EEOC Issues Rule On Retiree Health Benefits

By Staff Report

Dec. 27, 2007

In a move that the Equal Employment Opportunity Commission says is designed to preserve retiree health benefits, the commission has issued a final rule that lets employers reduce benefits for retirees once they become eligible for Medicare. 

The rule, published Wednesday, December 26, in the Federal Register, allows employers that provide retiree health benefits to continue to coordinate those benefits with Medicare or comparable state health benefits without violating the Age Discrimination in Employment Act.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” commission chair Naomi C. Earp said in a statement. “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits, which are increasingly less available and less generous.” (Read the EEOC’s Q&A on the new rule here.)

Kathryn Bakich, senior vice president and national director of health care compliance at consulting firm The Segal Company, applauded the new rule.

“The EEOC regulation will help employers be creative in addressing the need for retiree health care without worrying about calculating costs,” Bakich said in a statement. “It provides a realistic approach to situations where pre-Medicare and post-Medicare retirees have different needs.”

But the new rule got a chilly reception from advocacy group AARP. “This policy is a civil rights and economic fiasco,” AARP legislative policy director David Certner said in a statement. “It is a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age.”

The new rule comes after years of legal wrangling. A 2000 appeals court ruling, in Erie County Retirees Association v. County of Erie, held that the Age Discrimination in Employment Act requires that the health-insurance benefits received by Medicare-eligible retirees be the same, or cost the employer the same, as the health insurance benefits received by younger retirees.

After that court decision, unions and employers said that complying would force firms to reduce or eliminate the retiree health benefits they currently provided, according to the EEOC. Until the 2000 interpretation, the commission said, employers believed that the law let them coordinate any retiree health benefits they provided with Medicare without having to ensure that the benefits received by Medicare-eligible retirees were the same as those received by younger retirees

The EEOC voted to approve the new regulation in 2004, but AARP sued the commission in 2005 to prevent its implementation. After several years of litigation, the commission said, the Third Circuit Court of Appeals found that the rule was “a reasonable, necessary and proper exercise of [EEOC’s] authority.” That appeals court decision was issued in June, and AARP has appealed the decision to the Supreme Court.

In a statement, 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.”

Ed Frauenheim

Schedule, engage, and pay your staff in one system with