EEOC Approves Rule To Allow Employers To Eliminate Health Benefits for Retirees Ages 65 and Older
The Equal Employment Opportunity Commission on Thursday voted 3-1 to approve a final rule allowing employers to reduce or eliminate health benefits for retirees when they become eligible for Medicare coverage at age 65, stating that such cuts do not violate civil rights law on age discrimination, the New York Times reports (Pear, New York Times, 4/23). In addition, the decision allows employers to reduce or eliminate health benefits for retirees that who are eligible for state-sponsored health benefits similar to Medicare, the AP/Dallas Morning News reports (AP/Dallas Morning News, 4/23). The EEOC decision reverses its prior policy, as well as an August 2000 ruling by the 3rd U.S. Circuit Court of Appeals stating that federal law requires employers to ensure that pre- and post-Medicare-eligible retirees receive health benefits of "equal type and value," the Chicago Tribune reports (Japsen, Chicago Tribune, 4/23). The EEOC said that it had the power to make "reasonable exemptions" in the public interest to the Age Discrimination in Employment Act of 1967. The new rule states that "in order to ensure that all retirees have access to some health care coverage, employers and unions may provide retiree health coverage to only those retirees who are not yet eligible for Medicare," adding, "They also may supplement a retiree's Medicare coverage without having to demonstrate that the coverage is identical to that of non-Medicare eligible retirees." A preamble to the rule states that it "is not intended to encourage employers to eliminate any retiree health benefits they may currently provide." The ruling must still undergo comment from several federal agencies and review by the Office of Budget Management; however, the ruling is within the EEOC's jurisdiction and "is expected to stand," the Times reports. Three Republican members of the EEOC voted in favor of the new rule, while a Democrat opposed it (New York Times, 4/23). The rule, which could take effect this summer, would apply to all existing retiree health benefits and to newly created ones, the Tribune reports (Chicago Tribune, 4/23).
Leslie Silverman, a member of the EEOC, said that under the federal appeals court ruling, employers had to "[g]ive all of [their] retirees the exact same benefits, which is incredibly difficult, or eliminate [their] retiree health benefits altogether." According to the Times, several EEOC members said that employers are more likely to continue providing health benefits to retirees under 65 if they can reduce or eliminate benefits for Medicare-eligible retirees (New York Times, 4/23). EEOC Chair Cari Dominguez said that health care benefits for retirees "are provided on a voluntary basis at the discretion of each employer and the commission is acting to preserve these valuable benefits for retirees" (AP/Dallas Morning News, 4/23). EEOC Vice Chair Naomi Earp said, "Our proposal permits the common-sense practice of coordinating employer-provided retiree health benefits with eligibility for other benefits to continue" (McGinley/Schaefer Munoz, Wall Street Journal, 4/23). House Education and Workforce Committee Chair John Boehner (R-Ohio) said that the EEOC ruling would "help preserve important retiree health benefits for millions of American seniors." Boehner and Reps. Robert Andrews (D-N.J.) and Sam Johnson (R-Texas) sent a letter to Dominguez in December pushing for the new rule, the AP/Morning News reports (AP/Dallas Morning News, 4/23). Paul Dennett, vice president of the American Benefits Council, said that the rule "removes a cloud that has been hanging over retiree health coverage since the court decision in 2000." Both the National Education Association and the American Federation of Teachers support the new EEOC rule because many school employees retire early and depend on employer-sponsored health benefits until they reach Medicare eligibility, the Times reports. Alfred Campos, a lobbyist for the NEA, said the rule would "encourage school districts to continue providing health insurance to retired teachers under 65" (New York Times, 4/23). Frank McArdle of the employee benefits consulting firm Hewitt Associates said that the EEOC decision "will make it easier for employers to coordinate with the new Medicare law" (Chicago Tribune, 4/23).
Stuart Ishimaru, the EEOC member who did not vote in favor of the new rule, said, "Before making an exemption to a major civil rights law, you need a compelling reason, which I have not seen" (New York Times, 4/23). Michael Naylor, advocacy director for AARP, which opposes the rule, said, "More than 12 million Medicare beneficiaries receive benefits from their former employers. AARP is concerned that this rule may jeopardize those benefits" (AP/Dallas Morning News, 4/23). The Journal reports that John Rother, policy director for AARP, said that the immediate impact of the ruling is "hard to gauge" because employers who "might have been inclined to drop coverage" for Medicare-eligible retirees could decided to keep the coverage to collect "billions of dollars in subsidies" that new Medicare law provides for employers who continue their prescription drug benefit for retirees (Wall Street Journal, 4/23). Officials for AARP said that the association would "explore a range of different steps, including litigation," to block implementation for the new rule (New York Times, 4/23).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.