On December 26, 2007, the Equal Employment Opportunity Commission (EEOC) issued final regulations concerning the application of the Age Discrimination in Employment Act (ADEA) to retiree health benefits.[1]  See 72 Fed. Reg. 72938 (Dec. 26, 2007).  The EEOC created a limited exemption to the ADEA so that employers and unions may offer different retiree health benefits for retirees who are eligible for Medicare from the benefits they offer to retirees who are not Medicare-eligible[2]. Under the new rules, "…employers may create, adopt, and maintain a wide range of retiree health plan designs, such as Medicare bridge plans and Medicare wrap-around plans, without violating the …ADEA."  Id.

The EEOC regulations, which were issued after years of administrative review and litigation,[3] have generated controversy.  Some agree with the EEOC that allowing employers and unions to offer less coverage to retirees eligible for Medicare reduces their health care costs, so that fewer of them will drop their retiree health coverage completely. Others believe that the policy discriminates against older retirees in violation of the ADEA.[4] 

In considering the effect of the EEOC regulations, it is important to review Medicare statutory and regulatory provisions regarding the coordination of Medicare benefits with employer group health insurance benefits[5] offered to current employees, retirees, and their dependents.  These provisions establish which health benefit pays a claim first (i.e., which is primary), and they prohibit an employer from taking Medicare into account when providing health coverage to Medicare eligible workers.[6]

This Alert will discuss the EEOC regulations in regard to Medicare rules.

The EEOC Rule and the Medicare Rules

The new EEOC regulation creates an exemption to the ADEA that applies to "…health benefits for retired participants that are altered, reduced or eliminated when the participant is eligible for Medicare health benefits…" (emphasis added).[7]  The emphasized words are important in determining how the EEOC regulations coordinate with existing Medicare regulations.

1. Medicare and retiree health plans: The ADEA exemption applies only to retiree health benefits and not to benefits offered to current employees who are Medicare eligible.[8]   . Under Medicare regulations, the employer coverage subject to the ADEA exemption (i.e., retiree health benefits) would be secondary to Medicare, meaning that it generally would pay co-payments and deductibles after Medicare made payment.  The retiree health plan also might provide coverage for some services not covered by Medicare, such as hearing aids or annual physicals. 

Employer-sponsored health insurance is secondary to Medicare if the employer plan participant is not a current employee or a dependent of a current employee.[9]  Medicare defines someone as currently employed if he or she is actively working as an employee, is the employer, is associated with the employer in a business relationship, or is not actually working but is receiving disability benefits for up to six months.[10] Someone who is eligible for Medicare based on age or disability and who has coverage through COBRA health care continuation insurance is not an active worker.  An important exception, however, is that the "current employment" distinction does not apply to people eligible for Medicare based on end-stage renal disease (ESRD).  Employer sponsored insurance is primary for them for 30 months,[11] regardless of size or employment status.

The EEOC has not exempted from the ADEA those employer-sponsored health benefits that are offered to active older workers, i.e., insurance that is not retiree health insurance.   Thus, the EEOC rule does not affect the relationship between Medicare as primary payer and the employer-sponsored health plan as secondary payer. The EEOC specifically says in the preamble to its regulation, "… this rule does not affect employers' obligation to use Medicare as a secondary payer, when required by Medicare law."[12]

Additionally, most of the Medicare anti-discrimination provisions do not apply to the retiree health plans that are the subject of the EEOC rule.  Medicare prohibits employer-sponsored health plans that meet specified size requirements from taking Medicare eligibility into account in the health insurance benefits they offer those who are also eligible for Medicare.[13]  Employers cannot, for example, fail to pay primary benefits, offer coverage that is secondary to Medicare when the coverage should be primary, terminate coverage because the person becomes entitled to Medicare (except if the employer coverage is through COBRA), or place limitations on benefits for people entitled to Medicare, such as less comprehensive coverage.[14]

Again, for people eligible for Medicare based on age or on disability, but not for those whose eligibility is based on ESRD, the Medicare anti-discrimination provisions apply only to employer-sponsored insurance offered to current workers who are eligible for Medicare, or their dependents.  Thus, for people eligible for Medicare based on age or on disability who are not current employees, there is no Medicare prohibition against, for example, offering them different benefits or charging them different premiums than are offered or charged to other retirees.

2.  Eligible for Medicare:  Individuals may become eligible for Medicare based on age, receipt of Social Security disability benefits, or ESRD.  The EEOC in its rule does not distinguish among the different avenues to Medicare eligibility.  Thus, under the regulation, an employer could reduce, alter, or eliminate retiree health benefits for a retiree health plan participant who becomes eligible for Medicare, regardless of the reason, without violating the ADEA.

The failure to define "eligible for Medicare" raises the potential for a conflict with the coordination of benefit rules for people who are entitled to Medicare based on ESRD.  Under the Medicare rules, employer-sponsored health insurance is primary to Medicare for a period of time, regardless of the size of the employer and regardless of the employment status of the beneficiary with ESRD.  Likewise, the prohibition against taking Medicare into account by, for example, charging higher premiums or reducing benefits or by paying secondary when the plan should be primary, also applies to all employers regardless of size and regardless of the employment status of the beneficiary with ESRD.  Thus, an employer who relies on the EEOC rule to reduce or alter retiree health coverage for someone with ESRD may still violate the Medicare regulations.

