Disability Law

I've been a little behind on blog posts while spending time trying to raise money for the Muscular Dystrophy Association, so this story is a little old, but still compelling. The Dallas Morning News wrote recently about employees of Bennigan's Restaurants, approximately 8000 of who were laid off when the parent company filed for bankruptcy.

Usually, when an employer offers health insurance, and an employee is laid off, the employee has the option of keeping the health insurance, and paying the premiums. This is under a federal law known by the acronym COBRA.

But if this case, the restaurant was self-insured, and filed for bankruptcy. In that combination of circumstances, their is no responsibility for the corporation to make health insurance available to laid off workers. And in fact the employees will probably be personally responsible for medical bills that were incurred even before they were laid off. Terribly unfair, but that's what happens under the horrible federal ERISA law. Here are excerpts from the Dallas Morning News article:

But when the Plano-based corporate parent of Bennigan's, Steak & Ale and the Tavern pushed those chains into bankruptcy last month, it did more than terminate an estimated 8,000 U.S. restaurant jobs.But with news of the bankruptcy, all bets were off. When a company goes bankrupt, the future of its employees' health benefits depends on several factors.

It also threw thousands of employees and former employees who depended on the company's health plans into coverage limbo.

If the employer simply bought insurance from an insurance company, coverage is valid as long as the premiums are paid, according to the Texas Department of Insurance.

But if the employer was self-insured, the story is different.    

And the company that owned Bennigan's ? Metromedia Restaurant Group ? was self-insured, according to a former company executive. Self-insured firms typically contract with a company such as Cigna to administer their health plans.

Such plans are governed by the federal Employee Retirement Income Security Act of 1974, or ERISA, which is administered in part by the U.S. Labor Department.

ERISA does not require employers to hold money in reserve for their self-insured plans.

With little or no money coming in, such plans soon run dry. Since COBRA is tied to the employer's policy, once the company is gone, so is the policy, experts say.