EEOC Office of Legal Counsel staff members wrote the following informal discussion letter in response to an inquiry from a member of the public. This letter is intended to provide an informal discussion of the noted issue and does not constitute an official opinion of the Commission.
ADEA: RETIREE HEALTH
August 11, 2008
This letter responds to your inquiry about the EEOC’s rule concerning the application of the Age Discrimination in Employment Act of 1967 (ADEA)1 to retiree health benefits, known as the retiree health rule. The retiree health rule provides that employers do not violate the ADEA when they continue the longstanding practice of providing different or no retiree health benefits (i.e., “coordinating” health benefits) when a retiree becomes eligible for Medicare. The rule is very narrow. It does not require any cuts to retiree health benefits and does not affect any contractual commitment to provide retiree health benefits that an employer may have made. The rule also does not alter Medicare rules – Medicare regulations are implemented and enforced by the Department of Health and Human Services, not EEOC.
To understand the reason for – and the impact of– the rule, it is important to understand that no law requires employers to provide any retiree health benefits. Thus, employers who choose to provide such benefits always can reduce or eliminate the benefits for all retirees irrespective of EEOC’s retiree health rule. It also is important to know that since Medicare’s enactment, many employers that offer retiree health benefits have altered, reduced, or eliminated retiree health benefits when retirees became Medicare eligible. Some employers provide health coverage just to “bridge” the gap between an employee’s date of retirement and the date that he becomes eligible for Medicare. Other employers provide some type of Medicare supplement. The extent of such supplements varies considerably from one employer to another.
Until 2000, when a federal court issued its decision in Erie County Retirees Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000), employers believed that coordinating retiree health benefits with Medicare-eligibility was lawful under the ADEA. In Erie County, however, the court interpreted the ADEA as requiring employers to provide the same level of retiree health benefits to Medicare-eligible retirees and younger retirees or to spend the same amount of money on such benefits for both groups.
Initially, EEOC agreed with the Erie County court’s interpretation of the ADEA, and began enforcing it. However, the Commission was quickly besieged by complaints from unions, state and local governments, benefit plan experts, and employers that the Erie County interpretation of the ADEA was contrary to common employer practice. They contended that the Erie County interpretation would cause employers to reduce or eliminate benefits for all retirees and that doing so would be particularly harmful for those who were not yet protected by Medicare. The critics also observed that the high cost of health benefits had already led many employers to reduce or eliminate retiree health benefits and argued that EEOC’s interpretation of the ADEA would exacerbate that trend. Their assertion was borne out in the Erie County case, which was resolved by the county raising the premiums and lowering the benefits for non-Medicare-eligible retirees rather than improving the benefits for the Medicare-eligible retirees.
After an extended study of possible alternatives to the problem, EEOC decided to help preserve employer-provided retiree health programs by using its statutory authority to exempt practices from ADEA coverage when such exemption is “necessary and proper in the public interest.” 29 U.S.C. §628 (section 9 of the ADEA). Thus, EEOC’s retiree health rule allows employers to continue their longstanding practice of altering or eliminating a retiree’s health benefit when the retiree becomes eligible for Medicare (or a comparable state health benefit program) without violating the ADEA. When EEOC’s authority to issue the exemption was challenged in court, the same court that had decided the Erie County case found that “the EEOC ha[d] shown that this narrow exemption from the ADEA is a reasonable, necessary and proper exercise of its section 9 authority, as over time it will likely benefit all retirees.” AARP v. EEOC, 489 F.3d 558, 565 (3d Cir. 2007). On March 24, 2008, the Supreme Court allowed this ruling to stand by refusing to review the court’s decision. AARP v. EEOC, No. 07-662, 2008 WL 754343 (U.S. Mar. 24, 2008).
A copy of the final regulation, which went into effect upon its publication on December 26, 2007, and other related information, is available on our web site (www.eeoc.gov) under the “EEOC Regulations” link. We hope this information is helpful to you.
Dianna B. Johnston
Assistant Legal Counsel
1 The ADEA prohibits age discrimination in employment against individuals age 40 and above.
This page was last modified on September 16, 2008.
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