A new U.S. Equal
Employment Opportunity Commission (EEOC) rule gives employers some relief regarding
their ability to reduce or eliminate retirees’ healthcare benefits once they
become eligible for Medicare. Such a reduction or elimination will not violate
the Age Discrimination in Employment Act (ADEA), the federal statute that
prohibits age-based discrimination, the new rule states.
Under the ADEA, an
employer may not hire or fire someone who is age 40 or older based on age. The ADEA
also prohibits employers from altering a term, condition, or privilege of the
individual’s employment. Because health benefits are an employment privilege, retirees
have successfully argued in some cases that reducing or eliminating their
benefits because they became eligible for Medicare violated the ADEA.
For example, in 2000, a
federal court ruled that if an employer provided health benefits to a
Medicare-eligible retiree, the employer had to provide him or her with the same
health insurance benefits that younger retirees received. Because that ruling
sparked a controversy, several groups, including the AFL/CIO, the American Association
of Health Plans, and the U.S. Chamber of Commerce, asked the EEOC to clarify
its position on the ADEA’s requirements pertaining to health benefits for retirees
once they’re eligible for Medicare.
What the Rule Does
The new EEOC rule
provides a retiree health plan exemption to the ADEA. If a retiree participates
in an employer-sponsored plan, the employer may coordinate the benefits with
Medicare, without making sure that the retiree receives the same benefits as younger
retirees. The rule allows retirees to continue receiving their current
benefits, and it also permits unions to negotiate benefits that are coordinated
with Medicare.
It’s important to note
that this is a narrow exception: it applies only to the coordination of
retiree health benefits with Medicare or state benefit programs, such as
MediCal. The ADEA still applies to current employees who are age 65 or older,
or retirees, regarding issues outside this exception’s scope.
Because the rule applies
only to the ADEA, employers may still have Medicare-related obligations under other
laws, such as the National Labor Relations Act, if, for example, the employer
has entered into a collective bargaining agreement specifying how it will
provide retirees’ health benefits. But if an employer or labor organization
offers healthcare benefits, the ADEA will not prohibit them from providing the
benefits to only those retirees who have not yet become eligible for Medicare
or a comparable state benefit program. In addition, the employer or labor union
may supplement the retiree’s Medicare coverage without having to demonstrate
that the coverage is the same that non-Medicare-eligible retirees receive. For
example, an employer that offers a prescription drug benefit to a Medicare-eligible
employee doesn’t have to give the same benefit to an employee who is not yet
eligible for Medicare.
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Although the EEOC stated
that the rule is not intended to encourage employers to eliminate any retiree health
benefits that they may currently provide, it could, however, have that effect.
According to a study by the U.S. General Accountability Office, about 33 percent
of large employers and less than 10 percent of small employers offered their
retirees health benefits in 2000; that’s a decrease of about 40 percent in the number
of employers that offered such benefits in the 1980s. Because this new rule
allows employers to stop providing health insurance to retirees who are
eligible for Medicare, it could accelerate this trend.
Although this is a final
rule and is now in effect, this may not be the last we hear on the matter. The
AARP, which sued the EEOC in 2005 seeking an order to prevent the EEOC from
issuing this rule, has asked the U.S. Supreme Court to review a federal appeals
court decision that the agency had the authority to issue the rule.
To Learn More
For more information on
the rule, including the full text of the regulation, visit http://edocket.access.gpo.gov/2007/E7-24867.htm.