The Town of La Plata, Maryland provides health insurance to its employees. In 1996, the Town offered employees an option: If employees who were able to obtain health insurance coverage elsewhere opted out of the Town’s health insurance plan, the Town would make a contribution to the deferred compensation 401(k) accounts of the employees who opted out.
The opt-out arrangement worked well for a number of years, with the Town depositing in the 401(k) accounts of employees what its health insurance contributions would have been had those employees remained covered.
Beginning in October 2002, the Town changed its health insurance policies and informed employees that it would provide health insurance only to those employees who did not have coverage elsewhere. As a result, the Town discontinued the practice of making additional contributions to 401(k) plans.
A group of the Town’s employees brought a lawsuit, alleging that the Town’s decisions violated their constitutional rights. The employees essentially made two arguments: That the Town’s actions violated their equal protection rights, and that the Town’s actions violated their due process rights.
The employees argued that the Town’s decisions created two classifications of employees: (1) Those who were covered under another health insurance plan; and (2) those who were not covered under another plan. The employees argued that by denying any coverage to the first group, the Town arbitrarily and capriciously denied the first group of employees equal protection under the law.
The Court found that since the two classifications of employees were not based on a “protected class” such as race or gender, the Town’s actions should be upheld if there was any “rational basis” for the Town’s decisions. The Court easily found such a rational basis: “Certainly it is reasonable for a town with limited resources and budgetary constraints to conclude to differentiate between employees who have alternate health insurance coverage and employees who do not is one reasonable way to allocate the funds it spends on employee health insurance.”
The employees also argued that the Town deprived them of their property rights without due process of law. The Court was unconvinced, though, that the employees had a property interest in health insurance.
The Court stated that “to have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.”
The Court observed that the employees were unable to point to any “relevant statutory or case law to support their allegation that they had a constitutionally-protected property interest in continued health care coverage from the Town. In fact, Maryland statutes implicitly give the Town the option whether or not to offer coverage to its employees who are covered under another health insurance plan.”
The employees contended that the Town’s 1996 decision, which encouraged them to drop their participation in the Town’s health insurance plan, caused them to withdraw from Town-provided health insurance in exchange for the 401(k) contributions. As the employees argued, when the Town stopped making these contributions and “unilaterally changed the rules for participation in Town-sponsored health and hospitalization plans, it deprived them of a constitutionally-protected property interest based upon the legitimate expectation that the Town would continue to honor the agreement it made in 1996.” The Court rejected this argument, finding that nothing the Town did in 1996 gave rise to a legitimate expectation on the part of the employees that the 401(k) contribution would continue in perpetuity. In the Court’s view, the Town met its obligation to make 401(k) contributions during the time the “opt-out” program was in effect. Once the opt-out program ceased, the Court decided that the Town had no obligation to continue making the contributions.
Huffman v. Town of La Plata, 2005 WL 1038854 (D.Md. 2005).
This article appears in the July 2005 issue