Human Capital & Careers

New Year’s Resolution: Lower Health-Care Costs

The Equal Employment Opportunity Commission has finalized a rule that lets employers shift some of their health-benefit burden to Medicare.
Stephen TaubDecember 27, 2007

A new federal rule affirms how companies can keep their post-retirement health-care costs down.

Employers that provide health benefits to retirees can coordinate those benefits with Medicare without violating the Age Discrimination in Employment Act (ADEA) under a finalized rule from the Equal Employment Opportunity Commission (EEOC) released this week.

Under the rule, retirees of all ages will continue to receive the same benefits. However, the cost to their former employers will decline once they turn 65 and become eligible for the government health-care benefit.

“By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits, which are increasingly less available and less generous,” said Commission Chair Naomi Earp. “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.”

The EEOC proposed the rule in response to a controversial decision in 2000 by the U.S. Court of Appeals for the Third Circuit in Erie County Retirees Association v. County of Erie. In that case, the court held that the ADEA requires health insurance benefits received by Medicare-eligible retirees be the same — or cost the employer the same — as younger retirees’ benefits.

After the Erie County decision, labor unions and employers claimed that complying with the decision would force companies to reduce or eliminate their retiree health programs — leaving millions of retirees age 55 and over with less health insurance, or no health insurance at all.

“The Erie County decision would have made most existing retiree health plans unlawful,” said EEOC vice chair Leslie Silverman. “EEOC’s new rule will ensure that employers can continue to offer their retirees much needed health benefits.”

The EEOC pointed out in its announcement that, in general, employers that provide retiree health benefits are already coordinating those benefits with Medicare. They do this by either supplementing the government health-care plan or by offering retirees a “bridge” benefit to cover health expenses after employees retire until they become eligible to use Medicare.

Until the 2000 interpretation, employers believed that the ADEA permitted them to offset any retiree health benefits they provided with Medicare without having to ensure that the benefits received by Medicare-eligible retirees were the same as those received by younger retirees. To correct any confusion, the new regulation provides an exemption of this practice for ADEA coverage.

The EEOC voted to approve this regulation on April 22, 2004, but the AARP sued the commission in early 2005 to prevent its publication. After several years of litigation, the Third Circuit Court of Appeals found that the rule was “a reasonable, necessary, and proper exercise of [EEOC’s] authority.”

According to the Associated Press, the Third Circuit also ruled in June that the EEOC was authorized to issue exemptions if a strict interpretation of the age discrimination law would go against the public interest. Still, the court reportedly said, “We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees.”

The commission said its rule has the support of key members of Congress, as well as the employer and labor communities, including such the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, and the American Benefits Council.

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