BENEFITS CHANGE?

April 23, 2004

Health insurance benefits for millions of retirees could be slashed once they are eligible for Medicare, according to a proposal approved yesterday by the Equal Employment Opportunity Commission. Margaret Warner examines this decision and its potential impact with Leslie Silverman, an EEOC commissioner who voted in favor of the rule, and David Certner, director of federal affairs for AARP, which opposes it.

MARGARET WARNER: Yesterday's decision by the Equal Employment Opportunity Commission could have major impact on companies that offer health benefits to their retired employees, and to their present and future retirees as well. By a 3-1 vote, the commission said companies may create two classes of retirees: those under the Medicare age of 65, and those 65 and older, and offer them different health benefits without running afoul of the Age Discrimination Employment Act, or ADEA. Four years ago the U.S. Court of Appeals for the 3rd Circuit had ruled that any age based distinction violated that law. For a closer look at yesterday's decision and its potential impact, I'm joined by Leslie Silverman, an EEOC commissioner who voted in favor of the rule, and David Certner, director of federal affairs for AARP, which opposed it. Welcome to you both. Miss Silverman, why did the EEOC do this? What were you tries to address by making this change? LESLIE SILVERMAN: We were trying to address the effect of the Eerie County decision on the current retiree health system. MARGARET WARNER: That's the 3rd Circuit... LESLIE SILVERMAN: It is. MARGARET WARNER: That I referred to. LESLIE SILVERMAN: There was a decision and it called into question all the retiree health benefits out there. We heard from members of Congress. We heard from unions. We heard from boards of education, and they all said to us this decision means it will have to change. If we have to change, we will end up dropping our retiree health benefits. So we felt we had to take this action. MARGARET WARNER: What you're saying, in other words, is faced with the prospect of having all ... having to offer all or nothing, they were saying to you, rather than have to cover someone from 55 until near 90, we just won't offer it at all? LESLIE SILVERMAN: Exactly. They were saying it was too hard to comply with the decision and faced with the escalating health care costs and changes in accounting rules, this is one more thing that is making it too hard to offer our benefits to retirees. MARGARET WARNER: But it's the-- LESLIE SILVERMAN: It's the current system I'm talking about. This is how retiree health benefits are currently offered in this nation. MARGARET WARNER: You all oppose it. Why? DAVID CERTNER: The EEOC is supposed to be the organization charged with protecting age discrimination laws, protecting all the workers, in this case all the retiree. And basically what EEOC decided is health care costs are very expensive in this country. It is hard to provide health benefits for retirees for everybody. So we're just going to forget the class of people over 56 who we are charged in to protect, in favor of the younger class. We think that's a mistake. We think we should have protections in place for retiree health benefits for all retirees and not simply throw over the older retirees in favor of the younger retirees. MARGARET WARNER: There are 10 or 12 million people, retirees over 65, who get Medicare plus the employer-paid benefits. Roughly a third of the Medicare recipients. What do they use the employer-paid benefits for? DAVID CERTNER: Generally they use them as a supplement to the current Medicare benefits. They fill in the gaps that Medicare doesn't cover, especially for the last few years and currently, of course, they provide very often prescription drug benefits which of course we don't have until the new law kicks into place in 2006. But they may also cover other kinds of payments that Medicare doesn't cover. MARGARET WARNER: Is it AARP's view that once this takes official effect, a lot of them will be kicked off? DAVID CERTNER: Well, the problem is we've seen a decline in coverage for retiree health benefits, older and younger, over the past decade. This has been an ongoing problem because primarily health care costs have been so high. What we are seeing here is we don't want to see a change in the rules that basically remove another protection for older retirees against having their benefit cut off or reduced. MARGARET WARNER: Did the EEOC look at or try to come to some determination of how many of the current recipients of these employer benefits would get cut off? LESLIE SILVERMAN: It's our belief that none of them will be cut off because of our decision. We believe rather that if we let the Eerie County decision stand, then more people would be cut off, and what David is not talking about is the people who have retired early before 65. There are a good percentage of the plans out there, called bridge plans, and they cover people that are early retirees. And sometimes, and this has always been lawful, those benefits stop at 65. And this decision effectively will make it impossible for employers to provide that and therefore all these early retirees, many of whom are teachers, are going to end up with no benefits at all. MARGARET WARNER: By decision, you mean court decision called into question the bridge plans. LESLIE SILVERMAN: That's exactly right because before that court decision, everybody presumed that our retiree health system was fine, that it didn't violate the law. No one has ever considered it to have