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Age Discrimination & Retiree Health Benefits (2001)

by Steve Kreisberg

NOTE: Information contained in this article is updated by EEOC Will Review Its Policy On Retiree Health Insurance.

On March 5, the U.S. Supreme Court declined to review a ruling by the Third Circuit Court of Appeals that an employer violated the Age Discrimination in Employment Act (ADEA) by providing a different level of health care benefits for pre-age-65 retirees and post-age-65 retirees. Under the August 2000 Third Circuit ruling, and Equal Employment Opportunity Commission (EEOC) regulation, employers must show that benefits offered to post-age-65 retirees must be of “equal benefit or equal cost” to those offered to pre-age-65 retirees.

The court’s opinion involved retiree health benefits offered by Erie County, Pa., (Erie County Retirees Association v. The County of Erie Pennsylvania, 220 F2d 193 (2000)). As a post-employment benefit, the county offered a Medicare + HMO plan for Medicare eligible (post-age-65) employees and a Point of Service (POS) plan for pre-age-65 retirees. The Medicare eligible employees argued that the benefits offered to them were inferior to the benefits offered to pre-age-65 retirees and that the county had not satisfied the ADEA’s “equal benefit or equal cost” standard. That standard requires an employer either provide equal benefits to older and younger workers or pay the same cost to provide the benefits to older and younger workers. The U.S. District Court sided with the county by ruling that the ADEA was not intended to apply to retirees who base their complaint on disparities in benefits stemming from Medicare eligibility. However, the Court of Appeals reversed the District Court’s decision, ruling that the ADEA applies to retirees and that the county must demonstrate that the benefits offered to post-age-65 retirees satisfies the “equal benefit or equal cost” test.

Although the Court of Appeals’ decision technically applies only to states within the third judicial circuit (Pennsylvania, Delaware and New Jersey), the EEOC — which has authority to enforce the ADEA — fully supports the Appellate Court’s view. The EEOC regulation at 29 CFR 1625.10(e) states:

Benefits provided by the Government. An employer does not violate the Act by permitting certain benefits to be provided by the Government, even though the availability of such benefits may be based on age. For example, it is not necessary for an employer to provide health benefits which are otherwise provided to certain employees by Medicare. However, the availability of benefits from the Government will not justify a reduction in employer-provided benefits if the result is that, taking the employer-provided and Government-provided benefits together, an older employee is entitled to a lesser benefit of any type (including coverage for family and/or dependents) than a similarly situated younger employee. For example, the availability of certain benefits to an older employee under Medicare will not justify denying an older employee a benefit which is provided to younger employees and is not provided to the older employee by Medicare.

AFSCME affiliates have reported more aggressive enforcement of the ADEA by the EEOC in scenarios involving benefits for retirees and retiring employees.

This issue has serious implications for most AFSCME affiliates. Many of our members’ retirement plans allow pre-age-65 retirement with an unreduced or limited reduction annuity. However, our members typically cannot afford to retire unless they have health benefits available to them prior to attaining Medicare eligibility (age 65). Accordingly, we often negotiate and/or attain through legislative activity, pre-age-65 retiree health benefits that serve as a “bridge” to Medicare. Many of these plans are similar to the plan offered by Erie County. Recent changes in the Government Accounting Standards Board’s (GASB) rules require public employers to note promises of retiree health benefits as a “liability” on their financial balance sheets, which could exacerbate the problem. (See “Great GASB!” in this issue for more information on the GASB changes.)

In situations where you believe the issue should be addressed in negotiations, here are some suggested options:

Option 1. Retirees retain the same health benefit plan they had prior to becoming eligible for Medicare benefits. In other words, do not distinguish between pre-65 retirees and post-65 retirees. The cost of such coverage may lead employers to reject this approach.

Option 2. Distinguish between pre-65 retirees and post-65 retirees eligible for Medicare coverage to the extent allowed by 29 CFR§1625.10(e). Contract language for situations where the employer provides health benefits to retirees without requiring a retiree contribution towards the cost of such coverage is as follows:

Upon the retired employee achieving eligibility for benefits under Medicare, the retired employee shall purchase Medicare Part B coverage. The Employer shall reimburse the full cost of Part B coverage (including the costs for eligible dependents) on a monthly basis. In addition, the Employer shall provide the retired employee and eligible dependents with sufficient supplemental coverage to ensure that the Employer-provided and Government-provided benefits together supply the retired employee with benefits that are equal to the benefits received prior to attaining Medicare coverage. The term “equal to the benefits” shall be interpreted in a manner consistent with 29 CFR 1625.10(e).

Option 3. In situations where retirees are required to contribute towards the cost of health benefits, the following language may be used:

Upon the retired employee achieving eligibility for benefits under Medicare, the retired employee shall purchase Medicare Part B coverage. At that time, the Employer shall provide the retired employee and eligible dependents with sufficient supplemental coverage to ensure that the combination of Employer-provided and Government-provided benefits supply the retired employee with benefits that are equal to the benefits the retired employee received prior to attaining Medicare coverage. The term “equal to the benefits” shall be interpreted in a manner consistent with 29 CFR 1625.10(e). In accordance with 29 CFR 1625.10(d)(4)(ii)(C), retired employees covered by Medicare shall pay no more than the greater of:

the dollar amount paid by pre-Medicare eligible retirees; or

the same proportion of the total premium paid by pre-Medicare eligible retirees, for the coverage described in this paragraph.

[Note: the above language authorizes the highest retiree contribution allowed under EEOC regulation. It is permissible to negotiate lower contribution rates. It may be simpler and fairer to negotiate that the Medicare eligible retiree pay the same dollar amount as the pre-Medicare eligible retiree (Option 1 above). In any calculation, the cost of Part B coverage (approximately $50/month in 2001) must be credited to the retiree as a contribution.]

If you have any questions, or can report EEOC enforcement activity in your area, please contact the Department of Research and Collective Bargaining Services at (202) 429-1215.

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