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EEOC Final Rule Allows Employers to Reduce or Eliminate Retiree Benefits for Medicare-Eligible Retirees

Jan.04.2008

U.S. Equal Employment Opportunity Commission; Age Discrimination in Employment Act; Retiree Health Benefits: Final Rule
72 Fed. Reg. 72938 Dec. 26, 2007

The Equal Employment Opportunity Commission (the “EEOC”) issued a new regulation on December 26, 2007, allowing employers to coordinate the health benefits offered to their retirees with Medicare (or comparable state health benefits), without running afoul of the Age Discrimination in Employment Act (the “ADEA”). The rule allows employers who provide retiree health benefits to continue the practice of coordinating those benefits with Medicare, without ensuring that Medicare eligible retirees are receiving the same benefits as other retirees ineligible for Medicare. The rule does not affect the benefits that employers provide to their current employees.

For many years, it has been common practice for employers to coordinate the health care benefits they pay retired employees with the Medicare benefits retirees start collecting at age 65. Under these coordinated health care plans for retirees, employers only paid for health care costs not covered by Medicare or a similar state-sponsored plan.

As a result, the cost of providing health benefits to early retirees under 65—the minimum age for Medicare eligibility—is much higher than the cost of supplemental coverage for those who qualify for Medicare. By coordinating health coverage for retirees with Medicare, employers save money and are able to offer coverage to more retirees. Under this final rule, employers could also reduce or eliminate benefits for Medicare-eligible retirees.

The EEOC promulgated the rule as a result of a Third Circuit Court of Appeals opinion, Erie County Retirees Association v. County of Erie, 220 F.3d 193, in which the court ruled that an employer choosing to provide retiree health benefits must offer equal benefits to all retirees, regardless of Medicare eligibility .

After the County of Erie decision, many labor organizations and employers called on the EEOC to propose an exemption from the ADEA for such coordination with Medicare, stating that they would be forced to terminate retiree health coverage altogether under the court’s ruling. When the EEOC announced its intention in 2005 to finalize this exemption after a long rulemaking proceeding, the AARP sought an injunction to prevent the issuance of the final rule. In June 2007, the Third Circuit upheld the EEOC’s rule. See AARP v. EEOC (No. 05-4594, June 4, 2007). In that case, the court concluded that the ADEA “clearly and unambiguously grants to the EEOC the authority to provide, at least, narrow exemptions from the prohibitions of the ADEA.” 


This material is made available for information purposes only, and should not be relied upon to resolve specific legal questions.

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