Heavy, heavy, heavy sigh. . .
Commission to Allow Insurance Cuts for Retired Employees
By ROBERT PEAR
Published: April 23, 2004
WASHINGTON, April 22-The Equal Employment Opportunity Commission voted Thursday to allow employers to reduce or eliminate health benefits for retirees when they become eligible for Medicare at age 65.
The agency approved a final rule saying that such cuts do not violate the civil rights law banning age discrimination. The vote was 3 to 1, with Republicans lining up in favor of the rule and a Democrat opposing it.
Employers and some labor unions supported the change, saying it would help preserve coverage for early retirees. But AARP, which represents millions of Americans age 50 and older, strenuously objected.
The new rule creates a potentially explosive political issue, because it will create anxiety for many of the 12 million Medicare beneficiaries who also receive health benefits from their former employers.
"We are aware of the anxieties and misperceptions that have taken root," said Cari M. Dominguez, chairwoman of the commission, which was deluged with letters opposing the rule from more than 50,000 AARP members.
Employer-sponsored health plans help retirees pay medical expenses not covered by Medicare. Those expenses could include co-payments and deductibles, the catastrophic costs of severe illness and the cost of preventive care and prescription drugs, beyond what Medicare might pay.
Debate over the rule highlights the tradeoffs employers make as they decide what benefits, if any, to provide workers and retirees at a time when health care is gobbling up a growing share of total compensation.
The rule creates an explicit exemption to the Age Discrimination in Employment Act of 1967. In practice, it allows employers to reduce health benefits for retirees when they become eligible for Medicare at the age of 65.
A federal appeals court ruled in 2000 that such age-based distinctions were unlawful.
No law requires employers to provide health benefits to workers or retirees. Employers can legally provide benefits to active workers and not to retirees. Courts have said that if an employer provides benefits, it cannot discriminate among retirees on the basis of age.
But the commission said that under the age discrimination act it had authority to make "reasonable exemptions" to the law in the public interest. The law does not define "reasonable."
Leslie E. Silverman, a member of the commission, said the appeals court decision had confronted employers with an all-or-nothing choice: "Give all of your retirees the exact same benefits, which is incredibly difficult, or eliminate your retiree health benefits altogether."
Several commission members said that employers were more likely to continue providing health benefits to retirees under 65 if they were allowed to reduce or eliminate benefits for those 65 and older.
A preamble to the final rule says it "is not intended to encourage employers to eliminate any retiree health benefits they may currently provide."
But Michele Pollak, a lawyer at AARP, said that might well occur.
"This rule will allow employers to reduce or eliminate retiree health benefits for anyone over the age of 65," Ms. Pollak said. "More than 12 million Medicare beneficiaries currently receive retiree health benefits from employers and could potentially be affected."
Ms. Pollak said the commission did not have authority to create such an exemption. Ms. Dominguez insisted that it did, though she said the power was rarely used.
Paul W. Dennett, vice president of the American Benefits Council, a trade group for large employers, welcomed the rule, saying, "It removes a cloud that has been hanging over retiree health coverage since the court decision in 2000."
The American Federation of Teachers and the National Education Association also supported the rule. School employees often retire early and rely on employer-provided health benefits until they become eligible for Medicare.
Alfred Campos, a lobbyist for the National Education Association, praised the rule, saying, "It will encourage school districts to continue providing health insurance to retired teachers under 65."
Stuart J. Ishimaru, who cast the only no vote, said: "I came to the commission as a civil rights lawyer. Before making an exemption to a major civil rights law, you need a compelling reason, which I have not seen."
The proper role of the commission, Mr. Ishimaru said, is not to make health policy, but to protect people from discrimination.
The rule is subject to comment by other federal agencies, and it will be reviewed by the Office of Management and Budget. But it is within the jurisdiction of the employment commission and is expected to stand.
The rule reverses a position that the commission took in the court case and in a national policy statement issued in October 2000.
Under the rule, employers can coordinate retiree health benefits with Medicare.
"For example," the commission said, "in order to ensure that all retirees have access to some health care coverage, employers and unions may provide retiree health coverage to only those retirees who are not yet eligible for Medicare. They also may supplement a retiree's Medicare coverage without having to demonstrate that the coverage is identical to that of non-Medicare eligible retirees."
Opponents could challenge the rule in court. AARP said it would "explore a range of different steps, including litigation," to block the rule if it is not changed.
Congress considered the issue in debating Medicare legislation last year. The Senate version of the Medicare bill included a provision similar to the commission's rule, but it was dropped from the measure ultimately signed by President Bush.
AARP insisted on elimination of that provision before it announced its support for the bill in November. That endorsement played a critical role in passage of the measure.
In recent years, many employers have reduced health benefits for retirees, in part because of soaring health costs.
Employers said that uncertainty caused by the court decision, involving retired government workers in Erie County, Pa., would accelerate the erosion of retiree health benefits if the commission did not take action.