When McGann was diagnosed with AIDS in 1987 his one comfort was his company’s benefit plan, which had a lifetime cap of $1 million. But after the employer, H&H Music Co. in Houston, saw the bills flood in, it switched to a new plan and limited AIDS-related claims to $5,000. In 1991, the year McGann died, a federal appeals court ruled that H&H was free to make such changes. McGann’s executor carried the suit to the Supreme Court.

At first glance, the case seems an open invitation to companies to shut the door on anyone with big medical bills. “A person can pay [premiums] for their entire lifetime, and turn around to find they have no insurance at the very time they need it,” says Suzanne Goldberg of Lambda Legal Defense, a gay-rights group, who was a lawyer for McGann. But some lawyers say the alarm over McGann may be exaggerated. “I don’t think people should panic that companies are going to rush to limit coverage of cancer, AIDS, heart disease and other serious illnesses,” says Jay Waks, a New York attorney. Uncertainty about the law may make such moves too risky for prudent employers. The wild cards include a bill likely to be introduced in Congress in January and a new law, the Americans with Disabilities Act (ADA).

Caps on insurance certainly aren’t new. Many company plans limit or exclude coverage for psychiatric care, infertility treatments or experimental surgery. But the fact that H&H imposed the cap retroactively is pivotal to McGann’s case; so are the state and federal rules that apply in such caws. H&H switched to a “self-insured” plan, in which a company pays health-care bills directly, instead of paying premiums to an outside insurer. These plans are subject only to ERISA, a federal benefits law less stringent than most state laws, which regulate traditional insurance plans. Although “self-insurance” may sound arcane, about 40 percent of all U.S. employees are in such plans-many without realizing it. Even if you fill out forms from an insurance firm, don’t be misled; many companies hire such firms to process claims. The proportion of companies choosing self-insurance shot up to 65 percent last year from 46 percent in 1986, consultant A. Foster Higgins & Co. estimates.

Many of these companies could be tempted to set new caps. When the McGann decision hit the news last week, one client called New York management lawyer Steven D. Baderian, hoping to do just that. But Baderian cautioned against it, and other attorneys are responding the same way. One reason is a bill that would amend ERISA to prevent companies from retroactively reducing benefits for a given medical condition, although it wouldn’t eliminate caps set in advance. The bill was introduced at the end of the last session of Congress by Rep. William J. Hughes of New Jersey. Now, because of McGann, “it’s carrying the banner for the cause” and will get more attention, says Frank Palmieri of Price Waterhouse.

More significant protection for ailing workers could be offered by the disabilities act that went into effect last summer. ADA is most familiar for its impact on public facilities and hiring. But it also suggests that employer insurance plans can’t discriminate. Two complaints citing ADA have already gone to the Equal Employment Opportunity Commission, which enforces the act. One of them, Bourgeois v. Garner Fast Foods, involves a Hardee’s franchise in Atlanta that cut back benefits for AIDS patients, allegedly after an employee filed such claims. The company says it was in the process of changing its policy before any claims were filed and that there was no intent to discriminate.

Of course, the outcome of cases like this is impossible to predict. The language in the ADA on insurance is murky at best, and lawyers on both sides say it will take many more cases to make the legislation’s impact clear. In the meantime, people with serious illnesses-and their families-will have just one more thing to worry about.

As expenses for chronic illness skyrocket, employers may try to set limits. Reliable statistics are in short supply, these are estimates:

AVERAGE ILLNESS TREATMENT COSTS AIDS $102,000 Breast cancer $52,000 Kidney disease involving dialysis $185,000

SOURCE: AGENCY FOR HEALTH CARE POLICY AND RESEARCH. ALL COSTS ARE PER-PATIENT MINIMUMS, FROM TIME OF DIAGNOSIS.