[Senate Hearing 108-541]
[From the U.S. Government Publishing Office]
S. Hrg. 108-541
ACCESS TO ADEQUATE HEALTH INSURANCE:
HOW DOES THE EQUAL EMPLOYMENT
OPPORTUNITY COMMISSION'S RECENT RULE AFFECT RETIREE HEALTH BENEFITS?
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
MAY 17, 2004
__________
Serial No. 108-34
Printed for the use of the Special Committee on Aging
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SPECIAL COMMITTEE ON AGING
LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama JOHN B. BREAUX, Louisiana, Ranking
SUSAN COLLINS, Maine Member
MIKE ENZI, Wyoming HARRY REID, Nevada
GORDON SMITH, Oregon HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
DEBBIE STABENOW, Michigan
Lupe Wissel, Staff Director
Michelle Easton, Ranking Member Staff Director
(ii)
?
C O N T E N T S
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Page
Opening Statement of Senator John Breaux......................... 1
Panel I
Leslie E. Silverman, Commissioner, Equal Employment Opportunity
Commission, Washington, DC..................................... 2
Panel II
Patricia Neuman, vice president and director, Medicare Policy
Project, Henry J. Kaiser Family Foundation, Washington, DC..... 16
Erik D. Olsen, D.D.S., president-elect, AARP Board of Directors,
Glenbrook, NV.................................................. 33
Andrew J. Imparto, president and chief executive officer,
American Association of People with Disabilities, Washington,
DC............................................................. 60
Bruce Meredith, general counsel, Wisconsin Education Association
Council, Madison, WI........................................... 69
James A. Klein, president, American Benefits Council, Washington,
DC............................................................. 77
APPENDIX
Letter submitted by the ERISA Industry Committee................. 99
Testimony submitted by the National Conference on Public Employee
Retirement Systems............................................. 100
(iii)
ACCESS TO ADEQUATE HEALTH INSURANCE: HOW DOES THE EQUAL EMPLOYMENT
OPPORTUNITY COMMISSION'S RECENT RULE AFFECT RETIREE HEALTH BENEFITS?
---------- --
MONDAY, MAY 17, 2004
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee convened, pursuant to notice, at 2:01 p.m.,
in room SD-628, Dirksen Senate Office Building, Hon. John
Breaux, presiding.
Present: Senator Breaux.
OPENING STATEMENT OF SENATOR JOHN BREAUX, RANKING MEMBER
Senator Breaux. The committee will please come to order.
Good afternoon everyone. I would like to first take this
opportunity to thank our witnesses who are going to be with us
this afternoon. I would also like to thank Chairman Craig for
his support for our hearing.
We are going to hear a number of different but all equally
valuable viewpoints during this afternoon's hearing. The
committee considered it important to hold this hearing for a
number of reasons. As most of you already know, the Equal
Employment Opportunity Commission, or the EEOC, recently
proposed a final rule stating that it would not be a violation
of the Age Discrimination in Employment Act for employers to
offer varied financial benefits to their retirees based on
their age and/or their Medicare eligibility. There has been
some controversy about the rule and its potential effects, and
our purpose today is to lay out both sides of the issue and to
have a productive debate and discussion about the best possible
outcome.
Employer-sponsored health coverage for retirees is far from
being uniform in this country. Some employers offer coverage
only to early retirees who have not yet become Medicare
eligible. Others may offer varying levels of coverage to
retirees, sometimes based on whether they have enrolled in
Medicare.
According to the Kaiser Family Foundation, who we will hear
from today, more than three million retirees age 55 to 64 are
covered by employer-sponsored health plans. Additionally, of
seniors over 65 who are covered by Medicare, about one-third
also have an employer-sponsored plan which supplements their
Medicare coverage. However, the percentage of large employers
offering retiree health benefits has dropped, falling from 66
percent in 1998 to 38 percent in 2003, and the majority of the
firms still offering coverage have shifted some of the cost of
the coverage on to their retirees by increasing premiums,
reducing benefits, or increasing cost sharing.
In order to preserve existing employer-sponsored retiree
health benefits, the recently passed Medicare Prescription Drug
Improvement and Modernization Act included generous subsidies
to those employers who continue to offer health benefits to
their retirees. We hope that this will give employers the help
that they need to keep offering those much-needed benefits to
seniors.
It is within the context of this retiree health coverage
landscape that we must consider the EEOC's recent rule. Today,
I hope to hear from our witnesses how the rule could affect the
different groups of retirees. For example, would it have more
of an effect on the younger, pre-65 retirees, or on Medicare-
eligible retirees, or might it affect both groups? Should we
also consider what the implications are for retiree health
coverage in the absence of an EEOC rule?
I want to again thank all the witnesses. I would also just
like to make a note. My own father had just recently received a
letter from his former employer announcing their plans to
change their contributions toward the premium coverage to their
retired employees, increasing the percentage of cost to their
existing retirees from the current 80 percent government
contribution to a 20 percent employee contribution, which is
what it is now, and that will become 70-30, reducing the
company's contribution by 10 percent. For future employees,
they have eliminated completely the employer's contribution to
the retirees' health plan.
I point that out for new employees, starting in April of
this year, which has now started, of course, they will still be
eligible for their retiree medical coverage, but they will have
to pay for the full cost of the premium, 100 percent. So it
goes from 80-20 to zero-100, and that is not atypical of what
is happening, and this is a very large, very strong corporation
that is taking that step, and that is just one example. You
might imagine the number of questions I got from my own father
about why this was happening. He thought I might have something
to do with it.
So I want to thank all of our witnesses and we will invite
up our first witness this afternoon. We are pleased to have her
with us, and that is Leslie Silverman with EEOC. She is a
Commissioner, and we are delighted to receive your statement.
STATEMENT OF LESLIE E. SILVERMAN, COMMISSIONER, EQUAL
EMPLOYMENT OPPORTUNITY COMMISSION, WASHINGTON, DC
Ms. Silverman. Good afternoon, Mr. Chairman. I am Leslie
Silverman, Commissioner of the Equal Employment Opportunity
Commission. Our Chair, Cari Dominguez, could not be here today
and asked that I come in her stead. I am here to discuss the
Commission's final draft rule to permit employers to continue
coordinating the retiree health benefits that they provide with
Medicare eligibility without fear of violating the Age
Discrimination in Employment Act, the ADEA.
Mr. Chairman, the EEOC is truly delighted that you have
convened this hearing. Our recent action has received a lot of
attention in the media. Unfortunately, headlines and sound
bites cannot capture the history or breadth of this complex
issue. Indeed, some of the stories have gone so far as to
suggest that the Commission is fostering age discrimination.
At the Commission, we are proud of our efforts to protect
the rights of older Americans against age discrimination in
employment. Just last year, we obtained more than $106 million
for victims of age bias. Given the Commission's commitment to
fighting age discrimination, it is troubling to be
misunderstood on this issue.
So on behalf of the Commission, I appreciate the
opportunity to clarify our draft final rule. This rule and the
events that gave rise to it can only be understood by
explaining the economic and legal conditions that prompted the
Commission's action.
Retiree health benefits are critically important. However,
no Federal law requires employers to provide retirees with
health benefits, and the fact is, fewer and fewer employers do.
Since the Medicare system was first created, the majority of
employers providing coverage have structured their retiree
health benefits around those available under Medicare, and the
reality is that for many years now, employer plans have
distinguished between retirees who are pre- and post-65. Some
employers offer benefits that bridge the gap between the time
the employees retire and become eligible for Medicare. Others
continue to provide health benefits to retirees after they
reach age 65 to supplement Medicare benefits.
In 2000, a Federal court decision called this longstanding
and common practice into question. In the case of Erie County
Retirees Association v. County of Erie, a group of Medicare-
eligible retirees sued their former employer, Erie County. They
alleged that by providing health benefits to them that were
less than those it provided to retirees who were not yet
eligible for Medicare, the county was discriminating against
them based on their age.
