One of the most pressing concerns today for many reaching retirement age is whether they will be able to afford adequate health insurance, given the inadequacies of Medicare. One of the most pressing concerns today for those working for major employers throughout the United States is whether their employer’s promises–the basis for a lifetime of financial planning–will ultimately be kept. Now, as a result of a recent Equal Employment Opportunity Commission decision, retirees from major corporations have both sets of headaches. Retirees who counted on their employer’s promise to provide health benefits with more expansive coverage than Medicare provides will no longer be able to do so if the EEOC’s proposed rule goes into effect.

The types of benefits that retirees can count on when leaving full-time employment for good is now in what can only be termed a freefall. Employees who have spent decades planning their retirement based on employer-provided pensions and health benefits are increasingly finding that their employers want to change the rules, just when it’s too late for the retiree to do much about it. Over the past 20 years, the number of traditional pensions has declined from around 130,000 to about 32,000, with many firms instead substituting 401(k)-type plans, in which the employee contributes his own money (often with an employer match) and bears all of the investment risk. (See Washington Post article.) And for those firms retaining traditional pensions, many are converting them to “cash-balance” plans which limit benefits to those paid in on the employee’s behalf over the years, rather than honoring the expectation long-term employees had about the level of benefits, which in many cases significantly exceeded the “cash-balance” calculation. So for employees already wondering if they will have enough money to adequately fund their retirement despite what they’ve been told over the years, the news that they may now have to assume significant health care expenses they believed would be covered by their employer’s insurer is nothing less than terrifying.

But that’s precisely what this group of employees now have to worry about, after the EEOC’s ruling on April 23. The EEOC had been asked to issue an opinion on whether employers could reduce health benefits for retirees who have become eligible for Medicare (generally at age 65) without running afoul of the Age Discrimination in Employment Act, which prohibits discrimination against older workers. Prior to the year 2000, there were conflicting views about whether employers could have different tiers of benefits for their younger and older retirees, but it was the EEOC’s view that these arrangements were illegal. In 2000, the Third Circuit Court of Appeals was the first federal appeals court to rule that an employer violated the ADEA if it reduced or eliminated retiree health benefits when retirees became eligible for Medicare, unless the employer could show either that the benefits available to Medicare-eligible retirees were equivalent to the benefits provided to retirees not yet eligible for Medicare or that it was expending the same costs for both groups of retirees. (See Erie County Retirees Ass’n v. County of Erie.) Following this ruling, the position taken by the Erie court was formally adopted as the position of the EEOC.

But some groups weren’t satisfied with that. Employer groups, and even some labor groups, lobbied the EEOC by claiming that if they were forced to pay equal benefits to all retirees, they would be forced to reduce or eliminate coverage altogether, especially since they were not bound by law to offer retiree health coverage at all. So last summer, the EEOC announced its intent to reconsider its policy, and withdrew its prior policy determination. Notably, the composition of the EEOC also changed in the intervening time period between 2000 and 2003, with President Bush now having replaced all of President Clinton’s former appointees to the Commission.

The EEOC’s new determination, the result of a 3-1 vote, demonstrates that the lobbying has paid off, because the EEOC has staked its position on the belief that unless employers are allowed to make distinctions between younger and older retirees due to Medicare eligibility, they will not offer retiree health coverage at all. According to Commission Chair Cari M. Dominguez, “This rule is intended to ensure that the ADEA does not have the unintended consequence of discouraging employers from providing valuable health benefits to retirees.” (See EEOC Press Release.) The dissenting vote came from Commissioner Stuart Ishimaru, the lone Democratic appointee on the commission, who said “I came to the commission as a civil rights lawyer. Before making an exemption to a major civil rights law, you need a compelling reason, which I have not seen.” (See CBS News article.)

Given that the question posed was whether the practice of setting up differential benefits was age discrimination, the rationale for the policy was truly puzzling. When an employer creates one set of benefits for a younger set of employees, and another set of benefits for an older set of employees, it is clearly discriminating against the older set of employees. All an employer was required to do, in order to comply with current law, is either spend the same amount on each type of coverage, or create ensure equal coverage (which could be done at significantly less costs for older retirees, given their Medicare eligibility.)

The upshot of the EEOC’s ruling, then, is that discrimination isn’t discrimination if it saves the employer a lot of money (even more than they’re already saving by virtue of Medicare’s existence.) So what employers were really asking to be able to do is shift the burden of health care costs to those employees least able to assume it–those over 65, whose employment options are most limited and whose health care costs are likely to be highest–and who least deserve it, given the many additional years of promises they’ve heard along the way. What’s more, the ruling doesn’t even guarantee that employers won’t still drop retiree health coverage, which of course isn’t getting any cheaper. One could argue that the decision only delays the inevitable day when no retiree will be able to expect health care coverage from their employer at the end of a lifetime of work, and instead will spend their retirement years choosing between the comfortable retirement they had planned and paying for health care to extend their much less comfortable existence.

The ruling will go into effect in the next week or two, and AARP, the advocacy organization for older Americans, has vowed to fight it. (See AARP Bulletin.) It remains to be seen whether courts will believe that the EEOC extended its authority, as AARP and other groups claim, by issuing a ruling on health care benefits rather than focusing on its mandate to interpret anti-discrimination laws. But regardless of what happens, retirees need to focus their efforts on staying healthy, because there’s not much left in the way of protection for those who aren’t.

Additional Articles:

Charlotte Observer: Prepared to be Healthy Retiree?

Baxter Bulletin (AR): Employers, Retirees Still Trying to Gauge Rule Change

Minneapolis Star-Tribune: Sorting Out Ruling on Retiree Benefits

San Jose Mercury News: EEOC Defends Ruling on Retiree Benefits