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Jan 2008
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Ruling on Retiree Benefits for Seniors Over Age 65
The Equal Employment Opportunity Commission has ruled that employers can reduce or eliminate health benefits for retirees when they turn 65 and become eligible for Medicare.
The policy, set forth in a new regulation, allows employers to establish two classes of retirees, with more comprehensive benefits for those under 65 and more limited benefits - or none at all - for those older. Naomi C. Earp, commission chairwoman, said, “This rule will help employers continue to voluntarily provide and maintain these critically important health benefits.”
More than 10 million retirees rely on employersponsored health plans as a primary source of coverage or as a supplement to Medicare. The Kaiser Family Foundation reports premiums for employer- sponsored health insurance rose an average of 6.1 percent this year and have increased 78 percent since 2001.
In making the ruling the commission said that the rising cost of health care, and the increased life expectancy of workers has caused many employers to refuse to provide retiree health benefits or even to negotiate on the issue. In general, the commission observed, employers are not required by federal law to provide health benefits to either active or retired workers.
In a preamble to the new regulation, published in the Federal Register, the commission said, “The final rule is not intended to encourage employers to eliminate any retiree health benefits they may currently provide.”
In action, AARP lawyer Christopher G. Mackaronis said, “This rule gives employers free rein to use age as a basis for reducing or eliminating health care benefits for retirees 65 and older.” He added, “Ten million people could be affected - adversely affected - by the rule.”
The new policy creates an explicit exemption from age-discrimination laws for employers that scale back benefits of retirees 65 and over. Mackaronis asserted that the exemption was “in direct conflict” with the Age Discrimination in Employment Act of 1967.
By contrast, the commission said that under that law, it could establish “such reasonable exemptions” as it might find “necessary and proper in the public interest.” The United States Court of Appeals for the Third Circuit, in Philadelphia, upheld this claim in June, in the case filed by AARP, which has asked the Supreme Court to review the decision.
Under the new rule, employers may, if they choose, provide retiree health benefits “only to those retirees who are not yet eligible for Medicare.” Likewise, the rule says, retiree health benefits can be “altered, reduced or eliminated” when a retiree becomes eligible for Medicare.
Lawyers for the commission said the new Medicare drug benefit, now nearing the end of its second year, had strengthened the case for the regulation because it guaranteed that retirees 65 and older would have access to drug coverage. Younger retirees have no such guarantee, so employers may want to provide drug coverage to them in particular, the lawyers said.