light violated the law before that decision. So suddenly that called the whole retiree health system into question. DAVID CERTNER: Let me just respond to that because that is simply incorrect. In fact, EEOC back in the Eerie case supported they decision of the Eerie County case. It is not unusual that they ruled that way because they said it does apply... MARGARET WARNER: Did the EEOC take the position prior to the case? Rather than getting back into the legal history, let's go back to the substance of this. Is it possible that once they're freed of this obligation or the fear that they will be obligated to provide coverage from 55 on, that companies will actually be more willing to at least offer these bridge plans, which have been reduced in number, as I understand it, number of companies willing to do that, that at least they will be more willing to cover someone who takes an early buyout from 65 when Medicare kicks in -- DAVID CERTNER: Well, you have to understand what the law allows now. The law currently allows you to provide a benefit similar to Medicare for pre-65. In fact, the law allows you to take Medicare into account when determining a benefit for a younger retiree. What we see happening is the younger retiree gets a better benefit package from the employer than what Medicare has to offer. That's always been illegal under the law -- that's what the challenge is now. But of course the challenge is that we have pressures on both benefits for younger retirees and older retirees. MARGARET WARNER: So my question is, might this improve the prospects for the younger retirees? DAVID CERTNER: It potentially could improve it for younger retirees because what you have done is throw aside the whole class of older retirees. We don't think you should be choosing to throw aside the older retirees for the younger retirees, particularly from an agency charged with protecting an older worker versus the younger worker. We think we should have more of a negotiated settlement, if we need to, to protect both classes. MARGARET WARNER: Miss Silverman, as Mr. Certner pointed out, the companies are under no obligation to do this and the number of companies that offer this to their retirees has gone down dramatically. One set of numbers I looked at said in 1980 fully one-half of companies do it. It was the norm and now only a third of the large companies do it and only 10 percent of the smaller companies. You've heard a lot from companies and unions, and so on. Did you try and assess real evidence as to whether making this change would actually help halt the decline in the number of companies willing to offer retirees benefits? LESLIE SILVERMAN: We did try to look at it. We tried to figure out what was best in the public interest and what we found is if we didn't act, it was going to cause more harm than if we did act and stop the situation. And just to respond to something that David brought up, the way that many of the under 65 early retirees are currently getting their health insurance, is that they are getting the same health insurance benefits that workers are getting. In order to comply with the decision, companies would then have to come one a whole new insurance system for those older people who have retired but under 65. And when you take those people out of the current system and create a new system for them, automatically it is going to be more expensive. Faced with that proposition, employers are just not going to do it and employees ... former employees are going to be the losers. MARGARET WARNER: A quick question. What happens to the current retirees who got these benefits, not just as a result of some deal they made with their employer personally, but under contract? Let's say auto workers. There's some kind of big contract with the labor union. Are they grandfathered in or are they at risk? LESLIE SILVERMAN: All of the union contracts are at risk because they are usually coordinated with Medicare. Anything that's coordinated with Medicare under the Eerie County decision is at risk first of all. That's one of the reasons we've heard from the unions. It's their members, they're some of the people that are going to get hurt. MARGARET WARNER: Under the new law you think they'll be better off? LESLIE SILVERMAN: I think they will be better off. DAVID CERTNER: What is truly at risk is retiree health benefits for all retirees. We have companies offering retiree health benefits in dwindling numbers but most of the companies that offer them to both the pre-56 and post-65. The large majority do both; the concern is that by saying you don't need to protect the older retirees under the Age Discrimination Act anymore. One more way of saying to employees we know you want to get out of the system. Here is a way to do it. You can drop your benefits for the older retirees and maintain them for the younger retirees. MARGARET WARNER: Final question. What is AARP going to do about this? DAVID CERTNER: We've tried very hard to work with the EEOC, with other interested parties to try to negotiate a solution that will protect the retiree benefits from both younger and older retirees. This vote obviously went against us. We will continue. I think there was leeway given to discuss this further. If we can't get any resolution out of the EEOC, we'll look at all other options including the option of going to court. MARGARET WARNER: Are you ready to defend this in court? LESLIE SILVERMAN: We are. We're very comfortable with what we did yesterday. MARGARET WARNER: David Certner and Leslie Silverman, thank you both very much.