WASHINGTON - Employers can reduce their health insurance expenses for retired workers once the retirees turn 65 and qualify for Medicare, the Equal Employment Opportunity Commission has affirmed.
In essence, the rule published Wednesday formally authorizes the long-standing practice used by employers to take Medicare into account when structuring the health-benefit packages they voluntarily provide their retired workers.
The heart of the rule is that it makes clear businesses can spend more on retirees under 65 years of age than those over 65 without running afoul of age-discrimination laws.
In practice, retirees in both age groups might get essentially the same benefits, but it is less costly to the company for those over 65 because Medicare picks up much of the tab for them.
The EEOC said it proposed the rule in response to a decision in 2000 by the U.S. Court of Appeals for the Third Circuit in Philadelphia that held that the Age Discrimination in Employment Act requires employers to spend the same amount on health insurance benefits provided Medicare-eligible retirees as those received by younger retirees. The case involved benefits paid by Erie County, Pa., to its employees.
The commission said that after the 2000 decision, labor unions and employers alike maintained that complying with the decision would result in companies' reducing or eliminating the retiree health benefits they were providing - leaving millions of retirees under 65 with less health insurance, or no health insurance at all.
The same court ruled last June that the EEOC was authorized to issue exemptions if a strict interpretation of the age-discrimination law would be contrary to the public interest. That is what the EEOC did this week.
"We recognize with some dismay that the proposed exemption may allow employers to reduce health benefits to retirees over the age of 65 while maintaining greater benefits for younger retirees," the court said. But it said the commission had shown that the exemption was "a reasonable, necessary and proper exercise" of its authority.