Why was the rule changed to allow reduced benefits for retirees? What are the advantages? Disadvantages? Get the answers to key questions about the new rule.
In summary, the new rule — set up by the Equal Employment Opportunity Commission – allows employers to reduce health benefits to retirees who reach age 65 and become eligible for Medicare benefits. The change came about as a result of a Supreme Court ruling that said reducing benefits for Medicare recipients did not amount to age discrimination.
Who requested the rule change?
Employer groups did, of course. But so did the U.S. Chamber of Commerce and some labor groups, such as the AFL/CIO and the American Federation of Teachers.
I can understand why employers would want the change, but why would labor groups and unions endorse reducing the benefits of member retirees?
Some labor groups and employers were on the same page on this one because they realized that maintaining high-cost benefits for Medicare recipients would end up in reduced benefits for people under 65 who are still working.
Is it realistic to assume that’s what would happen without the change – that workers under 65 would get their health benefits cut?
Not only is it realistic, but it also happened. In a landmark court case — Erie County Retirees Association v. County of Erie – when the judge ruled that the employer had to maintain the same health benefits for retirees as for workers, the employer responded by reducing the benefits for workers and retirees. Thus, the employer followed the court’s edict by equalizing benefits for both groups at a reduced level.
So, in the end, do retirees take a hit on health coverage?
Every case is different, but employers and supporting labor groups generally say no. They insist the reduced level of coverage will be filled in by Medicare benefits. And that was their argument in the first place – that employers shouldn’t have to provide coverage needs that are already met by Medicare.
Does the change have any effect on a requirement that employers provide healthcare coverage for retirees?
No, because there is no requirement that employers provide retiree coverage. That’s at the option of the employer or part of a collective-bargaining agreement.
Note: Our own survey of 266 companies showed that 53% offer some type of health coverage to their retirees.
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