New Rule Ensures Age Bias Law is No Barrier to Employer Insurance

WASHINGTON – The U.S. Equal Employment Opportunity Commission (EEOC) today announced the publication of a final rule allowing employers that provide retiree health benefits to continue the longstanding practice of coordinating those benefits with Medicare (or comparable state health benefits) without violating the Age Discrimination in Employment Act (ADEA). The regulation, which safeguards retiree health benefits, was published in today’s Federal Register and is available on the EEOC’s web site at www.eeoc.gov.

“Implementation of this rule is welcome news for America’s retirees, whether young or old,” said Commission Chair Naomi C. Earp. “By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits which are increasingly less available and less generous. Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.”

The EEOC proposed the rule in response to a controversial decision in 2000 by the U.S. Court of Appeals for the Third Circuit in Erie County Retirees Association v. County of Erie. The court held that the ADEA 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 the Erie County decision, labor unions and employers alike informed the EEOC that complying with the decision would force companies to reduce or eliminate the retiree health benefits they currently provided – leaving millions of retirees aged 55 and over with less health insurance, or no health insurance at all.

EEOC Vice Chair Leslie E. Silverman said, “The Erie County decision would have made most existing retiree health plans unlawful. EEOC’s new rule will ensure that employers can continue to offer their retirees much needed health benefits.” Silverman had testified on the rule before the U.S. Senate Special Committee on Aging in 2004 and before a subcommittee of the House Committee on Education and the Workforce in 2005.

The Commission’s rule has the support of key members of Congress, as well as the employer and labor communities, including such major organizations as the Society for Human Resource Management, the AFL-CIO, the American Federation of Teachers, the National Education Association, the American Benefits Council, and other influential groups.

Employers who provide retiree health benefits generally “coordinate” those benefits with Medicare by supplementing the government healthcare or by offering retirees a “bridge” benefit to cover health expenses after employees retire until they become Medicare-eligible. Until the 2000 interpretation, employers believed that the ADEA permitted them to 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.

To correct the problem, the new regulation provides an exemption for ADEA coverage for this common and longstanding employer practice. The Commission voted to approve this regulation on April 22, 2004, but the AARP sued the EEOC in early 2005 to prevent its publication. After several years of litigation, the EEOC emerged victorious as the Third Circuit Court of Appeals found that the rule was “a reasonable, necessary and proper exercise of [EEOC’s] authority.”

The U.S. Equal Employment Opportunity Commission

Questions & Answers about the EEOC’s Retiree Health Rule

The Equal Employment Opportunity Commission (EEOC or Commission) enforces the Age Discrimination in Employment Act (ADEA), which prohibits age discrimination in all aspects of employment. The Commission has approved a rule that allows employers to coordinate the health benefits they offer retirees with Medicare (or comparable state health benefits), without violating the ADEA. This document answers some common questions about this final rule.

1. What does the rule do?

The rule allows employers who provide retiree health benefits to continue the practice of coordinating those benefits with Medicare, without ensuring that Medicare eligible retirees are receiving the same benefits as younger retirees. Some employers coordinate with Medicare by supplementing the Medicare benefit; others simply provide retirees under age 65 with health insurance to “bridge” the gap between the time they retire and the time they become eligible for Medicare. Thus, the rule allows retirees to continue receiving the benefits they currently enjoy. The rule also allows unions to negotiate for health benefits that coordinate with Medicare.

The rule does not affect the benefits that employers provide to their current employees.

2. Why was the rule needed?

The rule was needed because in 2000, in Erie County Retirees Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000), a federal court ruled that if an employer provides retiree health benefits, the ADEA requires that the health insurance benefits received by Medicare-eligible retirees be the same, or cost the same, as the health insurance benefits received by younger retirees. After the EEOC adopted this interpretation of the ADEA as its enforcement position, labor organizations, employers, and state and local governments told us that it was contrary to existing practice, and that if they were forced to ensure that Medicare-eligible retirees received benefits identical to those of younger retirees, they would comply by reducing or eliminating the retiree health benefits that they currently provide. In fact, that is what happened when the Erie County case was settled in March 2002 – the County’s plan gives older retirees the same benefit they had prior to the litigation, but requires younger retirees to pay more for health benefits that offer fewer choices.

3. Who urged the Commission to change the Erie County rule?

The groups asking the Commission to reverse the effect of Erie County and preserve the current system included, for example, the AFL/CIO, representing 13 million workers; the American Federation of Teachers, representing 1.2 million workers; the American Association of Health Plans, representing more than 1,000 plans that cover approximately 160 million Americans; and the Chamber of Commerce of the United States, representing more than 3 million businesses.

The resulting rule ensures that the Erie County decision does not induce unions, state and local governments, and employers to cut back or eliminate their retiree health benefit programs.

4. Does the rule require that retiree health benefits be cut?

No. To the contrary, the rule simply ensures that the ADEA does not impede employers’ ability to provide retiree health benefits.

5. Does the rule affect Medicare benefits or other legal obligations?

No. The rule simply eliminates the ADEA as a factor in coordinating retiree health benefits with Medicare. It does not alter Medicare, other benefits programs, or legal obligations other than the ADEA. The rule also does not require any changes to contractual agreements, including union-negotiated collective bargaining agreements, to provide retiree health benefits.

6. Why doesn’t the rule require employers to provide retiree health benefits?

The Commission lacks the authority to impose such a requirement. No federal law has ever required employers to provide any health benefits to employees or retirees. The ADEA requires only that if an employer chooses to provide benefits, it must do so in a way that does not constitute illegal age discrimination.

7. Why is the Commission authorized to adopt this rule?

The ADEA authorizes the Commission to approve exemptions to the law in those instances when applying the law would be contrary to the public interest. Because the Commission was advised that the Erie County decision would contribute to a continuing decline in the availability of employer-provided retiree health benefits, the Commission concluded that it is in the best interest of employers, employees, and retirees to allow employers to coordinate benefits with Medicare-eligibility without having to also consider the ADEA. The Commission did not reach this conclusion lightly – it acted only after performing an extensive study that included meeting with interested groups representing all viewpoints, carefully reviewing available information about retiree health programs, and considering comments received from the public.

The Commission’s authority to adopt this exemption has been confirmed by a federal district court and the Court of Appeals for the Third Circuit, the same court that issued the Erie County decision. AARP sued the Commission in federal court arguing that it was not authorized to issue the exemption. However, the courts ruled not only that Congress gave the Commission authority to issue the rule, but also that the Commission carefully considered the evidence before it and that the rule was a “reasonable, necessary and proper exercise of [EEOC’s] authority.”

8. Did the public have an opportunity to comment on the Commission’s rule?

Yes. The Commission published a proposed rule in the Federal Register in July 2003 and provided a sixty day period for the public to make comments and suggestions. The Commission received many comments and all were carefully considered before it approved the final rule.

9. When does the rule go into effect?

The rule went into effect when it was published in the Federal Register on December 26, 2007. A copy of the rule is available on the Commission’s web site at www.eeoc.gov/policy/regs/index.html.

10. Why was there such a long delay between when the rule was approved by the Commission and when it was published?

After the Commission approved the rule but before it was published, AARP sued to prevent it from going into effect. An injunction preventing publication of the rule was imposed while the courts considered the issue. In June 2007, the Court of Appeals ruled that the Commission had properly promulgated the rule and, in September 2007, it clarified that the injunction was lifted and the Commission could publish the rule. Before final publication, the Office of Management and Budget (OMB) had 90 days to review it.