Final EEOC Regulations Allowing Employers to Coordinate Retiree Health Benefits with Medicare Eligibility

Employers who offer medical/health insurance to retired employees, now have the right to alter, reduce or eliminate benefits once a retiree becomes eligible for Medicare health benefits (or a comparable state health benefits plan), pursuant to final regulations issued by the US Equal Employment Opportunity Commission (EEOC) In December, 2007.  The regulations create exemptions from the Age Discrimination in Employment Act (ADEA) for employers offering health insurance benefits to retired employees. The regulations permit such employee benefit/health insurance plans to alter, reduce or eliminate benefits once a retiree becomes eligible for Medicare health benefits (or a comparable state health benefits plan).

The regulations also allow a plan to alter, reduce or eliminate health insurance benefits for the spouse or other eligible dependents of a retiree when that individual becomes Medicare-eligible, regardless of whether the retiree's health benefits are affected. The exemption applies to both existing and new retiree health benefit plans, but the exemption is narrow:
  • No other aspects of ADEA coverage or employment benefits, other than retiree health benefits, are included in the exemption, so employers cannot impose similar requirements on active employees who become Medicare-eligible.
  • The exemption does not affect any non-ADEA obligation an employer may have under Medicare or any other law.
The EEOC originally proposed these regulations in 2004, but AARP sued, challenging the exemption. In 2007, the US Court of Appeals for the Third Circuit (which includes New Jersey) issued a decision upholding the regulations and dismissing AARP's suit (AARP v. EEOC, 489 F.3d 558 (3rd Cir. 2007)).  AARP petitioned the US Supreme Court to review the Third Circuit's decision, but the EEOC implemented the regulations into law without waiting to determine if the Court will hear the appeal or how the Court will rule if it does take the case.

Practice Pointer: These regulations offer the potential for significant cost savings to employers who offer group health insurance benefits to retirees and their eligible dependents. Insurance carriers offer numerous different options, including Medicare replacement and Medicare supplement plans. An independent benefits consultant can be very helpful in determining which plan is most appropriate for your company.

For additional information on this topic, please contact Douglas S. Zucker at dsz@zuckerhatfield.com or Kathryn V. Hatfield at kvh@zuckerhatfield.com.