you believe you have enough capital to manage any health care spikes for individual cases, or if there were some overall change in the health care needs of your employee demographics? Second is the legal risk, as in this scenario. Can Acme be sued, or can other legal action be brought relative to the coverage, or management or the health care program? Third, there is a risk that the level of trust between the company and its employees will be degraded by any incidents that aren’t handled correctly.
Self-insurance probably carries an implied conflict of interest. This is mostly because of the perception that a company would typically self-insure to save money. From a business perspective, it can make a lot of sense to reduce costs by avoiding private insurer profit margins. Anytime there’s a disagreement about coverage, it’s likely that there’ll be a tendency for employees to question the motives of the self-insured program. Companies that self-insure should have an active campaign to educate employees about the program and its structure.
I’m not an attorney; however, as I read the ADA, I’m not sure it applies in Acme’s case. According to the Department of Labor, employers can fire workers with disabilities under three conditions:
- The termination is unrelated to the disability, or
- The employee doesn’t meet legitimate requirements for the job, such as performance or production standards, with or without a reasonable accommodation, or
- The employee’s disability poses a direct threat to health or safety in the workplace.
According to the Department of Justice (http://www.ada.gov/q%26aeng02.htm), the ADA prohibits discrimination based on relationship or association to protect individuals from actions based on unfounded assumptions that their relationship to a person with a disability would affect their job performance, and from actions caused by bias or misinformation concerning certain disabilities. For example, this provision would protect a person with a disabled spouse from being denied employment because of an employer's unfounded assumption that the applicant would use excessive leave to care for the spouse. Acme has terminated the employees for misrepresenting their work hours. If it can be proven that the true reason was for the care of a person with a disability, they could have grounds under the ADA. Any specific circumstances should be checked with professional legal advice.
Tom Moriarty, P.E., CMRP
Organizational Reliability Professional Services Consultant