Initially, the Commission was supportive of the retirees'
claims. The Third Circuit Court of Appeals agreed. It ruled
that coordinating retiree health benefits with Medicare
eligibility violates the ADEA unless the county could satisfy
the statute's equal cost-equal benefit defense. The county
could not.
Directed by the court to come into compliance with its
ruling, the county sought to equalize the retiree health
benefits it was providing. Ultimately, Erie County did so, not
by improving benefits for its Medicare-eligible retirees, but
by requiring its younger retirees to pay more for health
benefits that provided fewer choices.
The Erie County decision marked the first time that an
appellate court had held that the longstanding practice of
coordinating retiree health benefits with Medicare eligibility
violated the ADEA. Shortly thereafter, the Commission adopted
the Erie County ruling as its national enforcement policy.
The court's ruling and the Commission's adoption of it were
widely condemned. Our stakeholders told us that the Erie County
rule would not protect or improve benefits for Medicare-
eligible retirees, but instead would cause a reduction in
retiree health benefits, just as it had done for Erie County's
retirees. A GAO report also concluded that many employers were
eliminating retiree health benefits. Although it cited cost,
changing demographics, and changed accounting rules as the main
reasons, it also said that the Erie County decision might
provide an additional incentive.
In light of the criticism and the GAO report, the
Commission decided to revisit the Erie County issue and further
study the relationship between the ADEA and retiree health
benefits. The Commission met with a wide range of stakeholders,
including employers, retiree representatives, labor unions, and
benefit consultants. We were told that most existing employer-
provided retiree health benefits did not comply with the Erie
County rule.
To address the problem, the Commission explored many
different approaches. Most of these alternatives focused on
modifying the equal cost-equal benefit test in some way to
ensure that the majority of existing retiree health plans would
pass muster. However, the Commission concluded that the complex
and frequent calculations and comparisons would be
extraordinarily burdensome for employers, especially small
employers, and for unions and municipal governments that wish
to provide their retirees with health benefits.
We recognized that creating a solution that was too
burdensome or too expensive to comply with would result in more
employers dropping these important benefits. The Commission
also had significant concerns that any modification of the
equal cost-equal benefit test could extend to areas beyond
retiree health benefits and dilute the Age Act's protections.
Therefore, we concluded that a narrow exemption from the
prohibitions of ADEA was the most effective way to assure that
the Age Act did not inadvertently cause further erosion of
retiree health benefits and that its protections otherwise
remained intact.
In Section 9 of the ADEA, Congress gave the Commission the
authority to establish reasonable exemptions from the law to
address unintended consequences when necessary and proper in
the public interest. While this authority has been exercised on
only the rarest of occasions, the ability to grant an exemption
when it is needed is an important responsibility that the
Commission cannot shirk or ignore.
In this instance, the Commission has crafted an exemption
that is narrowly tailored to apply only to the coordination of
employer-sponsored retiree health plans with Medicare and
similar State plans. We have done so to maintain the status
quo. Our action does not require any cut in benefits and it is
not intended to encourage employers to alter the benefits they
are providing in any way.
Now, in response to our Notice of Proposed Rulemaking, the
majority of the organizational comments we received expressed
support for the exemption. Several of these organizations
confirmed that the Erie County case was responsible for further
erosion of retiree health benefits. Unions said that the Erie
County case was already impacting their ability to negotiate
for health benefits for future retirees and even impeding
efforts to negotiate the renewal of benefits for current
retirees. Employer groups said that if the Commission did not
act, the threat of potential ADEA liability would likely force
their members to cut or discontinue retiree health benefits.
The most detailed comments in opposition to the proposed
rule came from AARP and its individual members. The great
majority were a form letter. Since AARP is here today to
explain their position on our rule, there is no need for me to
further elaborate here.
The Commission concluded that the evidence supported the
need for an exemption. The rule's supporters had produced
evidence that the Erie County rule had and would continue to
have the unintended consequence of diminishing employer-
provided retiree health benefits, while its opponents produced
no evidence to the contrary.
The draft final rule had the bipartisan support of four of
the five Commissioners. However, because one of my fellow
Commissioners was unable to attend our Commission meeting, the
Commission approved the draft final rule by a vote of three-to-
one.
In conclusion, the Commission believes that it has acted
appropriately for the benefit of all retirees. We recognize
that the action we are taking has caused concern and
uncertainty among older Americans. But we believe that this is
due to misunderstanding. Several news reports and commentaries
have erroneously reported that we are acting to establish a new
retiree health benefit system that takes into account Medicare
eligibility. That system already exists.
Initially, the Commission believed that the Erie County
rule would protect health benefits for retirees. In practice,
however, that rule threatens to have the opposite effect. It
encourages employers to curtail or eliminate retiree health
benefits and it makes it all the more difficult for any
employer to begin offering them. This is contrary to the public
policy of encouraging health benefits for retirees and it is
contrary to the spirit of the ADEA.
The Commission cannot compel employers to provide health
benefits for their retirees, nor can it control the spiraling
cost of health care or the way businesses must account for
those costs on their balance sheets. But the Commission can
ensure that the law it enforces does not serve as an additional
disincentive, leading to further decline of retiree health
benefits.
After grappling with the issue for 3 years, the Commission
has concluded that the establishment of a narrow exemption from
the ADEA is the only way we can end the disincentive created by
the Erie County decision.
Mr. Chairman, EEOC remains committed to the vigorous
enforcement of the ADEA. I thank you for the committee's time
and attention to this important matter.
Senator Breaux. Thank you very much, Ms. Silverman, for
your statement on behalf of the EEOC.
[The prepared statement of Ms. Silverman follows:]
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Senator Breaux. It seems to me in looking at this and
looking at the history of EEOC's involvement that after the
Erie County, or during the Erie County consideration,
apparently EEOC was aware of what was happening out there and
then the EEOC came out and supported the decision?
Ms. Silverman. That is correct. We actually filed a brief
with the court in support of their decision.
Senator Breaux. Then what happened? Did a light bulb go off
somewhere and EEOC, after the decision was handed down, you
said, ``Oh my God, what have we wrought?''
Ms. Silverman. We originally made it part of our
enforcement policy, and then we started looking at the plans
out there and what we got back was just lots and lots of
comments from our stakeholders that this is the way the plans
are offered and if you require us to change our plans, we are
just not going to offer these benefits, and that this ruling is
an anomaly and it is not the way that anybody had ever thought
the age discrimination law ought to apply in this instance.
Senator Breaux. Was it a question of having to figure out
how to handle the clear intent of the law with the practical
effect of carrying out that intent in this particular
circumstance? I mean, it is pretty clear that EEOC stands for
the proposition that you shouldn't discriminate based on age.
Ms. Silverman. Correct.
Senator Breaux. Here, you have a clear situation in the
real world where there is discrimination on age based on the
fact that when you reach a certain age, some other program is
going to kick in. The EEOC premise, however, is that you can't
do that. So I guess initially, you all said, ``Well, you can't
do that.'' We support the Erie case and we filed a brief in
support of it, but then you found out that the results of that
position really created a situation that was going to be worse
for everybody?
Ms. Silverman. That is correct. That is exactly what
happened. We saw that the effect of a law that we are
responsible for enforcing and that we believe strongly in was
having unintended consequences, and those unintended
consequences were going to result in less benefits for all
retirees and that is why we decided to take this further action
and use our Section 9 exemption authority.
Senator Breaux. Let me give you an opportunity to elaborate
further. I mean, how in this case does the allowance of
discrimination based on age and this narrow area actually
benefit the people that the EEOC is charged with protecting
their rights of not being discriminated against based on age?
Ms. Silverman. Well, the fact is that the coordination of
benefits with Medicare has been going on for years, as we
mentioned, since the Medicare law came into effect. What was
happening, again, was the ADEA, if applied to the way that they
were providing benefits, certainly most of the bridge plans out
there would be per se illegal under the law; particularly those
offered in the public sector. I think you will hear from
schools, et cetera, that are dealing with this.
