Segal’s Capital Checkup May 29, 2002

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May 29, 2002

EEOC ANNOUNCES IT WILL PROPOSE AN ADEA EXEMPTION FOR RETIREE HEALTH COVERAGE

In its recently published Semiannual Regulatory Agenda, the U.S. Equal Employment Opportunity Commission (EEOC) announced its intention to propose a regulation on the coordination of retiree health benefits with Medicare:

This item will amend regulations governing age discrimination in employment to exempt from the prohibitions of the Age Discrimination in Employment Act (ADEA) the practice of altering, reducing, or eliminating employer-sponsored retiree health benefits when retirees become eligible for Medicare or comparable State retiree health benefits. This new rule will ensure that the application of the ADEA does not discourage employers from providing health benefits to their retirees.

The EEOC expects to propose the regulation on by December 2002. To read the EEOC’s Semiannual Regulatory Agenda, see the May 13, 2002 issue of the Federal Register.

Background: The Erie County Case

The final disposition of the Erie County case illustrates why, from the perspective of employees and retirees, the agency might want to grant this exemption. There the courts had held that the County's retiree health program was discriminatory because:

Retirees over age-65 were enrolled in a Medicare health maintenance organization (HMO), while early retirees had the choice of a preferred provider organization (PPO), as well as an HMO, and
The Part B premium paid by Medicare-eligible retirees was higher than the premiums required from younger retirees.

The case was recently settled, with a lump-sum payment of $1800 to each over-65 retiree and spouse, plus elimination of the PPO option for the younger retirees and an increase in their premiums to the level of the Medicare Part B premium paid by older retirees. Plaintiffs' counsel were awarded $133,000 in fees, plus $11,000 in expenses. The court decision approving the class action settlement is Erie County Retirees' Assn. v. Erie County (WD PA, 3/20/2002), 192 F. Supp. 2d 369.

The EEOC’s Initial Reaction and Subsequent Reconsideration

After the Third Circuit Court of Appeals’ Erie County decision, the EEOC had taken the position in its enforcement manual that it could be a violation of ADEA to reduce or eliminate health coverage for retirees over 65. At that time, the EEOC had taken enforcement actions against some Midwest school districts and teachers’ unions.

Last August, the EEOC announced its intention to reconsider its response to the Erie County decision. For details, see August 27, 2001 issue of Segal’s Capital Checkup.

Implications for Health Plans that Cover Retirees

The EEOC’s announcement seems to promise good news for health plan sponsors that were disturbed about the implications of the Erie County litigation. Of course, until regulations are proposed and then issued in final form, the full extent of the relief that the EEOC proposed granting is unknown. In the meantime, plan sponsors should rely on their legal counsel's advice about the application of the age discrimination laws to their health benefits programs.

Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.