New York Labor and Employment Law Report
Coordinating Retiree Health Insurance with Medicare Not Illegal Age Discrimination
June 15, 2009
In what appears to be the first reported decision of its kind, the United States District Court for the Northern District of New York recently interpreted an Equal Employment Opportunity Commission (EEOC) regulation to permit an employer’s efforts to control retiree health insurance costs by coordinating its retiree health insurance plan with Medicare. Lefevre v. Niagara Mohawk Power Corp., slip op. no. 1:06-CV-768 (N.D.N.Y. April 21, 2009). The employer provided health insurance benefits to retirees under a plan that required a Medicare eligible employee to apply for Medicare Parts A and B. Medicare then became the primary health insurance coverage, and the plan paid benefits to supplement the benefits paid by Medicare. Due to the terms of the plan, a Medicare eligible retiree’s share of the plan premium was somewhat greater than that of a non-Medicare eligible employee.
Several Medicare eligible employees sued alleging that the higher premium share constituted age discrimination in violation of the Age Discrimination in Employment Act (ADEA). The ADEA prohibits discrimination based on age in terms and conditions of employment, including the terms of benefit plans. 29 U.S.C. §§ 623(a) & 630(l) However, the ADEA also authorizes the EEOC to create reasonable exemptions from the statute’s prohibitions when necessary and proper in the public interest. 29 U.S.C. § 628 EEOC created a coordination with Medicare exemption for employee benefit plans that provide health insurance benefits that are altered, reduced, or eliminated when the plan participant becomes Medicare eligible. 29 C.F.R. § 625.32(b)
In the Lefevre case, the Court found that the regulation applied and required dismissal of the plaintiffs’ age discrimination claim. Because the premium differences were the result of the coordination with Medicare, they fell squarely within the regulatory exemption, even though they only impacted individuals who were age 65 (the age of Medicare eligibility) and older.
The Court also examined and applied a safe harbor provision within the ADEA which permits employers to implement a bona fide employee benefit plan which treats older and younger workers differently when either the costs are the same for both sets of workers, or the benefits are the same, the equal cost/equal benefit provision. 29 U.S.C. § 623(f)(2)(B)(1). In Lefevre, the Court found that the equal cost provision did not apply – the employer was in fact trying to lower its retiree health insurance costs by coordinating benefits with Medicare – but that the equal benefit rule did apply because the Medicare eligible retirees received the same benefit as non-Medicare eligible retirees. The plan supplemented any benefit provided by Medicare to provide full coverage.
Because the plan fell within the EEOC’s regulatory exemption, as well as qualifying under the equal benefit rule, the Court granted summary judgment to the employer and dismissed the complaint. The employer was represented by Robert A. LaBerge and Louis Orbach of Bond, Schoeneck & King, PLLC, in Syracuse, New York.