Recent Decision Concerning Health Care Insurance Coverage for Medicare-eligible Retirees

By: Jane Lewis Volk, Esquire jlv@muslaw.com
Joseph A. Vater, Esquire jav@muslaw.com

In February 2007, the Third Circuit Court of Appeals issued a decision which affects an employer’s options with respect to the providing of health care coverage for retirees. In AARP v. EEOC, the Court upheld an EEOC regulation that permits an employer to coordinate retirement benefits with Medicare (or comparable state plan) or even eliminate such coverage when government coverage becomes available. The AARP argued that the regulation violated the Age Discrimination in Employment Act (“ADEA”) by making benefit distinctions on the basis of age. The Court ruled that this regulation was reasonable and therefore within the EEOC’s rule-making authority. The regulation was promulgated in reaction to the reality that employers were reducing benefits available to all, rather than bearing the expense of maintaining pre-Medicare benefits for retirees. The EEOC argued that employers are more likely to continue offering retiree benefits to employees under age 65 if they are able to reduce or eliminate benefits for Medicare-eligible retirees. The Court recognized “with some dismay” that the new regulation will allow employers to reduce health benefits to retirees over the age of 65, but saw it as a reasonable exemption from the ADEA which will ultimately “likely benefit all retirees.”

This regulation and the decision upholding it represent a reversal of a 2000 Third Circuit decision, Erie County Retirees Ass’n v. County of Erie.

For more information about the impact of this decision on your health care benefits plan, contact Jane Lewis Volk at jlv@muslaw.com or 412-456-2840 and Joseph A. Vater, Jr. at jav@muslaw.com or 412-456-2827.