EEOC Proposes New Rule on Health Benefits for Medicare-Eligible Retirees

An Equal Employment Opportunity Commission (EEOC) proposal for a new federal rule, which would allow employers to offer different types of health care benefits to Medicare-eligible and non-eligible retirees without violating age discrimination laws, has sparked intense controversy among groups all claiming to represent the best interests of retirees.

Supporters say the decision would enable employers to structure benefit plans to meet the needs of all retirees and still keep costs down. Opponents say the new rule could lead to a reduction or loss of essential health benefits for 12 million retired Americans who are 65 or older and already eligible for Medicare.

For many years, it was common practice for employers to coordinate the health care benefits they pay retired employees with the Medicare benefits retirees start collecting at age 65. Under these coordinated health care plans for retirees, employers only paid for health care costs not covered by Medicare or a similar state-sponsored plan.

As a result, the cost of providing health benefits to early retirees under 65—the minimum age for Medicare eligibility—is much higher than the cost of supplemental coverage for those who qualify for Medicare. By coordinating health coverage for retirees with Medicare, employers saved money and were able to offer coverage to more retirees. Employer-provided health benefits for retirees are entirely voluntary, however, so no company is obligated to provide coverage for any retirees.

In 2000, a federal court ruled that coordinated coverage plans were illegal because they constituted age discrimination and violated the Age Discrimination in Employment Act (ADEA). The decision by the U.S. Court of Appeals for the Third Circuit required employers who choose to provide health benefits for retirees to ensure that all retirees receive benefits of equal type and value, regardless of Medicare eligibility.

The new rule proposed by the EEOC would create an exception to the court ruling by permitting employers to legally coordinate health benefit plans for retirees who are eligible for Medicare or state-sponsored health plans.

AARP, a nonprofit advocacy group for people over 50, strongly opposes the EEOC proposal and immediately began efforts to mobilize its 35 million members to put pressure on the EEOC to revise or reverse its proposal. AARP even threatened to sue.

"We are trying to resolve this issue in a way that protects our members' interests," says AARP legislative representative Michele Pollak. "We will not hesitate to go to court if necessary to prevent the regulations from taking effect."