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Access to Adequate Health Insurance: How Does the Equal Employment Opportunity Commission's Recent Rule Affect Retiree Health

The dramatic decrease in retiree health can be traced back to the early 1990's. The beginnings of the extraordinary increase in the cost of all health care, the restructuring of the private sector, the first wave of baby boomer retirements and, perhaps most important, the decision by the Financial Accounting Standards Board in 1992 to require employers to account for these future expenses as present liabilities, are all at fault. Over the past 15 years, there have been similar declines in all types of benefits, including a shift from defined benefit to less-costly, and less valuable, defined contribution pension plans and a shift of costs for employee health care from the employer to the beneficiaries.

Another fact ignored by the EEOC is that Medicare-eligible retirees are significantly less expensive to insure than younger retirees - sometimes the cost is only 25% of the cost for a younger retiree - because employers are already permitted to "coordinate" their retiree health benefit plans with Medicare. In the guidance it issued in the wake of its success in the Erie County case - and subsequently withdrew in favor of this rule - the EEOC noted that "employers may take the availability of Medicare benefits into account in structuring their health benefits to older retirees. As a result, employers may deduct from the health benefits they provide any Medicare benefits for which those retirees are eligible." In other words, employers who provide retiree health benefits to older retirees do not have to duplicate Medicare's benefits, but merely supplement them so that older retirees ultimately have same overall level of benefits as the younger retirees, even though the source of their benefits is a combination of the employer and Medicare. More than 75% of the employers who provide retiree health benefits, provide them to their Medicare eligible retirees in this manner. But, to the extent that employers perceive technical problems related to insuring that these Medicare supplemental plans comply with the ADEA, AARP is pleased to work on regulations, or legislation, that further clarifiy the legitimacy of such "wrap-around" plans.

AARP recognizes that there are critical issues surrounding retiree health benefits. As noted earlier, we have urged the Congress to look at these issues. In the wake of the Erie County decision, it has become clear that employers need more guidance as to what they may and may not do under the age laws. For this reasons, AARP was especially disappointed that the EEOC withdrew its guidance that clarified that, when an employer provides retiree health benefits for Medicare eligible retirees, the employer may incorporate Medicare's benefits into its retiree health plan (as discussed above).

In issuing the rule, EEOC Chair Dominguez indicated her willingness to discuss with AARP a better solution to the issue than simply denying these benefits to the oldest and often the sickest of beneficiaries. We are pleased to participate in these discussions. But, please be assured that should these efforts not be successful, AARP will not hesitate to take other steps to protect its members' interests - and benefits - including asking the courts to prevent the rule from taking effect.

We urge you once again to address this issue in a responsible manner that protects the rights of older persons and recognizes the importance of retiree health benefits for both younger and older retirees.

Thank you.

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