Remarks of Commissioner Stuart J. Ishimaru

The U.S. Equal Employment Opportunity Commission

Meeting of the U.S. Equal Employment Opportunity Commission
Proposed Final Rule: Age Discrimination in Employment Act - Retiree Health Benefits
April 22, 2004

When the Final Rule Exempting the Coordination of Employer-Sponsored Retiree Health Benefits with Medicare Eligibility from the ADEA came to my office for a notation vote, I asked to have it placed on the agenda of a public commission meeting because I have grave concerns about the impact of the rule and the current state of the rulemaking record. The significance of the rule demands further public discussion by the Commission as a whole. The issue that the EEOC is trying to address through the final rule is a difficult and complex one. I understand that having health care insurance, particularly once you retire, is vitally important. I fully support efforts to ensure that employers provide early retirees with good health care benefits so long as it is done in a non-discriminatory way. Unless there is substantial evidence that the rule will not have an adverse impact on the health benefits of older retirees, I do not believe that the EEOC should use its section 9 authority in the Age Discrimination in Employment Act (ADEA) to change the law and allow employers to provide different levels of health care benefits to retirees younger than 65 and retirees older than 65.

The core purposes of the ADEA include protecting workers from arbitrary differences in treatment due to age and promoting employment of able older workers. The proposed rule appears to directly contravene those purposes because it would permit employers to discriminate and treat retirees over 65 worse than protected retirees younger than 65. Although the preamble states that the purpose of the rule is to provide more health care benefits to younger retirees, we do not know what the exact effect of this rule would be. It is clear that in implementing this rule, the EEOC is giving employers the green light to give older retirees fewer health benefits than they give to younger retirees. In addition to organizations representing retirees, we received tens of thousands of comments from individual people who believed they would be adversely impacted by this rule, asking us not to promulgate it, including nearly 7,000 unique non-form letters. I give substantial weight to those comments because older retirees are often the ones who are most vulnerable to and in need of protection from health care coverage cuts. The recent Supreme Court decision in General Dynamics v. Cline which permits employers to favor older workers over younger workers older than forty supports my view that the EEOC should not implement this rule unless we have reliable information that it will not cause employers to take away health benefits for older retirees.

The proposed rule would change the law for the purpose of affecting health care policy. Equal treatment of former employees is within the EEOC's mission. Making health care policy is not. Congress should make health care policy decisions and address the problem the EEOC has identified, if it thinks it is necessary. Also, it is not clear to me what the impact of the newly enacted Medicare Prescription Drug law will be on retiree health care benefits and whether this rule will improve or exacerbate the problems regarding retiree health care benefits.

At least some members of Congress are aware of the problem the EEOC has identified because it has attempted to address the subject of the EEOC's proposed rule, most recently in connection with the Medicare Prescription Drug law.

The EEOC should take a principled position that workers and retirees over forty should be treated equally unless there is a legally acceptable (not policy) reason why a distinction should be made. If Congress wants to permit discrimination within a protected class, then it, and not the EEOC, should act to address the issue.

It is generally agreed that a number of factors influence employer decisions regarding the provision of health benefits, but the primary factor is most likely financial. Some people have raised the concern that employers are blaming the EEOC and its enforcement of the Third Circuit's decision in Erie County Retirees Association v. County of Eric, Pennsylvania, 220 F.3d 193 (3d Cir. 2000) (ruling that under the ADEA employers must provide either equal benefits and allowing employers to take into account benefits provided under Medicare or spend an equal amount on the health care benefits for all retirees regardless of whether they are eligible for Medicare) as the primary reason for their decision to provide fewer health care benefits to retirees not yet eligible for Medicare. However, a recent search of an electronic news database found many articles discussing employer cutbacks to retiree health benefits and none of them mentioned the EEOC's enforcement of the Erie County decision as influencing that decision. These articles only mentioned the increasing costs of health care and company profitability.

