Elder Law FAX -- October 17, 2005

Federal Court Rejects Challenge to EEOC Retiree Health Benefit Rules
A major issue for everyone in the United States is paying for health care. According to an August 2005 report released by the U. S. Census Bureau, the number of people with health insurance coverage increased by 2.0 million in 2004, to 245.3 million (84.3 percent of the population). However, 45.8 million Americans were without health insurance, up from 45 million in 2003.

A larger percentage of people are covered by government health insurance--Medicare or Medicaid, primarily. Meanwhile, the percentage of people covered by employment-based health insurance decreased to 59.8 percent in 2004, from 60.4 percent in 2003.

Over the last several years, the cost of health care has risen faster than the inflation rate as a whole. Likewise, the cost of health insurance coverage has also risen. Many employers, therefore, have been challenged to continue providing health insurance coverage to both their current employees and their retired employees.

Many companies have been restricting or even eliminating health coverage. (See, for example, Elder Law FAX issues of May 29, 2000; and December 29, 2003.) In order to attract and retain good employees, many companies retained health insurance for current employees, but reduced benefits for their retirees. At least the retirees could get Medicare--or so the rationale goes.

In the "Erie County" case, a federal appeals court held in August 2000 that retiree health plans are subject to the Age Discrimination in Employment Act (ADEA). Up until that time, it was thought that ADEA applied only to employee benefit plans, not to retiree health plans. (See Elder Law FAX, August 14, 2000, on the Erie County case.)

Employers typically provided less health benefits to their ex-employees because those who had already attained age 65 were eligible for Medicare. As a result of the decision in Erie County, employers were faced with a dilemma: should they reduce health benefits to current employees, increase health benefits to retirees, or eliminate health benefits entirely for retirees?

Erie County created a real problem for the federal government as well. The purpose of the ADEA is to prevent employers from discriminating against employees in the workplace. Yet, as interpreted by the federal appeals court, the result was that employers were given an inducement to equalize health care benefits to employees and retirees--and that meant reducing benefits.

Particular hit hard by the erosion of retiree health insurance coverage were ex-employees who had not yet become Medicare-eligible. Many of these individuals left the workplace without any health insurance whatsoever.

The U. S. Equal Employment Opportunity Commission (EEOC), the federal agency charged with enforcing the ADEA, stepped in to do some rulemaking, publishing proposed rules in July 2003 that, in effect, allow companies to exempt retiree health plans from ADEA coverage. (See Elder Law FAX, December 15, 2003.)

That did not sit well with AARP, which filed suit in a federal district court in Pennsylvania seeking to block the EEOC from issuing the new rules. Basically, AARP argued that the EEOC lacked the authority to issue rules that violated the ADEA.

In March 2005, federal judge Anita Brody prohibited the EEOC from implementing that rule that permitting employers to differentiate their retiree health coverage by age.

Last month, however, Judge Brody, relying on a recent U. S. Supreme Court case (National Cable and Telecommunications Association v. Brand X Internet Services), reversed her decision, holding that the EEOC did indeed have the legal authority to issue the rules.

Judge Brody's decision notes that the Supreme Court case "dramatically altered the respective roles of courts and agencies under (previous Court precedent)." As a result, she concluded, the federal court must give great deference to the federal agency's interpretation of the law that the Congress has charged the agency with the duty to enforce.

Judge Brody did order, however, that her ruling be delayed until AARP can appeal to the Third Circuit Court of Appeals--which is the same court that issued the original Erie County decision.

AARP v. EEOC, September 27, 2005.

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