Employers Can Eliminate, Reduce Health Benefits For Retirees

Armen Hareyan's picture

The Equal EmploymentOpportunity Commission last week announced that employers canlegally eliminate or reduce health benefits for retirees when theyreach age 65 and become eligible for Medicare while retainingbenefits for retirees younger than age 65, the NewYork Times reports. The ruling, published in the FederalRegister, allows employers to create two classes of retirees --those younger than age 65 and those older than 65 -- and offerdifferent benefits to each group. In addition, the ruling allowsemployers to eliminate or reduce benefits provided to spouses ordependents of retirees older than 65 (Pear, New York Times,12/27/07).

EEOC proposed the rule in response to a 2000 U.S.Court of Appeals decision that required benefits to be offered at thesame level for Medicare-eligible retirees and those younger than 65(Armour, USA Today,12/28/07). However, according to Dianna Johnston, an EEOC lawyer,many employers and labor unions told the commission that "ifthey had to provide identical benefits for retirees under 65 and over65, they would just drop retiree health benefits altogether for bothgroups."

The rule creates an explicit exemption fromage-discrimination laws for employers that reduce benefits forretirees ages 65 and older. The preamble to the new regulationstates, "The final rule is not intended to encourage employersto eliminate any retiree health benefits they may currently provide"(New York Times, 12/27/07). According to a statement bycommission Chair Naomi Earp, "EEOC seeks to preserve and protectemployer-provided retiree health benefits which are increasingly lessavailable and less generous." Earp added, "Millions ofretirees rely on their former employer to provide health benefits,and this rule will help employers continue to voluntarily provide andmaintain these critically important benefits in accordance with thelaw."


EEOC said its decision is supported by the Societyfor Human Resource Management, the AFL-CIO,the American Federationof Teachers, the National EducationAssociation, the AmericanBenefits Council, and other groups (AP/SeattleTimes, 12/28/07).


The ruling was "welcomed" by some employer and laborgroups, who believe it will allow employers to provide morecomprehensive benefits to retirees under 65, but others "said itwill deprive older people of coverage to supplement Medicare,"the Wall Street Journal reports. "If the regulationdid not come about, it could have very well spelled the death knellfor retiree health care," Mike Aitken, director of governmentaffairs for SHRM, said.

According to James Klein, presidentof the benefits council, the new rule "validates what employersand unions for years have understood to be the appropriate policy:namely to allow employers to focus health care coverage on earlyretirees who would otherwise not have coverage." Many expertsnote that some companies already have established different benefitsfor retirees who are eligible for Medicare (Maher et al., WallStreet Journal, 12/28/07).

AARPattorney Christopher Mackaronis said, "This rule gives employersfree rein to use age as a basis for reducing or eliminating healthcare benefits for retirees 65 and older. Ten million people could beaffected -- adversely affected -- by the rule" (New YorkTimes, 12/27/07). David Certner, legislative policy directorfor AARP, said, "This policy is a civil rights and economicfiasco," adding, "It is a wrong-headed move to legalizediscrimination, allowing employers to back off their health carecommitments based on nothing more than age" and to shift more ofthe cost onto retirees and taxpayers (Rose, ChicagoTribune, 12/28/07).

Reprinted with permission fromkaisernetwork.org.You can view the entire KaiserDaily Health Policy Report, search the archives, andsign up for email delivery at kaisernetwork.org/email. The Kaiser Daily Health Policy Report ispublished for kaisernetwork.org, a free service of The Henry J.Kaiser Family Foundation.