Employers Cannot Reduce Retirees’ Benefits, Judge Rules

Published June 1, 2005

In a closely watched case, a federal district court judge in Philadelphia has ruled employers are prohibited by the Age Discrimination in Employment Act (ADEA) from varying retiree benefits according to their age.

Judge Anita B. Brody’s March 30 decision blocked implementation of a rule issued by the U.S. Equal Employment Opportunity Commission (EEOC) that would have permitted employers to reduce or eliminate health coverage for their retired employees when they become eligible for Medicare at age 65. (See “Benefits in the Balance,” Health Care News, April 2005.)

Employers Ending Retiree Benefits

Rising health care costs, especially for the growing numbers of workers nearing retirement, have provided incentives for many employers to discontinue retiree benefits. With Brody’s decision, the disappearance of employer-provider retiree health coverage will accelerate, say the EEOC, employer groups, and labor unions.

Brody seemed to acknowledge that, noting in her decision the EEOC had argued “persuasively” that without the new rule employers would reduce or eliminate health benefits for all retirees, irrespective of age. But, she said, “allowing employers to give retirees 65 or older health benefits that are inferior to the health benefits given to retirees who are younger than 65 is illegal under ADEA.”

Under the disputed EEOC rule, according to Brody, employers could give their older retirees, covered by Medicare, “health benefits that are inferior” to those of retirees under 65.

Uninsurance Expected to Rise

Daniel V. Yager, of the HR Policy Association, which represents large employers, expressed disappointment with the decision. He told the Washington Post for a March 31 article, “pre-Medicare retirees constitute a significant share of the uninsured, but the AARP’s actions and the district’s court’s decision will only exacerbate the situation.”

Brody said the ADEA clearly forbids any form of age discrimination in determining employer benefits and pay, and it also “prohibits the practice of coordinating retiree benefits with Medicare eligibility.”

At issue in the case was whether the EEOC could provide a “narrow exemption” for employers to coordinate their retiree health benefits with Medicare or a similar state program.

In February, AARP had secured an injunction from Brody against enforcement of the new rule, arguing it “[undermines] the fundamental purposes that inspired the Age Discrimination in Employment Act (ADEA).”

The EEOC said it would seek to overturn Brody’s decision before the U.S. Third Circuit Court of Appeals.

Tom Bruderle ([email protected]) is vice president of congressional affairs for the National Association of Health Underwriters.