As the we stated in our Amicus Brief in support of the retirees in Erie County:

Health insurance benefits can be a costly employee benefit. Employers should not have their hands tied in their efforts to structure their health insurance coverage in a way that will maximize the benefits for all employees, current and former. The answer to this conundrum, however, is not to arbitrarily exclude a group of individuals from the protection of the statute. The answer is for the employer either to rely upon distinctions that are not age-based or to structure any age-based distinctions in a manner that comports with the ADEA's "equal cost/equal benefit" rule. The Commission has taken the position, in construing the "equal cost/equal benefit" rule, that an employer "does not violate the Act by permitting certain benefits to be provided by the Government, even though the availability of such benefits may be based on age." 29 C.F.R. 1625.10(e) (1999). Employers, concerned with the costs of providing health care insurance to their employees, can structure their health insurance plans in a way that will reduce costs and still comport with the ADEA's requirements.

This argument is still compelling today.

There are other alternatives that the EEOC could try before creating an exception to the ADEA an option that should only be turned to as a last resort. For example, the EEOC could first issue guidance and perform other public education efforts to inform the general public about the legal requirements of the ADEA, particularly explaining the equal benefit/equal cost rules regarding health benefits. The EEOC could also issue guidance about how to value Medicare benefits. The EEOC should continue to consider other options that may provide more flexibility to employers and employees to negotiate for health benefits most appropriate to their situation rather than imposing a "one-size fits all" exemption under section 9.

Setting aside the substantive merits of whether the final rule is prudent, I continue to have concerns about whether the current rulemaking record is strong enough to justify the rule. I have not seen any studies or an overwhelming amount of data showing that the trend of employers reducing health care benefits for retirees is exacerbated by the EEOC's current interpretation of the ADEA. As discussed above there are many factors that influence employer decisions about health care, and it appears that the main factor is financial.

The rulemaking record should also contain research on the number of industries and people who will likely be affected and especially, on the impact the rule will likely have on retirees receiving Medicare and employer-provided "wrap-around" coverage to establish that the rule is indeed in the public interest. Furthermore, I have not seen enough evidence to substantiate the claim that the proposed rule will prevent employers from continuing to decrease health care benefits for retirees not yet eligible for Medicare. The EEOC should not take action to weaken the ADEA in the absence of sufficient evidence that this exemption will end up benefitting those most in need of the ADEA's protection.

Because this will be the first time that the EEOC uses its section 9 authority in the ADEA, it will likely be challenged in court and will set precedent for exercising section 9 authority in the future. Especially the first time the EEOC uses its section 9 authority, it should be extremely confident that the rule will withstand judicial scrutiny. The proposed exemption is potentially wide-reaching and may affect a large number of people. It explicitly permits a departure from the main principle of non-discrimination expressed in the statute. It has been consistently expressed that the goal of the rule is to influence health care policy with no mention of ensuring equal treatment and opportunities for older workers. It is unclear from the legislative history of the ADEA whether this is the type of exception Congress intended to permit. I have significant concerns that the current factual situation will not provide the strongest legal basis for defending our section 9 authority generally and that "bad law" may be created that will curtail, or possibly eliminate, future use of the EEOC's section 9 authority in situations in which the exemption is justified.

I oppose the Final Rule Exempting the Coordination of Employer-Sponsored Retiree Health Benefits with Medicare Eligibility from the ADEA because it will allow employers to discriminate against older retirees in the type of health care benefits it provides. In Erie County, we stood behind the fundamental principle that employers should treat younger and older retirees equally. Now, through the section 9 exemption authority vested in the EEOC, we are attempting to change the ADEA and take the opposite position, in an attempt to influence health care policy. Changes in health care policy should be addressed by Congress and agencies that have health care as their central mission rather than the EEOC. Even putting aside the substantive objections I ha ve to the rule, I would vote to oppose the rule based on the lack of evidence that the rule supports the public interest and will be effective in addressing the problem it is trying to solve. Furthermore, I have concerns that this use of the EEOC's section 9 authority may set a bad precedent for future use of the authority.

I urge my colleagues to vote against approving the final rule.

This page was last modified on April 27, 2004.