The U.S. Equal Employment Opportunity Commission

EEOC Office of Legal Counsel staff members wrote the following informal discussion letter in response to an inquiry from a member of the public. This letter is intended to provide an informal discussion of the noted issue and does not constitute an official opinion of the Commission.


ADEA – Retiree Health

November 9, 2005

Dear ,

This letter responds to your request for a written update explaining the current status of litigation concerning the Equal Employment Opportunity Commission's (EEOC's) retiree health rule. As we discussed on the telephone, the retiree health rule would allow employers to coordinate a retiree's health benefits with his or her eligibility for Medicare without violating the Age Discrimination in Employment Act of 1967 (ADEA). This rule would not apply to Medicare-eligible employees; it would only address the ADEA's protections for the health benefits of Medicare-eligible retirees.

In our telephone conversation, you asked what was meant by "coordinating" benefits with Medicare eligibility. This term refers to taking Medicare into account when determining what health benefits the employer itself will provide for Medicare eligible retirees. For example, an employer may provide full health coverage for retirees who have no outside source of health benefits, but only provide a supplemental benefit to those eligible to receive health benefits through Medicare or a similar state health benefit. Most employers coordinate with Medicare-eligibility in some fashion.

When employers coordinate benefits by providing such supplements to Medicare, the benefits of Medicare-eligible retirees are unlikely to be identical to those of younger retirees, due to coverage differences between the privately-funded and Medicare-provided benefit plans. For example, Medicare often requires that Medicare-eligible retirees participate in an HMO, rather than in an indemnity plan that younger retirees and employees may use. Medicare also requires participants to sign up for Medicare Part B, whose premiums may be higher than the insurance premiums paid by younger retirees.

Such differences in coverage gave rise to the case of Erie County Retirees Ass’n v. County of Erie, 220 F.3d 193 (3d Cir. 2000), in which Medicare-eligible retirees alleged that the differences constituted age discrimination in violation of the ADEA. The court agreed with the retirees, finding that the ADEA was violated when Medicare-eligible retirees got different benefits than younger retirees, unless the employer was spending the same amount on older as on younger retirees.

Employers insisted that the financial and administrative costs of increasing benefits to older retirees was too high. Since the ADEA requires only equal treatment, employers threatened to comply with the ADEA not by raising benefits for older retirees, but by reducing benefits to younger retirees or by eliminating all benefits for all retirees. Indeed, the Erie County case was settled by requiring younger retirees to pay higher premiums and move into an HMO plan.

In light of evidence that employers would "equalize" benefits by reducing them, and actually had done so in at least one circumstance, the EEOC sought, in essence, to undo the court's decision in Erie County by issuing a rule specifying that the practice of coordinating a retiree's health benefits would not violate the ADEA.

However, AARP sued to stop the rule from going into effect, arguing that EEOC did not have the right to issue it because it conflicted with the Erie County decision. That suit is known as AARP v. EEOC, Civil Action No. 05-CV-509. The Judge initially agreed with AARP that Erie County prohibited EEOC from implementing such a rule and, on March 30, 2005, issued an order preventing the rule from going into effect.

The government then asked Judge Brody to reconsider her March 30, 2005 order, based on an intervening decision by the Supreme Court in a completely separate case, entitled National Cable and Telecommunications Association v. Brand X Internet Services, 125 S. Ct. 2688 (2005). Judge Brody agreed to reconsider her order, and based on the Supreme Court's decision, found that Erie County does NOT prohibit the EEOC from implementing its rule after all. Accordingly, on September 27, 2005, she issued a "Memorandum and Order" reversing her earlier decision. For your convenience, a copy of this order is attached. Despite her order to uphold EEOC's rule, Judge Brody also ruled that EEOC could not issue the rule until AARP appealed and the Third Circuit decided the case. The litigation may continue on appeal for many months, or even years, during which time the EEOC cannot finalize the rule.

I hope this information is helpful.

Sincerely,

Raymond L. Peeler
Senior Attorney Advisor
Title VII/ADEA/EPA Division

Attachment


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