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Court Lifts Injunction Against EEOC Retiree Health Regulations

October 23, 2005


In a matter of great importance to health insurers, health plans and employers, the court in AARP v. EEOC has reversed its position and lifted its injunction against the EEOC regulations that would permit employers to terminate or reduce retiree health coverage when retirees become eligible for Medicare. Although the court has stayed its 9/27/05 decision in order to allow AARP time to decide whether to appeal, the substance of the decision supports EEOC's authority to exempt such retiree health set-off or termination provisions from the Age Discrimination in Employment Act.


The widespread practice of reducing or terminating retiree health benefits when the covered retiree becomes eligible for Medicare or similar state-sponsored retiree programs has been the subject of regulatory, judicial and political controversy and confusion for the past five years. In 2000, the Third Circuit Court of Appeals in the case of Erie County Retiree Association v. County of Erie, 220 F.3d 193 (3d Cir. 2000) concluded that such practices violated the “equal benefits or equal cost” standard that Congress placed in the Age Discrimination in Employment Act (“ADEA”) by passing the Older Workers Benefit Protection Act (“OWBPA”). The EEOC's response was ultimately to issue a regulation in 2003 that exempted such practices from the ADEA and OWBPA standard. 68 Fed. Reg. 41542 (July 14, 2003). However, before those regulations became final, the AARP sued to prevent them from becoming effective (AARP v. EEOC, 05-CV-509), and on March 30, 2005, the Judge Anita Brody of the U.S. District Court for the Eastern District of Pennsylvania permanently enjoined the EEOC from finalizing its regulation. Although the EEOC has appealed that ruling to the Third Circuit Court of Appeals, the court's action raised the uncertainty level for employers trying to administer retiree health programs, and for the insurers underwriting them.

On September 27, 2005, even before EEOC's appeal could be heard, Judge Brody reversed her position, dissolved the injunction and ruled that the EEOC's regulations were a valid exercise of the EEOC's regulatory authority. Judge Brody took this unusual action in light of the recent Supreme Court decision in National Cable and Telecommunications Association v. Brand X Internet Services, 125 S. Ct. 2688 (2005) (“Brand X”), in which the Court held that agency interpretations of their governing statutes are in most cases entitled to deference even where there is a prior court decision adopting a contrary interpretation. Judge Brody acknowledged that her March 2005 decision issuing the injunction had been premised on the idea that the Third Circuit decision in County of Erie took precedence over the EEOC's new regulation. Recognizing that the Brand X decision had undermined the essential premise of her decision, Judge Brody carefully reexamined the EEOC's action and concluded that the exemption contained in the regulation was a valid exercise of the EEOC's authority and should be upheld by the court.

In all probability, this new decision will not be the final word in this area. Judge Brody has stayed the implementation of her decision to permit the AARP time to determine if it wants to appeal, and most observers believe that AARP will do so. Nevertheless, Judge Brody's recent decision to support the EEOC's position should be encouraging to the many plan sponsors and insurers involved with arrangements that permit retiree health set-offs or termination in light of Medicare eligibility. As such, it is an important step in resolving this on-going controversy.

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