Ruling Affirms Employers May Factor Medicare into Retiree Benefits

December 28, 2007

Employers may continue the long-standing practice of taking Medicare into account when structuring the health care benefits voluntarily provided their retired workers, says the Equal Employment Opportunity Commission in a rule published in response to a 2000 court decision.

In essence, the ruling says employers can spend more on benefits for retirees under 65 years of age than those over 65 without running afoul of age discrimination laws.

The idea is that retirees in both age groups get essentially the same benefits, but employers can shift some or all of the tab over to the government once a retiree becomes eligible for Medicare.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” Commission Chairwoman Naomi C. Earp said in a statement posted Wednesday on the commission’s Internet site. “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.”

The EEOC said it proposed the rule in response to a decision in 2000 by the U.S. Court of Appeals for the 3rd Circuit that held that the Age Discrimination in Employment Act requires employers to spend the same amount on health insurance benefits provided Medicare-eligible retirees as those received by younger retirees.

The commission said that after the 2000 decision, labor unions and employers alike maintained that complying with the decision would result in companies reducing or eliminating the retiree health benefits they were providing _ leaving millions of retirees under 65 with less health insurance, or no health insurance at all.

“In fact, that is what happened when the Erie County (Pa.) case was settled in March 2002,” the EEOC said. “The county’s plan gives older retirees the same benefit they had prior to the litigation, but requires younger retirees to pay more for health benefits that offer fewer choices.”

The same federal appeals court that brought the original decision in 2000, ruled last June that the EEOC was authorized to issue exemptions to a strict interpretation of the age discrimination law would be contrary to the public interest.

“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 court said. But it said the commission had shown that the exemption was “a reasonable, necessary and proper exercise” of its authority.

The EEOC said its ruling had the support of members of Congress, as well as the employer and labor communities, including such organizations as the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, the American Benefits Council, and other groups.

The commission noted that employers who provide retiree health benefits generally “coordinate” those benefits with Medicare by supplementing the government health care or by offering retirees a “bridge” benefit to cover health expenses after employees retire until they become Medicare-eligible.

EEOC Legal Counsel Reed Russell said, “Our 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.”

Topics Commercial Lines Business Insurance

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