A federal rule allowing employers to offer different coverage to retirees who qualify for Medicare than for those who are under age 65 without running afoul of age-discrimination laws has some experts saying it will slow erosion of retiree health benefits. Others claim it will contribute to their further demise.
Last week, the U.S. Supreme Court declined a request by the AARP to review the federal rule, which was drafted by the Equal Employment Opportunity Commission and implemented last December. The AARP sued the EEOC to block the rule, but an appeals court sided with the commission.
The rule allows employers to coordinate the benefits they offer retirees with Medicare, without having to make sure that Medicare-eligible retirees are getting equal benefits to younger retirees.
The AARP argued that the rule gives employers carte blanche to reduce or terminate health benefits when former workers turn 65. This is a double standard, said David Certner, AARP legislative policy director, in a written statement. By allowing employers to reduce or even eliminate health benefits for retirees when they reach age 65, this rule essentially shifts the costs of all retiree healthcare on to the backs of older retirees.
But proponents for the rule said that employers need to have the freedom to have tiered benefit programs, or benefits for all retirees will further disappear. Americas Health Insurance Plans, business groups and several unions filed court briefs in support of the rule.
The cost of retiree health benefits has become a challenge for employers competing in a global economy, said James Klein, president of the American Benefits Council. Without the rule, employers would, for all practical purposes, have been compelled to reduce retiree health benefits for younger retirees not eligible for Medicare, Klein said.
Recent surveys indicate that this is already happening. In 2006, 74% of firms increased premiums for retirees under age 65, while 58% raised premiums for Medicare-eligible retirees, according to a Kaiser Family Foundation and Hewitt Associates survey. Thirty-four percent of employers surveyed raised cost-sharing requirements for under-65 retirees, and 24% did for Medicare-eligible retirees, according to the survey. Overall, employers reported a 6.8% increase in total retiree health costs from 2005 to 2006.
Clearly, employers are finding these plans to be expensive, said J.D. Piro, principal of Hewitts healthcare law consulting practice. If the EEOC regulation had failed, it would have meant that employers couldnt coordinate with Medicare, and that was not the understanding of employers, he said. It would have been too costly to continue, and we would have seen employers dumping their retiree health programs altogether.