Originally appeared in Benefits & Compensation Bulletin, Volume IX, No. 2
As a result of a recent federal court decision, employers need to take a fresh look at their retiree health care programs to insure that they comply with the Age Discrimination in Employment Act ("ADEA"). New issues have arisen as a result of a decision by the U.S. Court of Appeals for the Third Circuit (which covers Pennsylvania, New Jersey, and Delaware) in Erie County Retirees Ass’n v. County of Erie (2000).
Erie County retirees under the age of 65 were receiving health care coverage under the county’s traditional indemnity plan, while retirees age 65 or older were required to accept coverage under "SecurityBlue," a hybrid "point of service" plan that combined the features of an HMO with the features of a traditional indemnity plan. In their lawsuit, the plaintiffs — retirees age 65 and older — alleged that they were being treated adversely in comparison to younger retirees and that such adverse treatment was a violation of ADEA.
In 1990, the District Court concluded that ADEA, as amended by the Older Workers’ Benefit Protection Act of 1990, did not afford relief for alleged discrepancies in the health benefits offered by employers to retirees.
In reversing, the Third Circuit Court of Appeals found that Erie County acted in contravention of ADEA by treating the plaintiffs differently from younger retirees with respect to their "compensation, terms, conditions, or privileges of employment, because of … age." The Third Circuit concluded, however, that the "safe harbor set forth in [the statute] is applicable if the County can meet the equal benefit or equal cost standard." The court remanded the case on the safe harbor issue, and provided this direction on the application of the equal benefit/equal cost standard:
[T]he "equal benefit" prong of the analysis should take into account equally both the Medicare-provided and the County-provided benefits which members of the plaintiff class receive. If the county cannot satisfy the "equal benefit" prong, the [district] court should then turn to the "equal cost" inquiry. The County argues that, in applying the "equal cost" analysis, the court should consider the costs which Medicare incurs on behalf of persons in SecurityBlue as well as the costs which the County itself incurs…. Clearly, the purpose of the equal benefit or equal cost standard is to encourage employers to spend equally on benefits for older and younger persons…. Accordingly, [under the "equal cost" standard,] the district court should consider only those costs which the County itself incurs.
When the case returned to the District Court level, the court found that Erie County was not entitled to protection under the safe harbor "equal benefit" standard, and that the coverages provided to the two classes of retirees were not of equal cost. As a result, the county was found to be in violation of ADEA.
The Equal Employment Opportunities Commission has issued regulations that adopt the Erie County analysis. And the U.S. Supreme Court recently declined to hear an appeal in the case. Therefore, violations of ADEA may occur where employers have two (or more) retiree health care programs. We urge employers to have their retiree health (and other retiree welfare) programs reviewed on the basis of the Erie County decision.
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