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EEOC Says ADEA Exemption for Coordination With Medicare Does Not Apply to Current Employees

    Client Alerts
  • November 18, 2011

The Equal Employment Opportunity Commission recently issued an informal letter responding to an inquiry regarding the applicability of an exemption under the Age Discrimination in Employment Act ("ADEA") to current employees. ADEA allows employers to coordinate health benefits for retirees with any benefits received pursuant to Medicare. The EEOC responded that the exemption for coordination with Medicare is only applicable to retirees, not current employees.

The EEOC further advised that eligibility under Medicare permits an employer to terminate an employee's eligibility for group health insurance in some circumstances. The letter states that because workers typically become eligible for Medicare at age 65, eliminating group health eligibility for current employees when they become Medicare-eligible is an age-based action. As such, it would violate the ADEA unless it satisfies the statute's 'equal benefit or equal cost' defense.

The "equal benefit" defense is satisfied if when comparing the employer-provided and Medicare-provided benefits, older employees are entitled to equal or better benefits under Medicare than they would be eligible for under the employer-provided insurance. The "equal cost" defense requires that the employer show that it is spending an equal amount on insured employees and Medicare-eligible employees. It is unlikely that an employer can satisfy either defense because of the usually broad availability of dependent care under employer health plans, and because an employer would be unlikely to be able to provide that it spends an equal amount on health insurance for younger and Medicare-eligible employees where health benefits are eliminated for Medicare-eligible employees.

The letter concludes by providing a further warning to employers contemplating cutting benefits to Medicare-eligible employees, suggesting that in addition to ADEA, such action may be prohibited under Medicare, which require employers to offer Medicare-eligible employees with the same benefits offered to other employees.