Supreme Court Permits Health Benefit Offset for Retirees on Medicare

March 26, 2008

The Supreme Court this week let stand a federal policy that allows employers to reduce their health insurance expenses for retired workers once they turn 65 and qualify for Medicare.

The justices turned down an appeal by the 39-million-member AARP to undo a rule that essentially allows employers to treat retirees differently depending on their age.

The rules were put into place by the federal Equal Employment Opportunity Commission, with the support of labor unions and other groups. They worried that employers would greatly reduce or eliminate health benefits for millions of retirees if they could not take Medicare into account when structuring the health benefit packages they voluntarily provide their retired workers.

The EEOC rule makes clear that employers can spend more on retirees under 65 years of age than those over 65 without running afoul of age discrimination laws.

The EEOC said it proposed the rule in response to a decision in 2000 by the 3rd U.S. Circuit Court of Appeals in Philadelphia 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.

AARP said EEOC violated the intent of Congress when it proposed the rule. But the EEOC said the same age discrimination law allows it to carve out an exemption to preserve the long-standing practice that allows employers to coordinate benefits with Medicare.

The same appeals court upheld the EEOC policy last year and the new rule took effect in December.

AARP legislative policy director David Certner said the rule creates a double standard.

“Beyond blatant age discrimination, the new policy is an ineffective Band-Aid for the bigger issue facing American employers and workers: the skyrocketing cost of health care,” Certner said.

EEOC spokesman David Grinberg said in a statement: “We’re pleased to see the Court leave intact the 3rd Circuit’s sensible ruling. This brings to a close AARP’s misguided effort to derail a rule that was issued in the public interest with broad support from employee and employer groups.”

The case is AARP v. EEOC, 07-662.


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