Questions & Answers about the Commission's Vote on the Retiree Health Rule

The Equal Employment Opportunity Commission (EEOC or Commission) enforces the Age Discrimination in Employment Act or ADEA, which prohibits age discrimination in all aspects of employment. On April 22, 2004, the Commission voted 3-1 to approve a rule that would allow 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 draft fianl rule. (see question 12 regarding the rule's finalization).

1. What will the Commission's rule do?

Most employers that currently offer retirees health benefits coordinate those benefits with Medicare benefits. Some provide their retirees with health insurance to "bridge" the gap between the time they retire and the time they become eligible for Medicare. Others also give supplementary benefits to retirees who are eligible for Medicare.

The Commission's draft final rule will allow employers, including state and local governments, to continue these common practices and remain in compliance with the age discrimination law. Similarly, the rule will allow unions to negotiate for health benefits that coordinate with Medicare. The rule allows retirees to continue to receive the benefits they are currently getting.

• Employers who provide health benefits to retirees under the age of 65 can continue to do so. These types of plans are called Medicare bridge plans and are often used to provide health benefits to workers who retire before they become eligible for Medicare.
• Employers can also continue to provide supplemental health benefits to Medicare-eligible retirees (retirees age 65 and older) without having to show that the benefits are identical to any benefits provided to early retirees who cannot receive Medicare benefits. In many cases, these plans, sometimes called Medicare wrap-around or supplement policies, provide retirees with prescription drug coverage.

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

The Commission is aware of the concerns that have been expressed about the potential impact of the rule. The Commission believes that many of these concerns have arisen because of misunderstandings or incomplete information about the draft final rule. These questions and answers are intended to address those concerns and explain why the Commission believes the rule will safeguard retiree health benefits, not eliminate them. (see Chair's Message to Retirees 4-23-04)

2. Will the Commission's rule require that retiree health benefits be cut?

Absolutely not. To the contrary, the Commission's rule is designed to ensure that the federal age discrimination law will not be interpreted to require employers to change their retiree health benefit programs.

3. Will the Commission's rule require changes in the way retiree health benefits are provided?

No. The Commission's rule will not require or encourage employers and others to change the way they currently provide retiree health benefits. Employers and others will be able to provide retiree health benefits just as they have been providing them for years.

• The Commission's rule also will not require employers to alter any existing union-negotiated collective bargaining agreement or other contractual agreement to provide retiree health benefits.

4. Does the rule affect Medicare benefits?

No, the rule does not affect Medicare benefits in any way.

5. Why was the rule needed?

The rule was needed because employers, state and local governments, and labor organizations told us that if the age discrimination law were read to require employers to provide identical benefits to all retirees, virtually every existing retiree health plan would violate the law. They also said that changing their plans would be so expensive and complex that they would, instead, simply eliminate or reduce the retiree health benefits they currently provide.

For more than 30 years, most employers believed it was lawful to take Medicare into account in providing retiree health insurance benefits. However, in 2000, a federal court's interpretation of the age discrimination law said that the practice of coordinating retiree health benefits with Medicare would be illegal in almost all situations. The decision was issued by the Third Circuit Court of Appeals in 2000, and it is called Erie County Retirees Association v. County of Erie. Unions, teachers' organizations, state and local governments, and employers told us that if they had to comply with the Erie County rule, they would have to cut back or eliminate their retiree health benefit programs. Employers offer retiree health benefits voluntarily. There is no federal law that requires employers to provide health care coverage to their retirees.

6. How was the Erie County health plan changed after the court ruling?

The case was settled in March 2002 and the net effect of the changes to the retiree health plan was that older retirees received no better benefits and younger retirees were required to pay more for health benefits that offered fewer choices.

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

Following the Erie County decision, many groups have asked the Commission to act to preserve the current system. For example:

• The AFL-CIO, representing 13 million workers, urged the Commission to take action "to clarify that the [age discrimination] statute does not prohibit retiree benefit plans simply because they coordinate health benefits with Medicare eligibility," and said that if the Commission failed to act, "a wide range of employees in both the public and private sector stand to lose . . . ."
• The American Federation of Teachers, representing 1.2 million workers, said that many public employers that had offered retiree health benefits for many years concluded after Erie County that they should end or reduce retiree health benefits for all retirees, rather than incur additional expenses.
• The National Rural Electric Cooperative Association said that "[w]ithout this clarification from the Commission, many NRECA members will be forced to discontinue providing benefits to both pre- and post-Medicare eligible retirees - effectively leaving most, if not all, of [our] retirees with no health insurance until they become Medicare eligible."

After extensively studying this issue, including meeting with interested groups representing all viewpoints and carefully reviewing available information about retiree health programs, the Commission decided that it needed to act to preserve the ability of employers to continue to provide retiree health benefits.

The Commission's rule will ensure that the Erie County decision does not encourage unions, state and local governments, and employers to cut back or eliminate their retiree health benefit programs.

8. Why doesn't the Commission's rule require employers to provide retiree health benefits?

Neither the ADEA or any other federal law requires employers to provide retiree health benefits. Therefore the Commission has no authority to impose such a requirement. Employers have always been free to drop all retiree health coverage without violating any federal law.

9. Why can't the Commission require employers to provide retiree health benefits?

The Commission enforces the federal law that prohibits age discrimination in employment. This law does not require that employers provide health insurance or any other retiree benefits. The federal age discrimination law requires only that if an employer chooses to provide benefits, it must do so in a way that does not violate the law against age discrimination.

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

The age discrimination law authorizes the Commission to approve exemptions to the law in rare instances when application of the law would be contrary to the public interest. Because the Erie County decision was contributing to a continuing decline in the availability of employer-provided retiree health benefits, the Commission concluded that it would be in the best interest of employers, employees, and retirees to permit employers to offer these benefits to the greatest extent possible.

11. Will the public have an opportunity to comment on the Commission's rule?

The Commission published a proposed rule in July 2003 in the Federal Register The proposal was very similar to the rule the Commission recently approved. It provided a sixty day period for the public to make comments and suggestions on the proposal. The comment period closed in the fall of 2003. All of the comments were carefully considered before the Commission voted on April 22, 2004.

12. Does this mean that the Commission's rule is final?

Before the rule becomes final, it has to be reviewed by other federal agencies. The Office of Management and Budget (OMB) will also review the rule. After this review process is completed, a final rule, including any changes made as a result of the review process, will be published in the Federal Register. Only after all of these steps occur will the rule become final.

This page was last modified on May 17, 2004.

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