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EEOC rule allows coordination of retiree health benefits with Medicare

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in Discrimination and Harassment,Employee Benefits Program,HR Management,Human Resources

The EEOC on December 26 issued a final rule allowing the long-standing practice of coordinating retiree health benefits with Medicare (or comparable state health benefits) without violating the Age Discrimination in Employment Act (ADEA).

Information on the regulation, which the EEOC says “safeguards retiree health benefits,” is available online at the commission’s web site.

The rule is designed to ensure that the ADEA doesn’t compromise retirees’ access to health insurance benefits. For years, employers have coordinated their retirees’ health benefits with Medicare coverage. Employer-provided insurance has either supplemented Medicare or offered retirees a “bridge” benefit to cover health expenses between retirement and the date they become eligible for Medicare.

The new rule permits that practice to continue.

“By this action, the EEOC seeks to preserve and protect employer-provided retiree health benefits, which are increasingly less available and less generous,” said Commission Chair Naomi C. Earp. “Millions of retirees rely on their former employer to provide health benefits, and this rule will help employers continue to voluntarily provide and maintain these critically important benefits in accordance with the law.”

The problem stemmed from a controversial 2000 decision by the 3rd Circuit Court of Appeals. The court ruled that the ADEA requires the health insurance benefits received by Medicare-eligible retirees be equivalent to or cost the same as health insurance benefits provided to younger retirees.

So-called “bridge” benefits inherently favor younger retirees. Business and HR groups worried the decision would lead many employers to reduce or eliminate all retiree health benefits instead of increasing coverage to older retirees to comply with the ADEA.

To correct the problem, the new regulation provides an ADEA exemption.

The EEOC approved this regulation in 2004, but AARP sued in early 2005 to prevent its publication. AARP argued that the rule—no matter how well intentioned—institutionalized discrimination on the basis of age.

After several years of litigation, the EEOC—supported by business and HR interests—won court approval to issue the final rule in late 2007.

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