Firms Can Include Retiree?s Medicaid Eligibility in Health Care Plan: EEOC

Employers may continue to take Medicare eligibility into account without violating the Age Discrimination in Employment Act when offering health care benefits to retirees, according to a ruling last month by the Equal Employment Opportunity Commission. The action stems from a 2000 Court of Appeals decision that said employers must provide retirees 65 and older the same benefits as younger retirees. 

“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 commission said after issuing its ruling.  

The AARP, however, asked the U.S. Supreme Count to review whether the EEOC has the authority to issue the ruling. In a petition filed earlier this month, the non-profit organization for people over 50 said the decision creates two classes of retirees and allows employers to eliminate or reduce benefits to spouses and dependent of retirees older than 65. The “misguided approach” threatens the health care benefits of approximately 10 million older Americans, according to the AARP.

“It’s a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age,” AARP said. “By transferring health care costs, the EEOC merely passes the buck to those who can little afford it.” The AARP said it expects to hear in February if the court will review the case.

Conceivably, a reduction in retiree health care benefits could affect health care industry revenues and increase bad debt if younger retirees have less insurance to cover ailments or illnesses associated with aging. Bad debt also could rise for the industry if retirees on fixed incomes have less money to apply to deductibles and co-pay. Industry analysts say unpaid co-pays and deductibles, as a percentage of healthcare bad debt, are rapidly growing. 

The EEOC first adopted the Appeal Courts’ interpretation of retiree health benefit rights, but labor unions and employers warned the commission that companies complying with the ruling would reduce or eliminate the retiree health benefits they were providing, leaving million of retirees under 65 with less or no health insurance.

The EEOC agreed, and issued its new ruling at the request of a cross section of labor unions and employer organizations often at odds, including the AFL/CIO, the American Federation of Teachers, the American Association of Health Plans, and the Chamber of Commerce of the United States.

“Our rule makes clear that it is lawful for employers to continue to provide retirees with the health benefits they currently receive,” EEOC Legal Counsel Reed Russell said in a press release. “Contrary to what some interest groups have erroneously asserted, the rule will not require any cuts to retiree benefits.”  

Nonetheless, the Towers Perrin 2008 Health Care Cost Survey shows that employers’ commitment to health care coverage for retirees is dwindling. In 2008, retirees under 65 are being required to cover as much as 50 percent of their health care premium, an 8 percent increase over last year, according the global human resources consulting firm.