Federal Judge Blocks EEOC Proposed Rule on Health Benefits for Medicare-Eligible Retirees
On March 30, 2005, a federal District Court judge in Philadelphia blocked the Equal Employment Opportunity Commission’s (EEOC) proposed new rule that would have permitted employers to reduce, alter or eliminate retiree health benefits when the participant becomes eligible for Medicare health benefits or benefits under a comparable state plan. The District Court’s decision that the proposed rule violates federal age discrimination law is likely to be appealed.
The EEOC rule sought to reverse the 2000 decision by the Third Circuit Court of Appeals in Erie County Retirees Association v. Erie County, which found that the county violated the Age Discrimination in Employment Act (ADEA) by offering greater benefits to younger retirees than to Medicare-eligible retirees. In the Third Circuit’s view, the only way that an employer could lawfully provide different benefits to Medicare-eligible retires was to meet the “equal benefits or equal cost” safe harbor provision contained in the ADEA.
In its March 30 decision, the Philadelphia District Court granted summary judgment to the AARP, striking down the exemption in the proposed new rule and issuing a permanent injunction prohibiting its enforcement. The District Court found that the EEOC exceeded its rule-making authority in creating the exemption and, relying on Erie County, held that the exemption violated the ADEA. If not overturned, the decision will effectively force employers to choose among the following options:
Increasing medical benefits of Medicare-eligible retirees so that their combined medical benefits (i.e. from Medicare and the employer’s plan) match those of pre-Medicare retirees;
Reducing pre-Medicare retiree benefits so that their medical benefits match the combined medical benefits (i.e. from Medicare and the employer’s plan) of Medicare-eligible retirees;
Reducing the medical benefits of Medicare-eligible retirees to the extent necessary to achieve approximate equivalency to the employer’s cost of benefits incurred on behalf of pre-Medicare retirees; or
- Eliminating medical benefits for all retirees, provided that such step does not violate the terms of the plan or agreements the employer has made with its retirees.
Frost Brown Todd LLC anticipates that the District Court’s decision, if upheld or not appealed, will increase the likelihood that employers across the country will face legal challenges to retiree health benefit plans that take Medicare into consideration. The decision places additional pressure on employers already beleaguered by the spiraling costs of health care. Please contact one of our labor and employment attorneys if you have questions about how the ruling affects your business.