What Does This Mean for Medicare Beneficiaries?

1.  Reduction in retiree health coverage:  There is no doubt that the EEOC rules allow employers and unions to offer different benefit packages to retirees who are and who are not yet eligible for Medicare. Because the ADEA exemption applies to existing as well as newly created retiree health plans,[15] some current Medicare-eligible retirees might find their benefits reduced or even terminated while benefits are continued for other company retirees.    The Court of Appeals for the Third Circuit, when considering the authority of the EEOC to create the ADEA exemption, "recognize[d] with some dismay" that employers might take such actions.[16]

2.  Increase in the number of un-insured or under-insured: Actions by employers in response to the EEOC rule may result in two groups finding themselves with no or insufficient health insurance coverage.

a. Delayed enrollment in Medicare: The EEOC allows employers to change retiree coverage for Medicare-eligible health plan participants "whether or not the participant enrolls in the other benefit program."[17]  Thus, the first group who might find themselves un-insured or under-insured includes retirees who, though eligible for Medicare, never actually enrolled in the Medicare program or a part of the program.  For example, such individuals may have Part A, but they may have thought they did not need Part B because they had retiree coverage.  Individuals who erroneously declined Part B do not have a special enrollment period (SEP) in which to enroll in Part B if their retiree coverage is reduced or terminated.  Instead, they would have to wait to enroll until the general Medicare enrollment period which runs from January through March of each year, with coverage becoming effective on July 1 of the same year.  Depending on when their employer health coverage is reduced or terminated, they might find themselves without health insurance coverage for doctors' visits for over a year.  In all cases they would also be subject to a late enrollment penalty for delayed enrollment.

b. Dependent/spousal coverage: The EEOC rule also applies to dependent and/or spousal benefits that are included as part of the benefits provided to retirees.  If retiree coverage is altered or eliminated when the retiree becomes eligible for Medicare, the coverage for the retiree's dependent or spouse would also be altered or eliminated, regardless of whether the dependent/spouse is Medicare eligible. There is no consideration as to whether the retiree health coverage is the only health insurance available to the dependent/spouse.

Additionally, the EEOC says that dependent/spousal coverage does not need to be identical to the coverage provided to the retiree.  Thus, dependent/spousal coverage "…may be altered, reduced or eliminated pursuant to the exemption whether or not the health benefits provided for retired participants are similarly altered, reduced or eliminated."[18]  Again, some of the dependents and spouses whose retiree coverage is altered, reduced or eliminated may have no other health insurance coverage.  The EEOC explains in the preamble to the regulation that, "….this rule also will benefit retirees by eliminating the incentive for employers to reduce or eliminate retiree health coverage in order to comply with…" its previous rules.[19]  Ironically, the rule itself may result in some groups of individuals losing the only health insurance they have or losing their supplement to Medicare.

What Protections are Available to Medicare Beneficiaries?

Medicare beneficiaries who lose retiree health coverage have some protections under Medicare law.  These individuals have a guaranteed right to purchase certain policies that supplement coverage under traditional Medicare.  Specifically, federal law allows such beneficiaries to purchase standard Medigap policies A, B, C, F, K and L any time within 63 days from the later of the date coverage ends; the date of the notice saying that coverage will end; or the date of the claim denial, if that is how the beneficiary learned that coverage ended.[20]  Note that the guaranteed issue of a Medigap policy applies only if the employer eliminates health care coverage entirely.  Beneficiaries whose retiree health coverage is reduced or altered have no federal guarantee that they will be able to purchase a Medigap policy.

If the employer eliminates prescription drug coverage or reduces drug coverage so that the coverage is not as good as Medicare, i.e., is no longer creditable, the employer must provide notice to the retirees.  Medicare beneficiaries then have a special enrollment period (SEP) to choose and enroll in a Medicare Part D prescription drug plan.  The SEP begins with the month beneficiaries are advised that drug coverage will end or be reduced and 60 days from the date of the loss/reduction in coverage or the receipt of notice, whichever is later.  Note that beneficiaries can also choose to enroll in a Medicare Advantage plan with prescription drug coverage during this SEP.[21]

Conclusion

Advocates will need to monitor the trend in retiree coverage and to be familiar with Medicare protections available to beneficiaries when employer coverage is reduced or eliminated.  This is an important, changing, and complex area of law.  Policy makers should consider the implications of a health care policy that allows the private sector to pick and choose among retirees in determining who will have to bear the largest burden of health care costs.  Do we really want to legalize discrimination against older and disabled Americans?

For more information, contact attorney Vicki Gottlich in the Center for Medicare Advocacy's Washington DC office at (202) 293-5760 or vgottlich @ medicareadvocacy.org (remove spaces).