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January 4, 2011

Health insurance for retirees

Health insurance for retirees
Erie County Retirees Assn. v County of Erie [PA], 220 F.3d 193 (3d Cir. 2000), Certiorari denied, 121 S.Ct. 1247

Many public employers provide health insurance to retired public employees. Some employers may have elected to provide a different type or level of health insurance coverage to retirees eligible for Medicare than it provides to retirees not eligible for Medicare. This, as the Erie County case demonstrates, could prove dangerous.

According to the ruling in Erie County Retirees, a public employer may be sued for alleged age discrimination within the meaning of the Age Discrimination in Employment Act if it modifies its health insurance plan to provide retirees who are 65 or older (and therefore eligible for Medicare) with less generous benefits than its retirees under age 65.*

The decision indicates that initially Erie classified employees and retirees into three main health insurance coverage groups:

1. Current employees;

2. Medicare-eligible retirees; and

3. Retirees not eligible for Medicare. Each group had separate but similar traditional indemnity health insurance coverage.

When the county subsequently initiated changes in carriers in response to increases in health insurance costs, the retirees age 65 or older were enrolled in a health insurance plan called the SecurityBlue Plan.

Claiming that SecurityBlue provided inferior coverage compared to other plans and to the traditional indemnity coverage previously available to age 65+ retirees, the Association sued. Its basic argument: the county’s action violated the ADEA by placing retired employee into SecurityBlue on the basis of their having attained age 65.

The County, on the other hand, argued that it based its decision to place Medicare-eligible retirees in SecurityBlue not because of their age but for three age-neutral factors: (1) active versus inactive employment status, (2) cost, and (3) availability of plans. Its theory: ADEA allows an employer to take any action otherwise prohibited ... where the differentiation is based on reasonable factors other than age.

The relevant provisions of the ADEA make it unlawful for an employer to:


1. Fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his or her compensation, terms, conditions, or privileges of employment, because of such individual’s age; [or]

2. Limit, segregate, or classify his employees in any way, which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect his or her status as an employee, because of such individual’s age.

The district court dismissed the Association’s petition, holding that while eligibility for Medicare is an age-based factor ... the ADEA clearly was not intended to apply to retirees....

The Circuit Court, however, disagreed and said the issue should go to trial to determine if the County violated the ADEA by treating age 65+ retirees less favorably than retirees under age 65 with respect to health insurance.

As to the applicability of ADEA to retirees, the Circuit Court observed that the ordinary meaning of the term employee benefit should be understood to encompass health coverage and other benefits, which a retired person receives from his or her former employer.

The court said that:

It is clear that the ADEA covers discrimination in a post-employment benefit where the facially discriminatory policy is instituted while an individual is still an active employee, even if the event occurred one day prior to his or her retirement. Thus, it was inconceivable to the Third Circuit that Congress intended to allow an individual to challenge the employer’s action that occurred while still an employee but bar such action if the policy were adopted two days later, one day after the date of retirement....

The court decided that Congress did not intended to expressly prohibit discrimination in employee benefits for active workers, yet allow employers to discriminatorily deny or limit post-employment benefits to former employees at or after their retirement, although they had earned those employee benefits through years of service with the employer.

Agreeing with the position taken by EEOC, the Third Circuit ruled that the ADEA applies even if the retirees’ benefits are structured discriminatorily after retirement. The court said that the age 65+ retirees are individuals who have been treated differently by their employer with respect to [their] compensation, terms, conditions, or privileges of employment.

The court said that the fact that the county’s action was the result neither of some malevolent motive nor due to some hostile age-based stereotypes was irrelevant.

Also of some significance is the Court’s rejection of the County’s argument that “... the underwriting criteria adopted by another of its carriers, Highmark Blue Cross/Blue Shield, disqualified Medicare-eligible retirees from enrollment ....” Why? Because, said the court, the Supreme Court has indicated that an employer cannot avoid responsibility for a facially discriminatory benefit plan simply because the discrimination arises from the criteria imposed by outside entities with whom the employer has contracted to participate in providing the benefit.

The court’s conclusion: the County has treated age 65+ retirees differently than other retirees with respect to their compensation, terms, conditions, or privileges of employment, because of ... age. Accordingly, such retirees were found to have established a claim of age discrimination under the ADEA, 29 USC 623(a)(1).

Presumably, the Association will prevail unless the county can prove that one of the ADEA’s safe harbors is found applicable -- i.e., there were some qualified, non-discriminatory reasons for its action.

What would satisfy this standard? The Circuit Court said that that the safe harbor provided [by the ADEA] is applicable if the County can meet the equal benefit or equal cost standard.


* The Association withdrew its claim alleging differences in benefits for retirees and active County employees violated the ADEA and proceeded only on its ADEA claim that the differences in benefits between the age 65 and older retirees and retirees under age 65 violate the ADEA.


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