Retiree Health Coverage Jeopardized by Rx Drug Plan

Millions of older retirees could be at greater risk of losing some or all of their employer-sponsored medical benefits if an obscure provision of the Medicare bill passed by the Senate in June becomes law.

The provision would, by exempting retiree health plans from federal age discrimination laws, allow employers to reduce or eliminate benefits for retirees who are 65 and older.

Senate and House lawmakers are now trying to forge agreement on a historic overhaul of Medicare that would add a prescription drug benefit and bring some private competition into the 38-year-old health care program for older and disabled Americans. [See Getting to Yes on an Rx Drug Bill.] But the provision in question—the handiwork of lobbyists for major employer interests, who pushed hard behind the scenes to have it added to the Senate bill—has emerged as a significant sticking point in the negotiations.

The provision was apparently inserted in the legislation—with no discussion or debate—just before the Senate approved it by a 76-21 vote.

"This provision would be a Trojan horse for age discrimination," says David M. Certner, AARP's director of federal affairs. "Simply giving employers more incentive to drop retiree health plans will cause greater hardship and lead to less coverage."

THE BATTLE LINE

The inclusion of the proposal in the Senate bill represents a major legislative victory for the nation's employers.

A member of the Senate Finance Committee's staff, speaking on condition of anonymity, told the AARP Bulletin that the provision was "hashed out by members of the employer community," adding, "There was no public debate."

If it becomes law, the provision would—by amending the 1967 Age Discrimination in Employment Act (ADEA)—give employers a green light to cut or cancel the health benefits of retirees eligible for Medicare or state-sponsored plans.

Lobbyists for employer interests have been trying to exempt retiree health coverage from the ADEA since August 2000, when a federal appeals court ruled that an employer—Erie County, Pa.—had violated the ADEA by providing its Medicare-eligible retirees with health benefits inferior to those provided to younger retirees.

In March 2001 the U.S. Supreme Court declined to review the case, letting the ruling of the appellate court stand.

In August 2001, in response to pressure from the same employer interests, the U.S. Equal Employment Opportunity Commission (EEOC) rescinded its policy—based on the Erie County decision—of requiring employment-based health coverage for Medicare-eligible retirees to be equal in total benefits or cost to any coverage for younger retirees.

On July 14, 2003, the EEOC proposed new regulations that would exempt retiree health benefits from the protection of the ADEA. The deadline for public comment is Sept. 12.

The provision buried deep in the Senate bill would achieve the same result.

"There's been talk about a legislative fix for two or three years," says Daniel V. Yager, senior vice president and general counsel of the HR Policy Association, a Washington-based organization that represents senior human resource executives at more than 200 of the nation's largest employers. "The Medicare bill became a very logical bill for it."

A DEAL-BREAKER?

Of the nation's 40 million Medicare beneficiaries, about 12 million have some form of employer-based retiree health benefits. No one knows how many of them might lose some or all of their health benefits should the provision in the Senate bill become law.

"This has major implications," says Gerry Smolka, a policy adviser at AARP. "It would give employers a green light to do whatever suits the bottom line without having to worry about discrimination against older retirees."

Smolka discovered the provision while electronically searching the 1,044-page bill for issues related to retiree health coverage.

"It was quite a surprise," she says. "Here was this significant policy change that somebody slipped in without debate on the Senate floor."

AARP opposes the provision (S.1, Section 631) because—like the EEOC's proposed rule—it would lead to reduced retiree health coverage for those age 65 and older.