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Retirees face reduced health care benefits

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The lawsuit was filed after the county made an effort to tame its rising health care costs by altering benefits for retirees. Erie County had previously offered all retirees (those who were under 65 and ineligible for Medicare and those who were 65 or older) the same health care plan. In 1997, the county decided to put older retirees who qualified for Medicare on an HMO plan that coordinated benefits with Medicare. Retirees younger than 65 were in a different plan that offered better benefits than the combination of Medicare and HMO in which older retirees were enrolled.

The lawsuit was filed by six older retirees who claimed that the county's divided health coverage would violate the Age Discrimination in Employment Act of 1967.

Initially, the courts and the EEOC agreed with them. To offer inferior coverage to older retirees based on their age was deemed a violation. However, the backlash to that decision was extensive, and employers and employee unions, such as the National Education Association and the AFL-CIO, protested. Employers were afraid their share of the retirees' health care costs would bankrupt them, while the unions feared employers would respond by simply not covering any retirees, regardless of age.

As a result, the EEOC reversed its decision and issued the "final rule" last December that cements an employer's right to offer reduced health care coverage to older retirees. But the rule has an unexpected side effect: If an employer reduces or discontinues health care coverage for older retirees, coverage for other family members may also be affected. Under the circumstances, younger spouses and minor children could find themselves without any coverage at all.

The AARP's legislative policy director, David Certner, points out that while it's unfortunate that spouses and minor children of older retirees could be left "holding the bag" if an employer changes the terms of a Medicare-eligible employee, the retiree's family has no real standing in this issue.

"They're not vested in the health retirement benefit," Certner says.

Under most circumstances, Medicare becomes the primary insurer once a retired enrollee in a health care plan reaches 65. The EEOC's final rule won't change that. What it could affect is the secondary insurance situation for retirees.

Those who have retirement health care coverage as part of their pension package usually use or plan to use that coverage as a supplement to Medicare. As a result, these individuals experience considerably less expenses than those who must either purchase supplemental coverage or pay the many expenses not covered by Medicare out-of-pocket.

Salvaging coverage for younger retirees
Reed Russell, legal counsel for the EEOC, says the final rule received widespread support from "unions, benefit plans (and) employers."

Russell says that from the input received by the EEOC, it believed that pushing equal coverage would yield a very negative and unintended effect. "(Our concern was that) the reaction would be to cut and drop health care coverage altogether -- in fact, that's what Erie did."

Many, including staffers at the EEOC, believe that while the ruling may have a negative impact on those over 65, it has just the opposite effect on younger retirees, particularly those who worked in school systems.

Traditionally, many teachers enter the field immediately after college, teach for 30 years or less, and retire when they are in their early to mid-50s. Russell says that by maintaining the same level of coverage for all groups of retirees, many teachers risked completely losing their retirement health care coverage.

And Russell is cautiously optimistic that many employers will continue to cover Medicare-eligible retirees. "In a survey of employers, most said they would not change the way they do things now," Russell says.

Next: Working longer may be your best and only option ...
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