So what we saw was that this wasn't going to help anybody
out there if we enforced the law. It was really going to hurt
people and it was going to hurt older people. So that is why we
took the action that we did.
Senator Breaux. EEOC, I think, was probably aware over the
previous years that there was a difference based on age and the
type of health care that was offered by employers for their
retired workers before 65 eligibility age. Why hadn't EEOC ever
challenged any of those plans over all of those years?
Ms. Silverman. You know, I am not quite sure of the answer
to that, but EEOC always had this position, from what I can
tell, but there was a question at one point in time whether
retirees were covered under the law. Slowly but surely, we got
to the point of the Third Circuit decision, where it all came
down to whether or not the Age Discrimination in Employment Act
applies to retiree health benefits.
So I think if it had been called to EEOC's attention, they
probably would have taken that position and probably did take
that position before, that the ADEA covered retiree health
benefits. I don't think the EEOC is saying now that the law
doesn't cover retiree health benefits. But what we are saying
is that we think this is a proper use of our exemption
authority because it is necessary and proper and in the public
interest.
Senator Breaux. OK. Give me a statement, then. There are
some who would argue that, well, if we applied the
nondiscrimination based on age rule that it would somehow
benefit in everybody getting better coverage for their health
benefits. I take it that EEOC's position, and I would like you
to elaborate, would be that in the absence of following the new
position that EEOC has, that many of the employers will just,
in fact, cut benefits for their retirees.
Ms. Silverman. What we learned in studying the issue over 3
years is that we were told that the majority of the plans out
there just simply don't comply to the letter of our law, which
requires that if you offer these different benefits, it has got
to be an equal cost-equal benefit. It has got to meet that
test. Most of the plans out there don't meet the test certainly
the bridge plans. Unless they are exactly duplicative of what
is offered under Medicare, they don't meet that test. About 45
percent of employers that do offer the bridge benefits, or 45
percent of employers, what they do for younger retirees is they
keep them on their current plan. So there was that issue to
begin with.
Senator Breaux. Does EEOC have an idea about what do you
think will happen if your new position allowing the programs to
go forward will actually produce?
Ms. Silverman. First let us talk about what would happen if
we didn't act. If we didn't act, there is this law looming out
there. There are plans that are already illegal under the law
as it is. So most employers that we are looking at would have
to take an action, and what we thought and what we have been
told is that they would probably cut their benefits for younger
retirees, possibly cut all their retiree benefits to come into
compliance. Nobody said, with escalating costs of retiree
health benefits, that they were going to prop up the over-65
retirees. So given that threat, we thought it was in the best
interest of all retirees to act in this instance.
Senator Breaux. OK. With the action that you all have
taken, what do you think the situation will be?
Ms. Silverman. We hope that the Age Discrimination in
Employment law won't--the application of it, with that not
being a problem, it won't cause more employers to look at their
plans and thus reduce their plans. We understand that retiree
health benefits are on the decline. We just didn't want to add
to that decline, and we think that by taking this action, we
will not add to that decline.
Senator Breaux. Can you give me EEOC's position on the
allegation by some that says you don't really have any
authority to do what you do?
Ms. Silverman. I think if you look at the Age
Discrimination in Employment Act, it did provide us authority
in Section 9 to make an exemption from the law when we thought
it was in the public interest, and we believe that this was in
the public interest here. This is a very narrow exemption. So
we thought that what we were doing was stopping the unintended
consequences of the application of the Age Discrimination in
Employment law to this common practice of coordinating retiree
health benefits with Medicare eligibility.
Senator Breaux. Would you all prefer having some direction
from Congress that clearly spells that out?
Ms. Silverman. We have been aware that Congress has been
looking at this issue simultaneously, and we were perfectly
comfortable with Congress acting. But, we never heard from
Congress at any time during our rulemaking proceeding, which
has been going on for 3 years, that what we were doing was
incorrect or out of bounds or out of our authority.
Senator Breaux. But your lawyers tell you they feel
comfortable with the decision that you have taken based on
existing laws?
Ms. Silverman. Yes.
Senator Breaux. OK, Ms. Silverman. Thank you so very much.
We appreciate your being with us and testifying.
Ms. Silverman. Thank you, Senator.
Senator Breaux. Thank you.
Senator Breaux. We would like to welcome up a panel now
consisting of Dr. Patricia Neuman, who is vice president of the
Kaiser Family Foundation; Dr. Erik Olsen, president-elect of
AARP, the American Association of Retired Persons; Mr. Andrew
Imparato, president and chief executive officer of the American
Association of People with Disabilities; Mr. Bruce Meredith,
general counsel, Office of General Counsel of the Wisconsin
Education Association; and Mr. James Klein, who is president of
the American Benefits Council.
I thank all of you for being with us. We would like to
start, if we can, with Dr. Patricia Neuman with the Kaiser
Family Foundation.
STATEMENT OF PATRICIA NEUMAN, VICE PRESIDENT, HENRY J. KAISER
FAMILY FOUNDATION, WASHINGTON, DC
Dr. Neuman. Thank you, Mr. Chairman. I am very pleased to
be here to testify on the state of retiree health coverage.
More than three million retirees between the ages of 55 and
64 rely on employer-sponsored benefit plans for their health
coverage today. Without this coverage, many who are in their
late 50's or early 60's, particularly those with health
problems, would be hard pressed to find comparable and
affordable coverage on their own.
Seniors, unlike early retirees, are fortunate to have
Medicare as their primary source of health insurance. Still,
many, roughly 11 million seniors, rely on employer plans to
fill in the gaps in Medicare's benefit package.
Over the past 15 years, the share of employers offering
retiree health benefits has declined dramatically, from 66
percent in 1988 to 38 percent last year. This decline is a
function of the rising number of employers terminating coverage
as well as fewer newer companies offering retiree health
benefits. Sustained double-digit increases in retiree health
costs are a major factor in this decline. The total cost of
retiree health benefits increased by nearly 14 percent between
2002 and 2003.
Against this backdrop of rising costs and eroding coverage,
two recent events are being monitored for their potential
impact on retiree health benefits. The first is the new
Medicare drug law, and the second is the proposed final rule
adopted by the EEOC which others are discussing today.
Employers have implemented a number of strategies to curb
their costs in response to rising health care costs and to
changes in accounting rules adopted by the Financial Accounting
Standards Board in the early 1990's. Notably, the survey that
we conducted with Hewitt Associates, the Kaiser/Hewitt Survey
on Retiree Health Benefits, found that nearly half of all firms
offering retiree health benefits have placed caps on their
financial liability for these obligations. Among firms with
caps, nearly half have already hit their cap and another third
say they are likely to hit their cap in the next one to 3
years. Often, these caps result in a shift in financial
obligation from the employer to the retiree.
To understand more about how employers respond to cost
pressures, our survey asked employers to report changes made in
the past year and changes they are likely to make in the next
one to 3 years. However, it is very important to note that this
survey was conducted prior to the enactment of the Medicare
drug law, so the findings from our survey do not reflect
employers' reaction to the new legislation.
Our survey suggests that current retirees appear to be
shielded from outright terminations in coverage. However, the
news is far less promising for current workers. Ten percent of
surveyed employers said they had eliminated subsidized health
benefits for future retirees in the past year, which would be
current workers, and that mostly affects new hires. Looking to
the future, 20 percent said they are likely to terminate
subsidized health benefits for future retirees. There also
appears to be substantial interest among employers in providing
access only to health benefits, having retirees pay 100 percent
of their own costs. These findings of our survey are consistent
with the examples in the letter that you referenced, Mr.
Chairman.
Far more common than benefit terminations are increases in
retiree premium contributions and cost sharing. In the past
year, 71 percent of firms said they had increased retiree
premium contributions and 57 percent increased retiree
prescription drug cost sharing requirements. Again, looking to
the future, more of the same seems in store. Nearly nine in ten
employers said they are likely to increase retiree premium
contributions and more than two-thirds said they are likely to
increase deductibles, physician office copays, and out-of-
pocket limits.
