Fifth Circuit Joins Seventh in Rejecting
ADA Attacks on AIDS Benefit Caps

By Seth J. Chandler

Title III of the Americans with Disabilities Act states: "No individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services or accommodations of any place of public accommodation ." 42 U.S.C. § 12182 (ADA § 302(a)).

In the recent case of McNeil v. Time, No. 98-10585 (Feb. 24, 2000), the Fifth Circuit Court of Appeals joins the Seventh Circuit (Doe v. Mutual of Omaha, Ins. Co., 179 F.3d 557 (1999)) in holding squarely that this provision of the ADA does not prevent insurers from providing lower insurance benefits for treatment of AIDS than for treatment of other diseases. So long as the insurer permits the applicant with disabilities to "enjoy" whatever benefits are provided by the insurance policy, the insurer acts lawfully under the ADA.

The case arose when an optometry partner purchased a health insurance policy for himself, his partner and his one employee that limited benefits for AIDS and ARC to $10,000 in the first two years. Most other diseases were not subject to the cap. McNeil, who had purchased the policy, then fell victim to both AIDS and his own apparent prior lack of concern for those afflicted with it. He racked up $400,000 in medical bills before dying a year later. The insurer, Time Insurance Company, dutifully paid its $10,000 limit and left McNeil's estate responsible for the remainder. Had McNeil succumbed to cancer, heart disease, or complications from an auto accident, the policy, apparently, would have paid far more generously.

McNeil's estate argued that the ADA barred policy provisions such as the AIDS benefits cap that specifically disadvantaged persons with certain types of disabilities. The Fifth Circuit rejected this interpretation of the ADA, holding that, while the insurer must provide disabled persons with the same insurance policy as that provided to the non-disabled, it could sculpt that policy to equalize the expected value of benefits under the policy as between persons with disabilities and persons not presently disabled. Using the interest of persons with disabilities to constrain private parties in their structuring of the content of their product would, the Fifth Circuit said, be unrealistic and unintended. "The unvarnished and sober truth is that in many, if not most cases, the disabled simply will not have the capacity or ability to enjoy the goods and services of an establishment 'fully' and 'equally' compared to the non-disabled." In response to the anticipated objection that this incapacity would not have prevented McNeil from "enjoying" a relaxation of the AIDS benefit cap -- persons with disabilities perhaps being almost as capable of enjoying money as the non-disabled -- the Fifth Circuit said the logic of interpreting the ADA to cover the content of products could not be confined to insurance. "If the blind must be able to enjoy all goods and services to the same extent as the sighted, bookstores would be forced to limit the selection of books they carried because they would need to stock braille versions of every book." In the Fifth Circuit's opinion, there was simply no non-arbitrary way to distinguish regulating the content of some goods and services from regulating the content of all goods and services.

The McNeil decision defangs the ADA. Under the view rejected by the court, disability advocates could have coupled Title III of the ADA to other federal statutes to compel employers providing life or health insurance to issue cross-subsidized policies in which the persons with disabilities received expected benefits of a far greater value. Employers worry about cross-subsidization because some perceive it as unfair and, if done to an excessive extent, can unravel an insurance market in which participation is at least partly voluntary. The Health Insurance Portability and Accountability Act already made it difficult for employers to compel employees with certain disabilities to pay for insurance benefits at a rate commensurate with the higher risk they often pose. And an invigorated ADA would have made it difficult for employees offering insurance or insurers themselves to structure the contents of the insurance policy so that the expected value of benefits received was similar as between persons with certain disabilities and other persons.

By freeing insurers from this second impediment against expected benefit equalization, the McNeil case, coupled with other recent judicial opinions, renders the ADA merely into a prohibition against accomplishing that goal by the most crude techniques. Employers providing health insurance and insurers may still be barred from outright denials of insurance to persons with disabilities. See Pallozzi v. Allstate Ins. Co., 198 F.3d 28 (2d Cir. 1999) (allowing ADA claim by mentally disabled persons refused life insurance). They will be permitted, however, to use other reasonably effective means such as benefit caps to prevent the high losses generated by some persons with disabilities from injuring the insurance market. The McNeil case suggests that this permitted channeling of underwriting energy will be permitted even where the employer and insurer's concern for the integrity of the insurance market appears selectively directed against challenges by persons whose disabilities correlate with membership in a disfavored group.

The opinion in McNeil should be of particular importance to those interested in the rights of persons with disabilities for several other reasons: