Second-Class Retirees
By: Source: AARP Bulletin Today Date Posted: 2005-03-01 09:25:18
Responding to a lawsuit filed by AARP and six retirees, a federal judge in Philadelphia has entered an order that temporarily blocks a Bush administration policy under which millions of older retirees could lose some or all of their employer-sponsored health benefits.
The policy, adopted by the Equal Employment Opportunity Commission, would, by exempting retiree health plans from the federal age discrimination law, give employers a green light to reduce or eliminate benefits for their retirees who are 65 or older and thus eligible for Medicare.
The case ultimately could affect approximately 12 million of the nation’s 42 million Medicare beneficiaries—those who now receive employer-subsidized health care benefits that supplement those provided by Medicare or a state-sponsored plan.
"The law is clear that if employers choose to provide retiree health benefits, they cannot deny them to some of their retirees based on age," says Laurie McCann, an AARP senior attorney. AARP argues that the EEOC is charged with preventing age discrimination, not making health care policy, and that any reductions in benefits by employers must be made on an across-the-board, nondiscriminatory basis.
Employer and labor union interests have been trying to exempt retiree health coverage from the 1967 Age Discrimination in Employment Act (ADEA) since August 2000, when a federal appeals court held that an employer—Erie County, Pa.—had violated the law by providing its Medicare-eligible retirees coverage inferior to that provided to its younger retirees.
In March 2001 the U.S. Supreme Court declined to review the case, letting the ruling of the appellate court stand.
In July 2003 the EEOC—reversing its long-held position—proposed a rule to exempt retiree health benefits from the protection of the ADEA, and in April 2004 it approved the rule. More than 60,000 AARP members filed comments with the agency protesting the change.
Last month, just before the EEOC’s new rule was to take effect (and after efforts to find a compromise proved unsuccessful), AARP asked a federal judge to declare the rule discriminatory and to permanently bar its adoption. The EEOC then agreed to delay implementing the rule for 60 days. A hearing is set for March 31.
In a statement, Cari Dominguez, a former management consultant who chairs the EEOC, said AARP "is trying to block a sound rule that has drawn strong support from both the employer and labor communities as well as members of Congress on both sides of the aisle."
‘Somebody Had to Speak Out’
Frank A. Wheeler, 79, is one of six individual plaintiffs named in AARP’s lawsuit. He spent 46 years working for a subsidiary of Ford Motor Co. in Philadelphia, where he and his wife live. "All those years I worked, we had an agreement—I would give them dedicated service and they would take care of me and provide medical coverage," he says. "Now, when I’m at an age when I may need it, they’re talking about taking it away. Somebody had to speak out and defend what we worked for in our life."
Almost 30 percent of all the money spent by employers on health benefits goes to cover retirees, according to a recent survey of several hundred large firms. The cost of those retiree benefits increased almost 13 percent last year.
To cut those escalating costs, employers have increased premiums and copayments, raised deductibles and otherwise sought to limit their expenditures. Many have eliminated retiree medical benefits altogether.
The ADEA protects workers age 40 and older from age-based discrimination if they work for an employer with more than 20 employees. While employers are not required to offer health or pension benefits to any of their retirees, if they do so the benefits must be provided on a nondiscriminatory basis.
When older retirees become eligible for Medicare or similar state-sponsored plans, employers have been able—under the ADEA—to provide "wraparound" or supplemental benefits so that the total coverage for younger and older retirees is comparable.
But now it’s those supplemental benefits that are endangered.
"I need my retiree health benefits to live," says Gerald L. Fowler, 80, of Mill Hall, Pa., another plaintiff. "This is scary."
Fowler, who was employed by Martin Marietta for 19 years, says his supplemental coverage pays for prescription medications (he takes six drugs a day), hospitalization, and dental and vision care.
Another plaintiff, Frank H. Smith of Columbus, N.J., says he and his wife, Luella, are in the same position. Smith, 82, retired 20 years ago after a 37-year career with American Cyanamid—now Wyeth. Although Medicare provides the couple’s primary coverage, last year their prescription costs alone were $12,000.
Smith says he joined the AARP suit because "I realized how much I was going to be hurt if employers were allowed to cut off our health insurance."
Unintended Consequences?
Employers argue that, given rising health care costs and a choice between covering all retirees or no retirees, the EEOC’s new rules are the right way to go.
"I think there’s a real risk of the AARP strategy backfiring," says Richard Johnson, a senior research associate at the Urban Institute in Washington. "I fear that if the EEOC is put in a position of having to enforce these age discrimination rules, the upshot might be that more employers will drop their retiree health plans for everyone."
McCann says that she has heard that argument many times before. It’s one also raised by the American Benefits Council, a group representing big companies and retirement-plan providers that lobbied for the policy change.
"It’s far less expensive to provide older retirees with coverage than younger retirees," McCann says. "This fact explains why so many employers are able to comply with the ADEA and provide their older retirees with coverage."
A generous benefits package prompted Fred G. Dochat, 76, to retire early from Armstrong World Industries in Lancaster, Pa., where he’d worked for 46 years.
When Dochat left Armstrong in 1989, he says, he was guaranteed a package of benefits, with modest copayments, that would not change.
Now he fears the worst. "If this goes through and companies don’t have to provide coverage," he says, "they won’t."
For Dochat (who had a triple bypass six years ago) and his wife (who has osteoporosis, glaucoma and other chronic ailments), that’s a frightening prospect.
"We would have to try to secure some other [supplemental] health coverage," he says. "But I’m afraid that we couldn’t find coverage. My wife and I never imagined encountering this situation."
Neither did Frank Wheeler. "The benefit of receiving health care coverage upon retirement is one we fought hard for," he says. "Little by little, this benefit is being taken away from us."
Susan Q. Stranahan is a freelance journalist in Wynnewood, Pa.
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