With the recent enactment of the Medicare drug law, there
is much interest in whether the legislation will accelerate the
erosion of highly valued retiree health benefits or reverse
these trends by allowing more employers to stay in the game by
alleviating some of the cost pressure. The law allows employers
to maintain benefits by offering considerable financial
incentives, more flexibility, and multiple options for
coordinating around Medicare.
Employers have a number of options to consider. They could,
for example, accept the subsidy from Medicare and provide a
benefit that is at least as equivalent in value to the standard
Medicare drug benefit. They could decline the subsidy and
instead choose to supplement the new Medicare Part D benefit in
some manner. Or they could terminate coverage altogether.
How employers respond is, of course, of critical interest.
The relative generosity of employer coverage as compared to the
forthcoming Medicare drug law could add to concerns among
seniors about losing this valued coverage and we plan to
continue our efforts to monitor employers' activities in this
area.
While millions of retirees enjoy the financial protections
offered by employer-sponsored plans today, all signs do point
to an erosion of this coverage in the years ahead, an erosion
that was predicted prior to the enactment of the Medicare drug
law. Continued erosion of this coverage has the potential to
undermine the health and financial security of retirees as they
grow older and underscores the need to monitor these trends in
the future and their impact on aging Americans.
Thank you, Mr. Chairman.
Senator Breaux. Thank you, Ms. Neuman.
[The prepared statement of Ms. Neuman follows:]
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Senator Breaux. Dr. Olsen.
STATEMENT OF ERIK D. OLSEN, D.D.S., PRESIDENT-ELECT, AARP BOARD
OF DIRECTORS, GLENBROOK, NV
Dr. Olsen. Thank you, Senator Breaux. My name is Erik
Olsen. I am president-elect of AARP. I am a real honest to
goodness Medicare beneficiary who receives a retirement benefit
from my company. I am from Glenbrook, NV, and I am a volunteer.
First of all, I want to thank you for the opportunity to
address the importance of retiree health benefits for all
retirees and the critical need for employers to continue to
provide these benefits to supplement Medicare.
AARP has been seeking an equitable solution to the age
discrimination issues. It is in the interest of everyone--
employers, unions, retirees--to find an alternative to the EEOC
rule that best protects retiree health benefits. An equitable
solution is not one that denies benefits to the oldest and
often sickest retirees. Unfortunately, this is the solution the
Commission has chosen.
Its rule sanctions age discrimination. It allows employers
to terminate the supplemental health benefits of older retirees
while providing benefits to younger retirees that may be
significantly better than Medicare. The rule will risk millions
of older retirees losing their health benefits by encouraging
employers who currently provide health benefits to older
retirees to consider dropping them.
Supplemental health benefits cover many of the costs and
services not covered by Medicare. More than 12 million Medicare
beneficiaries currently receive some form of retiree health
benefits that are vital to their health and economic security.
Employers may legally coordinate these supplemental benefits
with Medicare so that older retirees are generally much less
expensive to insure than younger retirees.
AARP believes the EEOC rule is both illegal and unsupported
by its own record. It does not protect the rights of older
workers or retirees or enforce the ADEA. Congress recently
rejected a similar amendment. Rather than health policy, the
Commission should enforce the age discrimination laws.
In considering the rule, the Commission did not assess how
many Medicare-eligible retirees will lose their employer-
provided supplemental benefits, where or whether they will find
alternatives, or how they will afford them. Nor did it assess
the impact of the recent improvements to Medicare, including
tens of billions of dollars in employer subsidies to encourage
employers to maintain these benefits.
The Commission has also ignored broader public sentiment.
Almost 60,000 people filed comments in opposition to the rule.
More than 160,000 people contacted Congress. The lack of public
enthusiasm for the rule is pervasive.
In a broad AARP national survey of people aged 50 and
above, 73 percent disagreed with the EEOC ruling. This
sentiment prevails among all age and demographic segments, all
political affiliations, and all income levels. In fact, younger
AARP members, between ages 50 and 65, as well as union members,
were slightly more likely to disagree with the ruling than the
average group, and this report is available in the back of the
room. It is called, ``Perceptions of the EEOC Ruling Among the
50-Plus Population.'' We have released that survey today.
Finally, 79 percent believe that Congress should take steps to
prevent age discrimination in retiree health benefits.
The lack of support for the rule is especially troubling
because it represents an abrupt about face from the
Commission's position only 4 years ago in its successful brief
in the Erie County case. The decade-long decline in retiree
health benefits is not a result of the age discrimination laws,
but other factors such as health care cost increases and
accounting changes to the treatment of retiree health expenses.
I believe I just heard Ms. Silverman state that the GAO report
that she cited supported that contention, that the Erie County
was not one of the main issues.
We share with EEOC the goal of encouraging employers to
provide retiree health benefits. We are encouraged by the
EEOC's willingness to discuss with us a solution that better
protects these benefits for all retirees, regardless of age. We
believe that it is possible to design an approach that is
equitable for older retirees and reasonable for employers.
AARP and its members urge you to protect retiree health
benefits for both younger and older retirees. Thank you.
Senator Breaux. Thank you, Dr. Olsen.
[The prepared statement of Dr. Olsen follows:]
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Senator Breaux. Mr. Imparato.
STATEMENT OF ANDREW J. IMPARATO, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN ASSOCIATION OF PEOPLE WITH DISABILITIES,
WASHINGTON, DC
Mr. Imparato. Yes. Thank you, Senator Breaux, for chairing
this hearing and for inviting me to be a participant. We in the
disability community see your Special Committee on Aging as an
important committee for people with disabilities because there
is such a strong correlation between aging and the acquisition
of a variety of disabilities.
By way of personal background, I am a disability rights
lawyer and I run a national membership organization that has
about 80,000 members around the country. We have got a little
ways to go before we are as big as AARP. But we are happy to be
with them on this panel talking about the implications of
EEOC's final rule for retirees with disabilities, in
particular.
I am also a member of the Ticket-to-Work and Work
Incentives Advisory Panel, and one of the things we are looking
at in that panel, which advises the Social Security
Administration, is how to make it easier for people on Medicare
to return to work. So we try to look at the broad health policy
issues that affect people's decision to work or to continue
working.
The main point that I wanted to make today is that retiree
health benefits must be looked at in the broader context of
public and private health insurance, both on the acute care
side and on the long-term care side. As you know with all the
work you have done in the Medicare program, Senator Breaux,
there are a lot of problems with Medicare in terms of its
ability to meet the needs of Medicare beneficiaries with
disabilities and chronic health conditions I appreciate Mr.
Olsen talking about the fact that there are 12 million Medicare
beneficiaries who see the need to supplement the benefits that
Medicare provides because they know that if they relied solely
on Medicare, they wouldn't get all of their health care and
long-term care needs met. I can just tell you from the
perspective of my mother, who is 74 and on the Medicare
program, she has a lot of needs that the Medicare program is
unable to meet in terms of her personal health care needs. So
that is Medicare.
Another huge program that people with disabilities, both
under 65 and over 65, rely upon is the Medicaid program. Again,
even though Medicaid is a lot more generous than Medicare,
there are serious problems with the Medicaid program in terms
of its ability to meet the needs of people who need long-term
care. As you know, the Medicaid program requires States to pay
for long-term care if it is in a nursing home or other
institutional setting, but it does not require States to pay
for long-term care in home and community-based settings, which
is where the vast majority of Medicaid beneficiaries want to
receive the care, and that is true whether they are over 65 or
under 65.
Then finally, we have heard about the problems with the
retiree health benefits provided by employers, the fact that
employers are providing less and less of those benefits, and I
appreciated Patricia Neuman's testimony regarding employers'
use of caps. If an employer is applying a cap to what it is
going to pay for in terms of its retiree health benefits, those
caps are going to play out in a way that people who have the
higher-cost needs are going to run up against caps earlier and
they are not going to have their needs met by the retiree
health benefits system, either.
So in this context, I think the EEOC final rule is moving
us in the wrong direction. We see it as having a strong
potential to make it easier for employers to remove benefits
for the people who are the most disabled and the most in need
of those benefits. I have a lot of respect for Cari Dominguez,
for Commissioner Silverman, and I do believe that they
sincerely believe they are helping older retirees.
I trust AARP's analysis on this more than I do the
Commission's, and I say that as a former EEOC Commission
attorney. I don't think they are experts in health policy. I
think AARP has a lot more expertise in what is going on in the
market and I think we should listen to their perspective on the
issue.
Finally, I just wanted to touch on the fact that today is
the 50th anniversary of the Brown v. Board of Education
decision. We in the disability community see access to health
care and access to long-term services and supports as
implicating civil rights laws. People with disabilities want to
be able to participate fully in society, and that is true
whether we are over 65 or under 65. If we don't have access to
the adequate services and supports that we need, we can't
participate fully in society.
You may have heard that today we won a huge victory in the
Supreme Court in the Tennessee v. Lane decision, where the
Court is upholding your power as a Senator to recognize the
civil rights of people with disabilities under the
Constitution. We are delighted with that ruling, but we think
that it is important that we recognize laws like the Americans
with Disabilities Act have important goals that are affected by
things like retiree health benefits, Medicare and Medicaid.
So in closing, I just want to say that we in the disability
community look forward to working with you, particularly with
your colleagues on the Finance Committee, which has a large
role to play in all of this, and with my colleagues here on the
panel to try to address the ongoing barriers to full
participation for people with disabilities. Thank you very
much.
Senator Breaux. Thank you.
[The prepared statement of Mr. Imparato follows:]
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Senator Breaux. Mr. Meredith.
STATEMENT OF BRUCE MEREDITH, GENERAL COUNSEL, WISCONSIN
EDUCATION ASSOCIATION COUNCIL, MADISON, WI
Mr. Meredith. First, thank you, Senator Breaux, for giving
me the opportunity to give the union's perspective on this very
complex issue.
My name is Bruce Meredith and I am general counsel for the
Wisconsin Education Association Council, the NEA affiliate in
Wisconsin. We represent about 90,000 members throughout the
State.
I am here on behalf of the NEA for two reasons. First, most
collective bargaining agreements in Wisconsin contain voluntary
early retirement provisions, frequently referred to as ERPs,
and most of these contracts provide for medical coverage prior
to Medicare eligibility.
Second, Wisconsin was one of the States targeted by the
EEOC prior to its rule change, and WEAC and school districts
faced almost 200 lawsuits before the lawsuits were withdrawn.
Thus, I saw firsthand the potential disaster triggered by an
overly legalistic, overly rigid, and in my opinion, legally
wrong interpretation of the ADEA, which for convenience I will
label the Erie doctrine.
I wish to make one central point. Contrary to the
misleading information provided by opponents, the EEOC's rule
regarding medical benefits will not jeopardize a single
retiree's health benefits. In fact, the EEOC rule is necessary
to give unions a chance to save the post-retirement health
plans we still have.
To understand why this is the case, I need to discuss what
actually happens in negotiations over these provisions. Unions
and employers agree to ERPs because some senior members want to
retire before they become eligible for Medicare and full
pension benefits. Because most of these members are at the top
of the salary schedule, many employers believe that there are
financial and educational advantages to give these employees
the option to retire early. Some decline this option and
continue to teach long past when they become eligible for
Medicare and other benefits.
But the key to obtaining these provisions that give
employees the option to retire is that they make financial
sense to the employer. If they do not make financial sense,
unions have great difficulty maintaining them and even more
difficulty in negotiating them for the first time.
Most of Wisconsin plans consist of medical plans to ensure
coverage prior to Medicare. The reason why this is so important
is when workers retire, being able to be assured of insurance
coverage is probably the single greatest component in making a
decision to retire. If you are not assured of coverage in a
plan, private or Medicare, you are basically putting your whole
life savings at risk if a serious medical injury strikes.
There are three types of plans in Wisconsin, as well as, I
believe, in the rest of the country. The first is called a wrap
plan. Under this plan, the employer supplements Medicare
benefits to approximate the same benefits provided to active
employees.
A second is called a supplement, and this frequently adds
additional benefits such as pharmaceutical benefits, but not
complete coverage.
The third and perhaps most common are a cutoff of
eligibility for insurance at Medicare, and these are called
bridges. Unions typically try to bargain a wrap plan, but many
employers simply believe these plans are too expensive and will
not agree to them. Absent job actions, which are typically
illegal in most States, there is simply no way to force an
employer to provide a wrap if it believes such a plan is too
financially onerous. In those situations, the only realistic
plan is for the union to scale down its demands.
While most future and current retirees would prefer wraps,
what is most essential is that they have a plan until they
reach Medicare coverage. Once Medicare covers them, they are
ensured basic coverage and typically can purchase more.
So why is the Erie doctrine so dangerous for workers?
Because under that doctrine, the union is allowed only one
bargaining position on early retirement health care. If it
cannot achieve a full wrap, it risks abandoning all programs
whatsoever.
Today, obtaining full wraps is extraordinarily challenging,
and you have heard some of the reasons--rapidly escalating
health care costs, financially difficult times, and new
accounting rules. It would be naive, at best, to believe that
employers, when threatened with an age discrimination suit,
will simply provide a full wrap-around plan. In the real world,
most employers will do exactly what the employer did in Erie,
simply end the plan or reduce benefits to current employees. A
lawyer may get attorney's fees, but everyone else loses.
Just last week, a local school board in Bristol, WI, in
response to a threatened age discrimination suit based on Erie,
announced that it was invoking the contract savings clause, a
common provision that allows employers to revoke provisions
that are arguably illegal, and stated that it was suspending
all early retirements until a new agreement was negotiated.
Under Erie, the union will basically have one and only one
proposal to make, a full wrap, and the school board will likely
counter with no plan at all and there is no clear resolution in
bargaining.
Many of our members are also members of AARP. They have
been outraged by AARP's position, which they feel threatened
one of their most cherished provisions. Although I have not
been privy to their conversations with the AARP members, there
seems to be two themes to these conversations. The first is
that the union will be able to negotiate an even better
provision with the Erie threat. They typically respond by
saying, ``Well, have you met our school board president?'' or
``Have you ever tried bargaining for increased health care
benefits in these difficult times?''
The other is that if the contract cuts off benefits at
Medicare, then maybe they shouldn't retire at all. In response,
many of them reply this is a personal decision they have
thought a lot about and it is basically our decision and
shouldn't be theirs.
In short, in the real world of current bargaining over
health care, it is not the EEOC's rule that threatens the
health care benefits of future and current retirees. It is the
Erie doctrine.
On behalf of the NEA and other public and private sector
unions, we wish to thank the EEOC for their careful and well-
crafted rule. Without its vision, some of our members' most
valued benefits would have been lost forever. Thank you.
Senator Breaux. Thank you.
[The prepared statement of Mr. Meredith follows:]
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Senator Breaux. Next, Mr. Klein.
STATEMENT OF JAMES A. KLEIN, PRESIDENT, AMERICAN BENEFITS
COUNCIL, WASHINGTON, DC
Mr. Klein. Thank you, Mr. Chairman. By way of introduction,
the American Benefits Council represents companies that either
sponsor or provide services to health and retirement plans that
cover 100 million Americans, so our interest in this issue is
very keen, indeed.
I would really just like to use my few moments to make five
relatively quick points. The first is that the business
community, my organization, and the organized labor community's
views are in complete alignment that the Erie County case was
wrongly decided and that the EEOC rule is not somehow breaking
some new public policy ground, but really, it is simply helping
to restore us to the situation that business and labor always
understood was both the correct law, as well as good public
policy, before the Erie County case. The fact is that the
EEOC's action is consistent with what the law has continued to
be for the last 4 years everywhere in the country other than
the Third Circuit.
