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CCH® BENEFITS — 11/18/11

ADEA Exemption For Coordination Of Health Benefits With Medicare Does Not Permit Employer To Terminate Current Employees’ Benefits

from Spencer’s Benefits Reports: The Equal Employment Opportunity Commission’s (EEOC) Age Discrimination in Employment Act (ADEA) exemption for coordination with Medicare applies only to retiree benefits, not the benefits of current employees, the EEOC Office of Legal Counsel staff confirmed in an informal discussion letter in response to an inquiry from a member of the public.

The letter to which the EEOC responded asks whether the exemption from the ADEA for employers to coordinate retiree health benefits with Medicare eligibility would apply to current employees, and whether the ADEA otherwise would permit an employer to terminate a current employee’s eligibility for group health insurance based on Medicare eligibility.

In its letter, the EEOC asserts that “the regulation specifically states that this narrow exemption shall affect ‘no other aspect of ADEA coverage of employment benefits.’” Further, in Question 7 of the regulation’s appendix, the EEOC explains that the retiree health exemption does not apply to current employees:

“Q7. Does the exemption apply to health benefits that are provided to current employees who are at or over the age of Medicare eligibility (or the age of eligibility for a comparable state health benefit plan?)
“A7. No. The exemption applies only to retiree health benefits, not to health benefits that are provided to current employees. Thus, health benefits for current employees must be provided in a manner that comports with the requirements of the Act.”

“Whether the ADEA otherwise would permit an employer to terminate a current employee’s eligibility for group health insurance based on Medicare eligibility will depend on the surrounding circumstances,” the EEOC letter continued. “Since workers typically become eligible for Medicare at age 65, eliminating group health eligibility for current employees when they become Medicare-eligible is an age-based action. As such, it would violate the ADEA unless it satisfies the statute’s ‘equal benefit or equal cost’ defense.”

The EEOC continued, “With respect to meeting the equal benefit prong of the ADEA for providing health benefits to current employees who are Medicare-eligible, 29 C.F.R. Sec. 1625.10(e) specifically provides:

“(e) Benefits provided by the Government. An employer does not violate the Act by permitting certain benefits to be provided by the Government, even though the availability of such benefits may be based on age. For example, it is not necessary for an employer to provide health benefits which are otherwise provided to certain employees by Medicare. However, the availability of benefits from the government will not justify a reduction in employer-provided benefits if the result is that, taking the employer-provided and Government-provided benefits together, an older employee is entitled to a lesser benefit of any type (including coverage for family and/or dependents) than a similarly situated younger employee. For example, the availability of certain benefits to an older employee under Medicare will not justify denying an older employee a benefit which is provided to younger employees and is not provided to the older employee by Medicare.”

“If the employer cannot satisfy the equal benefit prong, it still may avoid ADEA liability by satisfying the equal cost prong of the defense,” the EEOC noted. “‘Equal cost’ ordinarily can be calculated in one of two ways—either on a ‘benefit-by-benefit’ basis or a ‘benefit package’ basis. Under the benefit-by-benefit approach, the employer most likely cannot prove that it expends an equal amount on health insurance for both younger and Medicare-covered workers where it eliminates the health benefits available to Medicare-eligible employees. As for the benefit package approach, to which your incoming correspondence alludes by suggesting that the employer could justify eliminating the health benefit if it spends more on ‘another benefit’ for older workers, EEOC regulation 29 C.F.R. § 1625.10(f)(2)(iii) precludes this approach as an alternative to the benefit-by-benefit analysis for purposes of eliminating health benefits based on age.”

The ADEA provisions notwithstanding, Medicare law requires that employers who are subject to the Medicare as secondary payer (MSP) rules provide the same group health plan coverage to workers and their dependents who have Medicare coverage as they provide for other workers and their dependents who are not Medicare-covered. The EEOC letter acknowledges this MSP provision: “It is the EEOC’s understanding that the Medicare program requires employers to offer current employees who are at or over the age of Medicare eligibility the same health benefits, under the same conditions, as offered to younger current employees. If this remains true, then Medicare laws may prohibit your organization from eliminating health coverage for Medicare-eligible current employees irrespective of the ADEA.” Due to the MSP provision, the EEOC legal staff referred the letter recipient to the Centers for Medicare and Medicaid Services for confirmation.

Ultimately, regardless of the EEOC’s ADEA regulations, Medicare’s MSP requirements take precedence, particularly for individuals receiving group health benefits through active employment.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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