Work Benefits
Access to Adequate Health Insurance: How Does the Equal Employment Opportunity Commission's Recent Rule Affect Retiree Health
Congressional Testimony
May 17, 2004
Testimony Before the Senate Special Committee on Aging
Senator Craig, Senator Breaux, and members of the Special Committee on Aging.
Thank you for this opportunity to appear before the Committee. I wish to speak about the importance of retiree health benefits for all retirees, and the need for employers to treat both older and younger retirees equitably under the age discrimination laws.
For many years, AARP has been asking Congress - and many of the other groups and organizations represented at this hearing - to work towards an equitable solution to the age discrimination issues raised for retiree health benefits. An equitable solution is one that recognizes that all retirees, not just young retirees, need the health benefits that employers provide to their retirees. An equitable solution is one that addresses employers' concerns about escalating health care costs and makes it feasible and attractive for them to provide some level of health benefits for all its retirees.
An equitable solution is NOT one that denies benefits to the oldest and often sickest and poorest group of retirees, under the assumption that this will encourage employers to provide retiree health to younger retirees.
Unfortunately, this is the solution the EEOC, and the supporters of its rule, have chosen. Let us be clear what the EEOC rule says: It exempts employer-provided retiree health benefits from the federal Age Discrimination in Employment Act (ADEA). It explicitly permits employers to discriminate by terminating or reducing the supplemental health benefits they provide to older retirees. Regardless of its impact on younger retirees, this rule will risk millions of older retirees getting substantially fewer health benefits than they currently receive. The EEOC rule will encourage employers who currently provide health benefits to older retirees to consider dropping them.
The importance of retiree health benefits is clear. In the wake of a national debate on how best to improve health benefits, including employer-provided benefits, for Medicare-eligible retirees, it surely is not in the "public interest" to encourage employers to eliminate supplemental health benefits for these same people. In fact, the recently enacted Medicare prescription drug law included tens of billions of dollars of direct subsidies to employers to encourage them to maintain these very benefits.
Medicare covers only about half of a typical beneficiary's total health care costs. Medicare beneficiaries must pay out of their own pockets for the many health care services not covered by Medicare as well as for the deductibles, co-pays and co-insurance, and premiums that Medicare requires. Services not covered by Medicare include routine dental, vision and hearing care, long-term care, certain preventive services, and, most importantly, prescription drug benefits. Even after the Medicare prescription drug benefit takes effect, in 2006, beneficiaries will still be responsible for the premium costs, deductibles, and coinsurance associated with that benefit.
Persons receiving retiree health benefits typically have coverage similar to that of those who are still working. While a retiree's liability for the costs of health services under a retiree health plan varies from plan to plan, most include some drug coverage and caps on their annual out-of-pocket costs. Retirees who do not have access to employer-provided retiree health, or who lose it, must look to the private market. But, there is no assurance that the private market will offer a plan with benefits comparable to those that an employer provides; or that is affordable. Moreover, persons who lose their employer-provided benefits after their initial year of Medicare coverage have no guarantee of acceptance into any plan (unless a Medicare Advantage plan is available). This is, of course, a particular problem for persons who are disabled or otherwise have a pre-existing health condition.
AARP believes the rule is illegal, unsupported by the meager record compiled by the EEOC and, most importantly, bad civil rights and health care policy.
The rule is illegal because EEOC does not have authority to rewrite the laws that Congress has written. EEOC's authority to issue exemptions under sec. 9 of the ADEA is very limited - as its own regulations make clear. Congress did not - and could not - give EEOC authority to amend the ADEA just because the Commission may now disagree with the policies Congress enacted. The extraordinary and improper reach of the rule is highlighted by the fact that less than six months ago Congress refused to amend the ADEA with language almost identical to this rule.
The rule is also illegal because its purpose is not to protect or expand the rights of older workers and retirees or to otherwise enforce the ADEA. Rather, it is intended to influence the actions of employers with regard to the provision of health care to a select group of retirees. The Commission argues that this is justified by the "public interest."
But, nowhere in the ADEA - or any other law - is EEOC given authority to determine what is good health care policy for the United States. Surely that is a task for the Congress, not an administrative agency whose sole responsibility is to deter employment discrimination. EEOC's lack of expertise in this field is particularly notable when one reads the record it has compiled in an effort to support the rule. No effort was made to determine the wider impact the rule would have on the persons most affected - Medicare-eligible retirees - or how the recently-enacted Medicare prescription drug law will affect employer conduct.
When determining the "public interest," the EEOC simply ignored the "public" - the tens of thousands of people who filed comments objecting to the rule and the tens of thousands more who opposed similar legislation last fall. Almost 60,000 people filed comments with the EEOC in opposition to the rule. More than 160,000 people contacted the Congress during its debate on the Medicare prescription drug act to object to a similar provision (sec. 631).