My second point is that I really would like to take head-on
this criticism that the EEOC's rule will somehow give employers
a green light to reduce or drop coverage for the over-65 group.
I suppose by the same rationale I could point to the decline of
retiree health care coverage in the last 4 years and say that
it is the faulty decision in the Erie County case that accounts
for the fact that this retiree health care coverage has been
declining. But I think that both that contention, as well as
the claim that somehow the EEOC rule will contribute to the
drop of coverage, both of those contentions, both of those
claims, would be terribly misleading to you in Congress.
I think that the unfortunate reality is that absent other
public policy initiatives, health care coverage for retirees,
both those before age 65 as well as those over age 65, are
likely to continue on their downward trend for reasons that
have absolutely nothing to do with the EEOC's rule, and for
reasons that have nothing to do with the Third Circuit Court of
Appeals decision. I think virtually all of my fellow panelists
here have identified what those reasons are.
You pointed out in your opening statement the statistics
about that incredible decline that we have seen over the last
15 years. I would add one other reason for the decline in
coverage, apart from the ballooning health care costs and apart
from the accounting standards that require these liabilities to
be reflected on the balance sheet. I would also point out a
lack of adequate vehicles to pre-fund, to pay for retiree
health care coverage, and I would like to discuss that further
in what will be my fifth point.
But in summarizing this one, I would just say that I really
cannot come before you in good conscience and say that the EEOC
rule will somehow rejuvenate the retiree health care system.
What I can say is that the rule is one of the few things that
can be done right now to at least make the declining trend less
severe than it otherwise might be, especially for those who are
most vulnerable, as Mr. Meredith said, those younger retirees
who are not yet eligible for Medicare.
My third point is that both we and the labor community, the
business community and others, as well as the critics of the
EEOC, could speculate indefinitely about the impact of this
EEOC rule. But the one thing that we don't need to speculate
about is what actually happened to the retirees in the Erie
County case. Following the Third Circuit Court of Appeals
decision in the Erie County case, the older retirees did not
have their benefits increased, as the plaintiffs would have
liked. Rather, the younger retirees had their benefits reduced,
which the employer found necessary to do in order to ensure
that it was not violating the age discrimination law.
That result, reducing the benefits to younger retirees, is
exactly the outcome that Congress hoped to avoid when in 1990
it passed the Older Worker Benefit Protection Act. I think
anyone who thinks that employers are somehow going to boost
benefits to older retirees is not really paying attention to
the realities of the health care system.
My fourth point is really that most employers view Medicare
as the principal health plan for their retirees once they reach
age 65. Most employers that do provide retiree health coverage,
do provide some additional benefits for those things that are
not covered by Medicare. But by contrast, the benefits that are
provided to non-Medicare-eligible retirees are typically just
an extension of whatever coverage the company has been
providing to its active workers. So that is a very crucial
distinction to be made.
In no way should this be somehow considered age
discriminatory. It is just common sense, and it was the topic
of considerable legislative history in the Older Worker Benefit
Protection Act.
I spoke in my second point about the EEOC rule and the
contention that it might give a green light to businesses to
cutoff coverage. I see that I have a red light, so I will just
wrap up with my fifth point if I may, very, very quickly, and
that is that I think that this controversy is really a very
serious distraction from what Congress should be considering,
which is how to reverse this trend that we all have spoken
about and that you introduced in your opening remarks.
We have just three specific suggestions, which I would be
happy to elaborate on further in the question period, and in
fact, since my time is up, why don't I stop there and just
invite you if you would like to ask me questions about them.
Senator Breaux. Thank you very much, Mr. Klein.
[The prepared statement of Mr. Klein follows:]
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Senator Breaux. I thank each and every panel member for
their presentations. It is an incredibly important issue and
there is a great deal, I would say, of misunderstanding about
the EEOC decision. I have had people come up to me and say that
the Erie case and EEOC decision are going to mean that retirees
will lose all their health coverage and they are scared to
death. That is unfortunate.
But it seems to me that there are about three million or
so, Ms. Neuman, pre-65 retirees that have employer-sponsored
health insurance and there are about 11 million post-65 that
have some form of supplemental or employer-sponsored health
assistance. It seems to me that without the EEOC decision, that
if somehow we are going to say there cannot be a difference
between those two categories and what an employer provides
them, then employers have two choices. One, they can increase
11 million and make it equal to the three million, or they can
reduce the three million to make them equal to the 11 million.
It is a simplification, but is that sort of correct?
Dr. Neuman. I think that is fair.
Senator Breaux. Dr. Olsen, I don't know any company in the
United States, and maybe in the AARP shop there is a library of
companies on a computer, that are increasing the retirees'
health benefits. In fact, I think there are libraries full of
companies in this country that are doing just the opposite. So
how does AARP reach the conclusion that disagrees so vehemently
with the EEOC and hopes that the result will be that both sides
would have an increase in their benefits, as opposed to what
has happened?
Dr. Olsen. Well, first of all, probably in the library
there might be one company, but I doubt it.
Senator Breaux. Yes.
Dr. Olsen. The second thing is, this is really a company-
by-company situation and obviously it would vary by the
company, and it did with Erie County. My understanding is after
Erie County and the issue was settled, including with the
support of the EEOC, there was a guidance issue that provided
that, in fact, they would supplement up to Medicare and the
Medicare counted as an equivalency factor. Therefore, I think
these things can be worked out to make them equal.
What we are having a problem with, instead of doing
something like this, we are doing this, is just taking away the
benefit from those, and I take your word if it is 11 million, I
thought it was 12, but a lot of people----
Senator Breaux. It is close enough for Congressional
purposes.
Dr. Olsen. It is close enough, right. You said it, not me.
[Laughter.]
But anyway, to me, that seems to be the solution we are
taking. We recognize health care costs are rising and there are
all these problems and we have worked with you, as you know, on
these issues and it just seems to us there has got to be some
equitable solution for these folks and a reasonable answer for
the employer without just giving the green light to toss all
these folks out to pasture.
Now, the thing to remember----
Senator Breaux. Which folks are AARP----
Dr. Olsen. We are representing both of them.
Senator Breaux. OK. Which folks are AARP concerned about
being tossed out?
Dr. Olsen. Well, under the way we are seeing it, these
after-65 folks on Medicare will no longer receive any
supplemental--well, I shouldn't say all, but this will
accelerate that tendency and that is our problem. We just think
there must be some solution that can be worked out.
As I understand the guidance that the EEOC had issued after
Erie was allowing this system to operate, and that subsequently
has been removed as part of this rulemaking process.
Senator Breaux. Why would not companies, if they are faced
with a choice of not having to be able to provide two different
packages, not simply reduce the size and benefits of the pre-65
retirees----
Dr. Olsen. Well, I think there----
Senator Breaux [continuing]. In order to be in compliance?
Dr. Olsen. First of all, there is the entire health care
situation. That is a subject in another hearing. But there are
ways, and I think Ms. Neuman mentioned, within the retiree
system of reducing these costs. There are annual maximums.
There are these kinds of things. There are different ways of
approaching it.
But we just think there must be some equitable way that is
also reasonable to employers that we don't have to have a
system that allows the entire over-65 people to be pushed out
of the system.
Senator Breaux. It defies logic, at least to me, that if we
have a situation in this country where companies are, in fact,
reducing rather dramatically their retiree health benefits in
this country, that if all of a sudden we say that you are going
to have to add 11 or 12 million more that are going to have to
have exactly the same benefit and cost type of health plans as
everybody, that they have to increase it by 11 or 12 million
more, that that is not going to dramatically reduce the
benefits, particularly to those under 65. Those over 65 are
eligible for Medicare, so they are protected, I would argue,
very adequately under the Medicare program.
Mr. Klein, can you comment on the discussion I have just
had with Dr. Olsen?
