Federal Rule Allows Employers To Cut Health Care Benefits For Older Retirees

The U.S. Equal Opportunity Commission (EEOC) issued a final rule on December 26, 2007 that would allow employers to continue what it calls the longstanding and common practice of providing more generous health care benefits to younger retirees than to retirees 65 and older who qualify for Medicare, without violating the Age Discrimination in Employment Act (ADEA).

The ruling is intended to settle a dispute that arose following a decision handed down in 2000 by the U.S. Court of Appeals for the Third Circuit in the case of Erie County Retirees Association v. County of Erie. The court held at that time that, under the ADEA, employers are required to provide the same health insurance benefits to all retirees, regardless of whether they are eligible to receive Medicare benefits.

Opponents of the Erie County decision have argued that, if enforced, many employers would stop offering retiree health care benefits altogether, leaving many retirees under the age of 65 who currently receive employer-provided benefits uninsured. Currently, employers that provide retiree health care benefits usually coordinate their coverage with Medicare benefits, often by “bridging” the period between retirement and age 65, when retirees become eligible for Medicare, and then scaling back or eliminating these benefits for older retirees. Under the new EEOC regulation, employers would be permitted to continue to offer differing levels of health care benefits depending upon the retiree’s age.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” said commission chair Naomi C. Earp. “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.”

According to the EEOC, the new regulation has the support of key members of Congress, as well as of influential employer and labor organizations, including the AFL-CIO, the Society for Human Resource Management (SHRM), the National Education Association (NEA), and the American Benefits Council.

The EEOC had previously attempted to establish a rule explicitly exempting retiree health benefits from ADEA coverage, but it was blocked by a lawsuit filed by AARP, an advocacy group for people over the age of 50. Yet, in June 2007, the U.S. Court of Appeals for the Third Circuit in Philadelphia upheld the EEOC’s claim that it was in the public interest to exempt retirement health benefits from age discrimination laws. AARP has asked the U.S. Supreme Court to review the decision.

AARP Legislative Policy Director David Certner condemned the new EEOC ruling, calling it “a civil rights and economic fiasco,” and “a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age.”

Claiming that the issue is about more than just age discrimination, Certner said, “The costs of health care are skyrocketing for everyone, from the corporate board room to the kitchen table. By transferring health care costs, the EEOC merely passes the buck to those who can little afford it.”

However, EEOC legal counsel Reed Russell pointed out that the rule makes clear that it is lawful for employers to continue to provide retirees with the health benefits they currently receive. “Contrary to what some interest groups have erroneously asserted, the rule will not require any cuts to retiree benefits,” Russell said.