[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

                              ----------                              
                                                                   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.]


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