AARP “Victory” In Court Would Reduce Retiree Health Benefits
Ed Lorenzen
March 31, 2005
Yesterday's decision by the U.S. District Court striking down regulations exempting an employer’s coordination of retiree health benefits with eligibility for Medicare or state-sponsored retiree health benefits from the Age Discrimination in Employment Act (ADEA) represents a victory of ideology over common sense and will likely result in a reduction in retiree health benefits.
This issue originated nearly five years ago when a federal appeals court ruled in Erie County Retirees Ass’n v. County of Erie that retiree health care plans are subject to the ADEA. The practical effect of the ruling is that employers with retiree health care plans could be sued for age discrimination if they provide more generous health care coverage to younger retirees than to Medicare-eligible retirees.
Currently, many employers offer continued healthcare coverage to employees who chose to retire prior to becoming eligible for Medicare. Typically, these benefits that are equivalent to the coverage they provide for active employees and are known as “bridge” coverage. When the retirees become eligible for Medicare this “bridge” coverage is generally modified, or “coordinated,” to take into account benefits provided by Medicare.
In the Erie case, the court ruled that providing such benefits to early retirees violated the Age Discrimination in Employment Act (ADEA) because equivalent benefits were not being provided to Medicare-eligible retirees.
In July 2003 the Equal Employment Opportunity Commission (EEOC) proposed a rule clarifying that the practice of coordinating employer-provided retiree health coverage with eligibility for Medicare or a State-sponsored retiree health benefit program is not age discriminatory and does not violate the ADEA. This common sense rule was supported by employers, workers and organized labor, but was challenged by the AARP. Yesterday’s ruling by the U.S. District Court for the Eastern District of Pennsylvania prevents the EEOC from publishing this proposed rule.
As a result of this ruling, employers will likely be faced with an all-or-nothing decision: assume the potential cost of providing healthcare benefits to all retirees, whether Medicare eligible or not; or don't provide coverage to any early retirees.
Faced with that decision, most employers will either reduce coverage for younger retirees to the level provided to those that are Medicare-eligible, or eliminate retiree health care coverage for both groups altogether. In fact, the Medicare-eligible retirees who won their age discrimination case against Erie in 2000 did not receive the additional health benefits that they had hoped to get. Instead, after losing the case, the County complied with the court's order by reducing the benefits early retirees were receiving and requiring them to pay a higher premium.
Retiree health care benefits are not mandated. Employers who voluntarily choose to provide benefits for early retirees should not be penalized by being mandated to provide benefits for all retirees even after they become eligible for Medicare.
Links:
Amended Memorandum and Order by Hon. Anita B. Brody, United States District Court for the Eastern District of Pennsylvania. AARP, et al. v. Equal Employment Opportunity Commission (05-CV-509)
United States Court of Appeals for the Third Circuit, No. 99-3877. Erie County Retirees Association and Lyman H. Cohen for himself and all others similarly situated v. The County of Erie, Pennsylvania and
Erie County Employees' Retirement Board (Filed August 1, 2000)
Albert B. Crenshaw, Washington Post "Retiree Benefits Can't Be Cut at 65, Judge Says: Medicare Eligibility Not Basis for Exemption" (Thursday, March 31, 2005; Page E06)
