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Third Circuit Affirms Employers' Ability to Alter Benefits for Medicare-Eligible Retirees

    Client Alerts
  • June 15, 2007

In 2003, the Equal Employment Opportunity Commission proposed regulations that would exempt from the Age Discrimination in Employment Act alterations or reductions in medical benefits for retired employees who become eligible for Medicare coverage.  Last week, in AARP v. EEOC, the Third Circuit Court of Appeals rejected a challenge to the validity of the EEOC rule.  AARP contended that the EEOC exceeded its statutory authority under ADEA by adopting a reading of the statute that was contrary to a plain-language reading of its terms because retirees under 65 could receive greater benefits than older retirees eligible for Medicare.  The EEOC took the position that ADEA allows employer-sponsored medical plans to coordinate coverage with Medicare as a narrow exception to the Act’s prohibition against age discrimination.


The Third Circuit affirmed summary judgment for the EEOC, upholding the rules.  The EEOC has the power to adopt exceptions to ADEA when in the public interest.  In this case the EEOC concluded that employers were eliminating retiree medical benefits in their entirety rather than face the spiraling costs of full coverage for Medicare-eligible retirees.  By coordinating benefits with coverage available under Medicare, more employers are inclined to continue retiree coverage.  While younger retirees may enjoy greater employer-provided medical benefits than those over 65, the EEOC has the authority to grant an exemption to the age discrimination rules.