Unlike the EEOC, Congress heard the public's voice and deleted that provision from the final law. And, in just the past three weeks, more than 75,000 people have contacted the EEOC and/or their Member of Congress to ask that Congress step in to prevent this rule from taking effect.
The lack of public enthusiasm for the EEOC's rule is pervasive. Earlier this month, AARP fielded a nationally representative survey of 3,142 people aged 50 and over (1,806 were AARP members) asking questions about the EEOC rule and retiree health benefits ("Perceptions of the EEOC Ruling Among the 50+ Population"). Over seven in ten (73%) people aged 50 and over disagree with the EEOC's ruling, including strong majorities of both AARP members (74%) and non-members (71%). We found this sentiment prevails among all the age and demographic segments represented in the survey, and among all political affiliations and income levels.
In fact, younger AARP members, between ages 50-65, are slightly more likely to strongly disagree with the ruling - and this is the group EEOC says it is helping!
The survey included arguments both for and against the EEOC's ruling. Less than one-quarter (24%) of the 50+ population agree with argument that the "employers who provide retiree health benefits should be able to save money by offering more generous benefits only to younger retirees not eligible for Medicare." Conversely, almost eight in 10 (78%) agree that "it is unfair and discriminatory for employers to reduce or eliminate health benefits for its retirees aged 65 and older while offering these benefits to its younger retirees.
Seventy-nine percent said that "Congress should take steps to insure that companies that provide retiree benefits do not decide based on age who gets these benefits."
The record is also devoid of anything that would lead one to conclude the rule will have the desired, or required, effects. It certainly won't further the non-discrimination goals of the ADEA. It certainly won't protect the retiree health benefits of people as they age. There is no empirical evidence that employers will be encouraged to provide retiree health benefits to any retirees if the rule takes effect. Even those writing in support of the rule make no promises to provide, or continue to provide, retiree health benefits to younger retirees.
Indeed, had the Commission bothered to look, it would have found ample evidence to suggest that eliminating retiree health benefits for older retirees is often just one step towards eliminating it for all retirees. This is exactly what happened to an AARP member in Louisiana who worked for a predecessor company of International Minerals and Chemicals Global corporation. As of January 1, 2004, IMC Global ceased providing retiree health benefits to retirees above age 65. And, any employee under age 50 as of April 2003 will not get retiree health benefits upon retirement.
The EEOC says that this rule protects everyone's health benefits. But, it is clear that this rule does not protect the benefits of older retirees. More than 12 million Medicare beneficiaries currently receive some form of health benefits from their former employers. The EEOC did not try to assess how many people will lose their employer-provided supplemental benefits, where or whether they will find alternative benefits, or how they will afford those benefits. The record has no assessment of how the insurance industry will adapt, if at all, to the needs of this potential influx of private beneficiaries. Nor does the record address what will happen to the great number of older retirees who are disabled or have pre-existing medical conditions that may disqualify them from any - or any affordable - private Medigap policy. Perhaps the most glaring omission in the record is EEOC's failure to assess how the improvements made to Medicare - including the tens of billions of dollars of direct subsidies to employers - made by the Medicare prescription drug law will affect employer practices. In fact, the new law benefits employers regardless of whether they qualify for the financial subsidies provided by Congress. The addition of a prescription drug benefit to Medicare correspondingly, and substantially, reduces an employer's cost for a supplemental health benefit for older retirees.
Congress was seeking ways to KEEP employers in the retiree health system, not ways to make it easier for them to exit that system. The EEOC rule obviously does the latter.
The lack of evidence in the record is especially troubling because this rule represents an abrupt about-face from the EEOC's position on the same issue only four years ago. In its brief to the 3rd Circuit in the Erie County case, the Commission stated:
Health insurance benefits can be a costly employee benefit. Employers should not have their hands tied in their efforts to maximize the benefits for all employees, current and former. The answer to this conundrum, however, is not to arbitrarily exclude a group of individuals from the protection of the statute. The answer is for the employer either to rely upon distinctions that are not age-based or to structure any age-based distinctions in a manner that comports with the ADEA . . . There is hardly any discussion in the record of either the real reasons employers have been leaving the retiree health system or the real costs associated with providing these benefits to older retirees - and then eliminating them.
The paucity of support for the EEOC's position is highlighted by even a cursory look at the recent history in this area. It is clear that the decade-long decline in retiree health benefits has nothing whatsoever to do with the ADEA and its requirement that an employer provide these benefits in a fair and non-discriminatory manner. Retiree health benefits were declining for many years prior to the Erie County decision in 2000, for reasons having nothing to do with the ADEA.
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.