High Court Lets EEOC Retiree Health Care Rule Stand

As expected, the U.S. Supreme Court on Monday, March 24, declined to review a federal appeals court ruling that effectively upholds employers’ ability to reduce health care benefits when retirees become eligible for Medicare, putting an end to nearly eight years of litigation and uncertainty.

In a unanimous ruling in June 2007, a three-judge panel of the 3rd U.S. Circuit Court of Appeals said the Equal Employment Opportunity Commission had the authority to implement a rule to exempt retiree health plans from the Age Discrimination in Employment Act when those plans reduce benefits for retired workers after they become eligible for Medicare.

The EEOC proposed the rule in 2003 as a way of counteracting a decision by the 3rd Circuit three years earlier that found the plans were subject to ADEA. That decision, known as the “Erie County” case, exposed employers to age discrimination lawsuits if they cut retiree health care plan benefits when retirees reached age 65.

“Erie County” is a reference to the Pennsylvania County that was sued by older retirees over the design of its health care plan.

The practical effect of the EEOC rule, which the agency finalized last year, is that employers can provide a two-tier system of retiree heath care coverage, with younger retirees receiving richer benefits than Medicare-eligible retirees.

The EEOC feared that without such a rule, employers would equalize retiree health care benefits by reducing younger retirees’ benefits to the level provided to older retirees, or eliminate retiree benefits altogether.

But AARP had asked the Supreme Court to review the 3rd Circuit ruling upholding the EEOC’s right to issue the ADEA retiree health care plan exemption rule.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.