American Journal of Law & Medicine

Capping AIDS benefits: does Title III of the ADA regulate the content of insurance policies?(Americans with Disabilities Act of 1990)



In the spring of 1994, Michael McNeil purchased a self-funded life and health insurance policy for his small business from Time Insurance Company (Time). (2) The policy contained a $10,000 cap on treatment of illnesses related to Acquired Immune Deficiency Syndrome (AIDS). (3) Time had no actuarial basis or past experience to justify this cap; the company could not establish that its cap was not arbitrary or discriminatory. (4)

In September of 1994, McNeil was diagnosed with AIDS. (5) Time paid only the first $10,000 of McNeil's AIDS-related bills that eventually exceeded $400,000 before McNeil died on March 1, 1995. (6) Prior to his death, McNeil sued Time in Texas state court. (7) After McNeil's death his father took over the suit, asserting "numerous common law causes of action: breach of contract, breach of duty of good faith and fair dealing, negligent misrepresentation, common law discrimination, waiver, estoppel, and ratification." (8) He also charged that Time violated numerous state and federal statutes, including the Americans with Disabilities Act (ADA). (9) Time removed the case to federal district court in Texas based on diversity and preemption under the Employee Retirement Income Security Act (ERISA). (10)

The district court dismissed all of the claims. (11) The court found that the ADA claim failed because Time's provision of insurance was not a "public accommodation." (12) The court also found that ERISA preempted the state law claims. (13)

The Fifth Circuit affirmed, agreeing that Title III of the ADA did not apply to the policy. (14) It relied on the ADA's plain language, reasoning that Title III does not regulate the content of goods and services offered by a public accommodation. (15) The court also affirmed the lower court's ERISA finding. (16)


McNeil affirms a growing line of Circuit Court decisions holding that the ADA does not apply to the content of an insurance policy. (17) The decisions suggest that, under the ADA, an insurance company is free to discriminate by capping benefits for AIDS-related illnesses at levels clearly insufficient for adequate coverage. Under McNeil, an insurer need not justify its decision to cap benefits with either actuarial data or past experience showing that providing full insurance coverage benefits for AIDS treatment would financially burden the company. Thus, in many states, an insurer may freely discriminate in its coverage of AIDS patients. It may continue to cap benefits for AIDS treatment at a level much lower than for treatment of other costly diseases, such as cancer, heart disease or liver failure. (18)

In many states, the law prohibits such discrimination by insurance companies. (19) As Judge Richard Posner, Chief Judge of the Seventh Circuit Court of Appeals, says in the Doe opinion, "If in fact the AIDS caps in the defendant's policies are not consistent with state law and sound actuarial practices, the plaintiffs can obtain all the relief to which they are entitled from the state commissioners who regulate the insurance business." (20) Unfortunately, the solution is not that simple. ERISA preempts state law claims against self-funded insurance plans such as McNeil's. (21) About forty percent of Americans with group coverage are in self-funded plans. (22) Thus, without federal protection, AIDS patients under self-funded plans have no protection when their insurance plans arbitrarily refuse to cover them adequately.

If courts continue to hold that Title III does not apply to insurance policies' content, several negative consequences will result. First, courts will disregard the ADA's purpose as it relates to discrimination against AIDS patients. (23) Second, AIDS patients will become sicker more quickly and die earlier when unable to access the expensive, early treatment that is accepted as most effective. (24) Third, having exhausted their insurance coverage and their own personal resources, AIDS patients will burden the state that will necessarily assume financial responsibility for their treatment. (25) Finally, by judicially sanctioning insurance companies' discrimination against AIDS patients, courts will reinforce the destructive social stigma that already surrounds these vulnerable members of our society. (26)


Although the majority of circuits currently holds the ADA inapplicable to insurance policies' content, circuit courts are split on this issue. The Second Circuit holds that the ADA regulates self-insured plans' content. (27) Also, the First Circuit acknowledges that there is nothing in the history of Title III that explicitly precludes an extension of the statute to the substance of an insurance policy. (28) Recently, the Supreme Court declined to resolve the issue when it denied certiorari to Doe v. Mutual of Omaha Insurance Co. (29) Thus, whether discriminatory capping of AIDS benefits is legal under the ADA remains an open question.

How this question is resolved is of great significance, not only to AIDS patients, but also to patients with other costly or stigmatized diseases, such as mental illness, cancer and organ failure. Patients should be concerned because, following the logic of the majority of federal circuits, insurance companies may discriminatorily cap benefits for the treatment of any disease. (30)


This Note argues to resolve the circuit split in favor of applying the ADA to insurance policies' content. Part II discusses the history of ERISA as it applies to AIDS coverage. Part III analyzes the legal issues raised by cases that discuss the question of whether Title III should govern insurance policies' content. Part IV discusses alternative strategies for the AIDS patient advocate should the Supreme Court reject arguments similar to those presented in this Note. Part V concludes that even if the legal arguments discussed in Part III fail, the AIDS patient advocate still has reason to be optimistic.


As AIDS cases became more widespread and publicized during the late 1980s, many insurance plans began to limit their coverage severely for costly AIDS-related illnesses. (31) As is apparent in Doe, state laws generally prevent insurance companies from arbitrarily capping benefits. (32) However, state law does not regulate the content of self-funded health insurance plans, in which an employer pays participants' claims directly out of its own funds. (33) Rather, ERISA (34) governs these self-insured plans' content at the federal level. (35) When federal appellate courts held that self-insured plans could legally cap AIDS benefits under ERISA, AIDS patients insured under these plans were left with no cause of action for damages resulting from arbitrary caps. (36)

McNeil, as a participant in a self-funded plan, exemplified this problem. Because the court held that ERISA preempted his state discrimination claims, (37) he did not have the same claims available to the plaintiff in Doe. (38) As a result, McNeil was left without a judicial remedy. (39) His case thus illustrates the urgent need for Supreme Court resolution of this issue.

The 1994 decision of Carparts Distribution Center, Inc., v. Automotive Wholesaler's Association of New England, Inc. encouraged cases against AIDS benefit capping as the First Circuit held that the ADA (40) governed the self-insured plan at issue. (41) The decision appeared to open AIDS caps to challenges under Title III of the ADA. (42) Cases since Carparts, however, have not fulfilled Title III's potential to defend AIDS patients against insurance companies' arbitrarily capping AIDS benefits. The Third, Fifth, Sixth, Seventh and Ninth Circuits have held that the ADA does not control the content of insurance policies. (43) Only the Second Circuit has definitively held that the ADA does regulate self-insured plans' content. (44)


In 2000, the Supreme Court denied certiorari to Doe v. Mutual of Omaha Insurance Co. (45) Thus, the legality of discriminatory AIDS capping is an open question that begs review of the arguments advanced in relevant cases. Since the First Circuit's decision in Carparts, numerous district court decisions and commentators have confirmed that Title III requires equal access not only to physical places, but also to goods and services of public accommodation, including insurance policies. (46) These cases and commentators analyze the legislative history of the ADA, agency interpretations of the statute, policy considerations and the inapplicability of the McCarran-Ferguson Act. (47) These cases and comments, as well the Second Circuit's textual analysis of Title III, support resolving the current circuit split in favor of applying the ADA to insurance policies' content. …

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