Mr. Klein. I think you are 100 percent correct in your
analysis of the impact and, in fact, that is precisely what
happened to the retirees in the Erie County case. The older
retirees did not have their benefits increased. The employer
there realized that to protect itself against a claim of age
discrimination, it would have to reduce the benefits for the
younger retirees.
Senator Breaux. In the real world, I think everybody in
Congress, at least I think, is trying to make sure that
retirees get the best coverage they can possibly receive and it
is a combination of Medicare and some supplemental benefits to
raise the standard and to encourage through any way we can
employers to take care of those retirees before 65. That is
what I think everybody would hope we could reach.
Mr. Meredith, it seems that your emphasis was on the damage
that it does to your union members' negotiating ability and I
am not sure I followed it quite as well as I needed to. Can you
elaborate on the point you were trying to make?
Mr. Meredith. Yes, and I am sorry if I wasn't clear enough.
Essentially----
Senator Breaux. Oh, you were. I just didn't understand.
Mr. Meredith. Under the EEOC--I mean, part of negotiations
is to listen to the other side and try reaching compromises.
Under the Erie doctrine, the union cannot compromise. By law,
the union has one position, and when you can't compromise, it
is hard to get a deal.
Senator Breaux. So you can't compromise because you have to
have a whole package?
Mr. Meredith. We have got to tell the employer, in order to
make it legal, you have to give the post-retirees the exact
same benefits you give pre-retirees on a wrap program, and
sometimes we are able to get that. But increasingly, it is
difficult----
Senator Breaux. That would be a good goal if you could get
that.
Mr. Meredith. That is always our first position in
negotiations. But with the EEOC, it is our first and last
position, and as a result, we feel we can lose everything,
because when you are stuck with all or nothing, you frequently
end up with nothing, and that is what we feel the Erie doctrine
was driving unions into, the inability to reach reasonable
compromises with the employer to get the best deal available.
Senator Breaux. For non-union retirees, they don't have a
shot.
Mr. Imparato, you have listened to this debate. From my
opinion, EEOC has clearly carved out a position of
discrimination, but they would argue, and I would tend to
agree, that in doing that, they are actually trying to increase
the benefits of both categories that they are, in fact,
discriminating against, because they feel that if we don't have
this, that those in the previous category, pre-65, run the risk
of having nothing at all, which companies can legally do right
now. Rather than risk that, they have said, ``All right, they
can have a plan that is different from what is received by
people in the post-65.''
So discrimination, under their argument, at least as I see
it, would actually bring about a greater equality of both sides
having a pretty solid, even set of health benefits, one being
employer partially provided and the rest picked up by Medicare,
so they have got a pretty good plan that equals what is over
here by the private employer. I mean, that is their argument as
I understand it. What is wrong with that?
Mr. Imparato. I would go back to this whole issue of what
is equitable and what are the purposes of the Age
Discrimination in Employment Act? Why do we have the law to
begin with?
In terms of what is equitable, from my perspective, an
employer is going to spend X-amount of money on retiree health
benefits. We want the Age Discrimination in Employment Act to
be enforced in a way that makes sure that that money gets spent
in a way where people under 65 and over 65 are able to benefit,
but that it is not disproportionately benefiting the people
under 65.
To me, the reason we have this Age Discrimination in
Employment Act is because there is a long history of employers
writing people off after they get to a certain age and trying
to focus on the younger, healthier workforce, and to me, this
phenomenon of providing greater benefits for people under 65
than for people over 65 is part of that history. People over 65
are more vulnerable. They are not in the workforce anymore.
They are not represented by the unions, to a large extent. If
their benefits are not protected by this Federal law, they are
more likely to experience discrimination and to experience
inequitable distribution of the money that the employers are
willing to spend on retiree health benefits.
Senator Breaux. I would argue that the nondiscrimination
law is to ensure equal results. It is not to ensure that an
employer put up the same amount of money for a pre-65 as
opposed to a post-65. The law is to require health benefits to
people in all categories. Under the EEOC's concept, is that
everybody would end up with approximately the same health
benefits, one of them 100 percent provided by their employer,
the other one 100 percent provided by the Federal Government
through Medicare, both with a small contribution from the
individual. But the end result is they are both getting the
same amount of health care.
Mr. Imparato. But Senator----
Senator Breaux. That is not discrimination.
Mr. Imparato. Senator, what you just articulated is the
Erie doctrine. The Erie doctrine, which was the law before
EEOC's final rule, was that there are equal benefits or equal
costs to the employer for the two populations, and what you
just described, if the over-65 population has Medicare and the
under-65 has the equivalent of Medicare, unless I am missing
something, that would satisfy the Erie doctrine. They are both
getting equal benefit as retirees. Am I missing something?
Senator Breaux. I am missing it, because my understanding
is it is a question of what kind of plan the employer provided,
and if the employer provides more benefits for a pre-65 than
that employer provides to a post-65, that is, under the Erie
case, illegal discrimination based on age by the employer.
Mr. Imparato. Let us go back to your hypothetical. Let us
say an employer for the over-65 population only provides
Medicare. So basically, they provide no retiree health
benefits.
Senator Breaux. They provide zero.
Mr. Imparato. For the under-65 population, they provide the
exact equivalent of Medicare plus, let us say, better
prescription drug coverage than Medicare, even the revised
Medicare. From my perspective, that is not equitable because
they are spending more money on the under-65 population on a
benefit that the over-65 population equally needs.
Senator Breaux. Mr. Klein.
Mr. Klein. I just think that it may be an accurate
portrayal of the case, but it is a tortured explanation of what
constitutes discrimination. As I said, employers consider
Medicare to be the basic plan that individuals get when they
reach age 65, and for reasons that have been amply discussed by
everyone here, there are more and more employers finding it
difficult to continue to sponsor their own coverage both for
actives as well as for retirees.
If the employer nonetheless wants to help bridge people
over until they reach that point where they will get Medicare,
and, in fact, may offer something in addition to Medicare, as
most employers do who offer coverage, it is hard for me to
understand how that can be construed as being discriminatory. I
think it just artificially pits one group of retirees against
another.
Employer-sponsored coverage is something that is the cost
is borne by employers and employees or early retirees. Medicare
is something that is paid for through employer and employee
contributions through payroll taxes. I just think that it is a
rather tortured interpretation.
Senator Breaux. Ms. Neuman, can you help us out from a
Kaiser perspective, not arguing for or against, but what is the
projection from maybe your people as to what would likely
happen, considering where we are today, in the area of health
care if the Erie case had been allowed to stand as it was
originally decided?
Dr. Neuman. Mr. Chairman, we have been tracking trends in
coverage and we continue to do that. We are looking to see what
will happen in the future. I don't think it is possible to tell
from the work that we have done how the Erie decision, one way
or another, would have affected changes in the coverage.
Senator Breaux. OK. Is the Erie decision a positive for an
employer providing health benefits to their retirees or is it a
negative?
Dr. Neuman. You know, I wish I could answer that question.
I am not trying to be evasive, but based on the work that we
have done, I really can't speak to that.
Senator Breaux. Well, let us discuss it, then. How would it
be positive? How would a decision that says that they have to
provide the same benefits to post-65 retirees be positive for
them and how would it be negative?
Dr. Neuman. Well, from a retiree point of view----
Senator Breaux. No, from an employer who is providing the
insurance, how would the requirement that you add the 11 to 12
million more to have the same benefits as those you are
providing to pre-65 be good for the employer's ability to
provide health insurance and how would it be bad?
Dr. Neuman. The issue from an employer point of view is one
of costs and employers have to make decisions about how they
are going to be controlling costs. One thing our survey has
suggested is that employers are looking at a variety of
strategies that are out there, including where to look for
savings, and this could be one of the places that they would
need to turn to in order to be responsive to a requirement to
provide equal----
Senator Breaux. I want to keep it very simple. If I am
having trouble providing an employee plan for somebody that
used to work for me that is not yet 65 and I provide less for
the people that used to work for me that are over 65, and I am
having trouble with the first group and somebody tells me I
have also got to provide the same benefits for those who are
after 65, how in the heck can that be nothing but terrible?
