A federal judge yesterday ruled that the Equal Employment Opportunity Commission may not exempt employers from a law barring them from cutting back medical insurance benefits for retirees when they become eligible for Medicare.
The ruling was a victory for AARP, which had sued the EEOC, arguing that the federal agency had exceeded its authority in seeking to exempt employers from applicable provisions of federal age-discrimination law.
The decision, which the EEOC said it will appeal, will accelerate the disappearance of employer-provided retiree medical insurance, the EEOC and employer groups say.
The case arose from a lawsuit brought in the late 1990s by retired employees of Erie County, Pa. The county provided health benefits to retirees until they reached 65, at which point they were expected to enroll in the federal Medicare program. The employees sued the county, claiming that the shift to Medicare gave them inferior benefits.
The U.S. Court of Appeals for the 3rd Circuit in 2000 ruled in the retirees' favor, and the EEOC at first adopted that ruling as national policy. But the agency later concluded that the ruling, rather than preserving better benefits for retirees, was encouraging employers to eliminate them altogether.
In 2003, the agency adopted a proposed rule to exempt the coordination of retiree health benefits with Medicare from prohibitions under the Age Discrimination in Employment Act. AARP sued to block the rule change.
U.S. District Judge Ann B. Brody in Philadelphia ruled yesterday in AARP's favor, citing the 3rd Circuit Court's decision in the Erie case. Although "the EEOC argues persuasively that without [an] exemption [from ADEA] employers will reduce or eliminate health benefits for all retirees, no matter what their age," Brody wrote, the 3rd Circuit "has already ruled that allowing employers to give retirees 65 or older health benefits that are inferior to the health benefits given to retirees who are younger than 65 is illegal under ADEA."
Judge Brody concluded that under a 1984 Supreme Court decision, the EEOC's proposed exemption would be allowable only in a case in which the statute was either silent or ambiguous on the issue. In this case, the appeals court "has already determined that Congress expressed a clear and unambiguous intent with regard to the precise question at issue," she wrote in her ruling, which granted the AARP summary judgment and enjoined the EEOC from implementing the exemption.
In a statement, EEOC chairwoman Cari M. Dominguez called the decision a "misunderstanding of the EEOC's authority" that she said the agency is "confident that the [3rd Circuit] Court of Appeals will correct."
"The agency remains confident on both policy and legal bases in its authority to implement the rule," she said.
AARP Associate Executive Director Chris Hansen said the EEOC rule would have permitted employers to reduce, or even eliminate, health benefits for about 10 million current Medicare-eligible retirees and millions of future retirees.
"The court's ruling provides critical protection for older retirees living on fixed incomes by making it clear that the EEOC cannot rewrite the ADEA and negate Congress's express intent to prohibit discrimination based on age in all aspects of employment, including benefits," Hansen said.
Employer groups expressed disappointment with the decision. Daniel V. Yager of the HR Policy Association, a large-employer group, said "pre-Medicare retirees constitute a significant share of the uninsured, but the AARP's actions and the district court's decision will only exacerbate the situation."
"The EEOC rule is a sensible one that validates a long-standing practice supported by unions and employers alike," said Susan Relland of the American Benefits Council, another employer group.
