A new federal rule being proposed by the Equal Employment Opportunity Commission (EEOC) would allow employers to reduce or eliminate health benefits for their retired employees who qualify for Medicare. Here are the background and facts surrounding this controversial action that could affect the health benefits of millions of American retirees.
At Issue
The issue centers around employers' ability to "coordinate" the health care benefits they pay retired employees with those benefits paid by Medicare. Under coordinated retiree health plans, the employer pays only for health care needs not covered by Medicare, or by similar state-sponsored health plans. Companies choose to provide retiree health benefits on an entirely voluntary basis. By reducing costs, coordinated plans save employers money, thus allowing more companies to extend health care benefits to their retirees.
Coordinating retiree health plans was a common practice until 2001, when a federal court ruled that the practice represented illegal discrimination under the Age Discrimination in Employment Act (ADEA). The U.S. Court of Appeals for the Third Circuit ruled that ADEA required employers to assure that pre- and post- Medicare eligible retirees receive health benefits of equal type and value. The minimum age of eligibility for Medicare is 65.
The new rule proposed by EEOC would permit employers, under ADEA, to lawfully coordinate retiree health benefit plans for retirees who are eligible for Medicare or a comparable state-sponsored health benefit.
The General Accounting Office (GAO) has estimated 10 million retired individuals aged 55 and over count on employer-sponsored health plans as either their primary source of health coverage or as a supplement to Medicare, or state-sponsored health plans.
The Equal Employment Opportunity Commission voted 3 to 1 to recommend adoption of the rule. Three Republican members voted in favor and one Democrat opposed the action.
AARP Attacks
The American Association of Retired Persons (AARP) voiced opposition to the proposed rule.
"More than 12 million Medicare beneficiaries receive benefits from their former employers," Michael Naylor, AARP's advocacy director, said in a statement. "AARP is concerned that this rule may jeopardize those benefits."
EEOC Defends
Advocates of the rule, however, argue that it would help ensure continuation of employer-provided health coverage for all retirees.
"This rule is intended to ensure that the ADEA does not have the unintended consequence of discouraging employers from providing valuable health benefits to retirees," EEOC Chair Cari Dominguez, a Republican, said in a statement. "Such benefits are provided on a voluntary basis at the discretion of each employer and the Commission is acting to preserve these valuable benefits for retirees."
In a press release to "America's Retirees," Dominguez states, "When finalized, our rule will make clear that it is legal for employers to continue to provide you with the health benefits you currently receive. The rule will not require any cuts to your benefits. It will not encourage any employer who offers these benefits to change them in any way."
What Happens Next?
The proposed rule will now be submitted to federal agencies for final review and any comments they may wish to submit.
The Office of Management and Budget will then review the rule for any financial impacts its implementation might have on the federal budget.
If approved through the above interagency review process, the final rule will be published in the Federal Register. Only after all of these steps occur will the rule become final.