They are already dropping the ones pre-65.
Dr. Neuman. Right.
Senator Breaux. If I have got to add 11 million more that
have insurance after 65, how can that be anything but awful?
Mr. Klein?
Mr. Klein. I can't say it any more eloquently than you just
did, sir.
Senator Breaux. It is not very eloquent. That is Louisiana.
[Laughter.]
Dr. Olsen.
Dr. Olsen. I guess I don't think anybody is saying to raise
the level of Medicare benefits. I think we are trying to
discuss with the EEOC of a way of establishing this as an
equivalency that makes some sense, and in discussions, and
maybe the----
Senator Breaux. Let me jump in on that point. I am sorry to
interrupt, but you talked about an equivalency.
Dr. Olsen. Right.
Senator Breaux. Is AARP satisfied, if the employers were
providing a health benefit plan for pre-65 and then they were
providing a plan for those over 65 that was equivalent when you
consider what Medicare contributes and what the employer
contributes, is that the equivalency you are OK with?
Dr. Olsen. Yes. We have been satisfied with the idea of the
supplement representing an equivalency, and that was the
guidance of the EEOC after Erie and up until now.
If I could make one other comment, I know we were involved
a few months ago relative to employee retirement coverage when
the Medicare Rx thing was at its peak.
Senator Breaux. We heard a word or two from you.
Dr. Olsen. Yes, a word or two. [Laughter.]
So Congress, I think very fortunately, added a lot of
subsidies and incentives for the employer community to continue
coverage, and there is even some thought that maybe this would
help a little. We have to wait and see. But clearly, we are in
an interim period before this starts in 2006.
Therefore, I guess I am somewhat astonished and amazed that
we would now come out about halfway through this interim period
with a rule that almost seems to give a green light to dropping
coverage when just a few months ago, we created all these
subsidies for employers to keep the coverage.
Senator Breaux. I recognize that.
Dr. Olsen. Thank you.
Senator Breaux. Mr. Klein, back to the point we talked
about, the concept of an employer providing one set of benefits
for pre-65 retirees and providing a different set for post-65
but with the Medicare benefits would be the same as the pre-65.
Dr. Olsen says that is what AARP is supporting. What is your
comment on that?
Mr. Klein. I think my understanding, too, of the ``equal
cost-equal benefit'' rule is that if the benefits that are
being provided are equal, that is considered per se to be not
discriminatory. But if you have a result where the benefits are
less for one group than another, you can nonetheless still
demonstrate that you are not discriminating if the cost that
you incur is the same.
Therefore, I think we have to take the analysis further to
answer your question. If you have a situation where the under-
age 65 group is actually getting overall better coverage, more
coverage than the over-age 65 group when you add up Medicare
plus whatever it is their employer is providing, I think the
AARP would say that that is discriminatory, and I think that
there are two compelling reasons that it is not.
The first is the ample legislative history, which is
described in some length in my written testimony, that Congress
specifically addressed this point when it took up the Older
Worker Benefit Protection Act in 1990 and specifically sought
to exempt the retiree situation. It spoke about older versus
younger workers. It wasn't referring to retirees and
specifically had discussions and colloquies about being able to
preserve this kind of, if you want to call it, disparate
treatment.
The second reason is that it is a somewhat convoluted
interpretation of discrimination to say that that older group
is being somehow discriminated against simply because the
employer is spending more money on the younger group. Absent
the employer spending that money, that younger group is going
to get nothing.
Senator Breaux. But I have a little bit of a problem with
the concept that an employer would be able to spend $5 on a
pre-65 retiree, but then for a post-65 retiree, I am only going
to spend $2, even though Medicare is not going to make up the
other $3. That would mean that that employer's actual
contribution does not produce the same result. Is that not
discrimination that should be avoided and illegal?
Mr. Klein. I don't think so, and I don't think that that is
the position of Congress back when it amended the Age
Discrimination in Employment Act, and I think even if you
feel----
Senator Breaux. Why should an employer be able to spend
less money for an older worker than a younger retiree when the
older worker generally will have substantially higher needs
from a health standpoint?
Mr. Klein. Well, the younger worker--I am sorry, the
younger retiree would still have health care needs that might
not be met----
Senator Breaux. Yes, but it is clear that the post-65 is
going to have substantially higher health costs than a pre-65
worker. I mean, that is just a fact.
Mr. Klein. Well, I think that we have to sort of accept the
notion, whether as a matter of social policy, what we are
providing under Medicare is an appropriate benefit for a group
that is age 65 and over.
Senator Breaux. Yes, but we talked about--my question was--
--
Mr. Klein. No, and once one accepts that----
Senator Breaux. My question said, suppose you are not
reaching an equal point. Then you are saying that the employer
should have the right to contribute less to a post-65 retiree's
health benefits who has higher cost than they would be able to
contribute to a pre-65 retiree who has a lower cost. That, I am
not sure I can handle.
Mr. Klein. Well, I guess I would just say two things in
response to that. One, as a general rule, it is certainly an
accurate statement that older retirees have higher health care
costs than younger retirees. But on an individualized basis,
that wouldn't, of course, necessarily be the case.
The other point is that even if one disputes the conclusion
of Congress previously as to the non-applicability of any of
this to retiree health, was it really Congress's intention to
get into a distinction between levels of coverage between the
pre-65 as well as the post-65? Would they be in the protected
class.
Senator Breaux. I imagine some companies, Ms. Neuman
perhaps knows or anybody, would provide health care coverage
for their retirees only until they get to be 65 and contribute
nothing after that.
Mr. Klein. Well, the other----
Senator Breaux. Let me ask Ms. Neuman if that is correct.
Dr. Neuman. Some do, but most of the firms in our survey
provided both the pre-65 and a 65-plus.
Senator Breaux. But it is about almost up to 20 percent, I
think, that provide it only to pre-65.
Mr. Klein. Senator, I think your analysis is absolutely
correct there, but the way that employers are going to rectify
the situation is by what you mentioned earlier. They are going
to then just spend only $2 on the pre-age 65 folks.
Senator Breaux. I think that everyone has had a chance to
really spell out your views on the thing. It is indeed a
complicated situation. This is not easy, but neither is
anything else dealing with health care. It is very, very
complicated and is the real challenge, I think, that we as a
nation have.
We are debating health care coverage for people who have
health care coverage. We still have 41 or 43 million Americans
now who have none at all, zip, zero. We arguably are the
richest nation in the history of the world and we have 43
million Americans who have no coverage at all for their health
care, which is absolutely--it should be unacceptable in this
country.
I would suggest that before we all meet in the Federal
courthouse on this issue that the groups like yours that are
here try to get together and see if there is some
recommendation that could be jointly made to Congress about how
we can legislatively address this. The other alternative is
everybody go to the courthouse and litigate. I am not sure
there are enough clear laws on the books to really bring about
the best result.
Anti-discrimination laws are what we are litigating under,
but I am not sure they quite fit the health situation that we
are trying to figure out. I think we are all trying to make
sure people who are retired get the best health coverage they
possibly can get. That is the goal. I am not sure the anti-
discrimination laws are designed to produce that result in
these unusual circumstances, so it may mean that we need
something else.
I would just encourage all of you to become involved in a
serious effort in the private sector to come up with
recommendations that we might consider, because everybody has a
major interest in this. This is not something I think can be
handled in the courthouse. It should be handled in the
Congress, and hopefully we can use your recommendations to look
for a solution. Boy, if we could get some kind of a generic
recommendation from all sides, it would be very, very helpful
to the people you represent as well as to the people that we
represent.
With that, this committee hearing will be adjourned. Thank
you very much.
[Whereupon, at 3:23 p.m., the committee was adjourned.]
A P P E N D I X
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