[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





    CHALLENGES TO EMPLOYER EFFORTS TO PRESERVE RETIREE HEALTH CARE 
                               BENEFITS

=======================================================================

                                HEARING

                               before the

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             April 28, 2005

                               __________

                           Serial No. 109-12

                               __________

  Printed for the use of the Committee on Education and the Workforce



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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Howard P. ``Buck'' McKeon,           Major R. Owens, New York
    California                       Donald M. Payne, New Jersey
Michael N. Castle, Delaware          Robert E. Andrews, New Jersey
Sam Johnson, Texas                   Robert C. Scott, Virginia
Mark E. Souder, Indiana              Lynn C. Woolsey, California
Charlie Norwood, Georgia             Ruben Hinojosa, Texas
Vernon J. Ehlers, Michigan           Carolyn McCarthy, New York
Judy Biggert, Illinois               John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    Ron Kind, Wisconsin
Patrick J. Tiberi, Ohio              Dennis J. Kucinich, Ohio
Ric Keller, Florida                  David Wu, Oregon
Tom Osborne, Nebraska                Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Susan A. Davis, California
Jon C. Porter, Nevada                Betty McCollum, Minnesota
John Kline, Minnesota                Danny K. Davis, Illinois
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Bob Inglis, South Carolina           Chris Van Hollen, Maryland
Cathy McMorris, Washington           Tim Ryan, Ohio
Kenny Marchant, Texas                Timothy H. Bishop, New York
Tom Price, Georgia                   John Barrow, Georgia
Luis G. Fortuno, Puerto Rico
Bobby Jindal, Louisiana
Charles W. Boustany, Jr., Louisiana
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New 
    York

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director
                                 ------                                

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                      SAM JOHNSON, Texas, Chairman

John Kline, Minnesota, Vice          Robert E. Andrews, New Jersey
    Chairman                         Dale E. Kildee, Michigan
John A. Boehner, Ohio                Donald M. Payne, New Jersey
Howard P. ``Buck'' McKeon,           Carolyn McCarthy, New York
    California                       John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    David Wu, Oregon
Patrick J. Tiberi, Ohio              Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Betty McCollum, Minnesota
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Kenny Marchant, Texas                George Miller, California, ex 
Bobby Jindal, Louisiana                  officio
Charles W. Boustany, Jr., Loiusiana
Virginia Foxx, North Carolina


                                 ------                                
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on April 28, 2005...................................     1

Statement of Members:
    Andrews, Hon. Robert E., Ranking Member, Subcommittee on 
      Employer-Employee Relations, Committee on Education and the 
      Workforce..................................................     4
    Boehner, Hon. John A., Chairman, Committee on Education and 
      the Workforce, prepared statement of.......................    37
    Johnson, Hon. Sam, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the 
      Workforce..................................................     2
        Prepared statement of....................................     3

Statement of Witnesses:
    Dochat, Fred, Member, AARP, Lancaster, PA....................    20
        Prepared statement of....................................    21
    Greenfield, Douglas, Esq., Attorney, Bredhoff & Kaiser, 
      P.L.L.C., Washington, DC, on behalf of the National 
      Education Association......................................    12
        Prepared statement of....................................    14
    Silverman, Hon. Leslie E., Commissioner, Equal Employment 
      Opportunity Commission, Washington, DC.....................     6
        Prepared statement of....................................     8
    Spencer, Steven D., Esq., Partner, Morgan, Lewis & Bockius 
      LLP, Philadelphia, PA, on behalf of the U.S. Chamber of 
      Commerce...................................................    23
        Prepared statement of....................................    24

Additional materials supplied:
    HR Policy Association, Washington, DC, statement submitted 
      for the record.............................................    38

 
CHALLENGES TO EMPLOYER EFFORTS TO PRESERVE RETIREE HEALTH CARE BENEFITS

                              ----------                              


                        Thursday, April 28, 2005

                     U.S. House of Representatives

               Subcommittee on Employer-Employee Relations

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The Subcommittee met, pursuant to notice, at 10:30 a.m., in 
room 2175 Rayburn House Office Building, Hon. Sam Johnson 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Johnson, Kline, McKeon, Tiberi, 
Marchant, Andrews, Kildee, Payne, McCarthy, Tierney, Wu, and 
Holt.
    Staff present: Kevin Frank, Professional Staff Member; Ed 
Gilroy, Director of Workforce Policy; Aaron Griffin, 
Professional Staff Member; Richard Hoar, Staff Assistant; Jim 
Paretti, Workforce Policy Counsel; Steve Perrotta, Professional 
Staff Member; Molly Salmi, Deputy Director of Workforce Policy; 
Deborah Samantar, Committee Clerk/Intern Coordinator; Kevin 
Smith, Senior Communications Advisor; Jody Calemine, Minority 
Counsel Employer-Employee Relations; Tylease Fitzgerald, 
Minority Staff Assistant; Margo Hennigan, Minority Legislative 
Assistant/Labor; and Peter Rutledge, Minority Senior 
Legislative Associate/Labor.
    Chairman Johnson. A quorum being present, the Subcommittee 
on Employer-Employee Relations of the Committee on Education 
and the Workforce will come to order.
    We are holding this hearing today to hear testimony on 
``Challenges to Employer Efforts to Preserve Retiree Health 
Care Benefits.'' Before we do that, I want to tell you all that 
this is take your child to work day here in Washington, and we 
have got some staff over here with their children. And I wonder 
if you all would all stand up and be recognized, and we thank 
you for coming.
    [Applause.]
    Chairman Johnson. Thank you so much. Kids are our most 
important product and the future of America, I think you would 
all agree with that.
    Under Committee Rule 12(b) opening statements are limited 
to the Chairman and Ranking Minority Member of the 
Subcommittee. Therefore, if other Members have statements, they 
will be included in the hearing record. With that, I ask 
unanimous consent for the hearing record to remain open 14 days 
to allow Member statements and other extraneous material 
referenced during the hearing to be submitted in the official 
hearing record. Without objection, so ordered.

   STATEMENT OF HON. SAM JOHNSON, CHAIRMAN, SUBCOMMITTEE ON 
  EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE 
                           WORKFORCE

    I want to extend a warm welcome to all of you and the 
Ranking Member, Mr. Andrews, he and I are on the same page on 
this issue, thank goodness, as we are on most of the issues 
that this Committee has, by the way, and to my other 
colleagues.
    Over the past 4 years, employers have experienced annual 
double-digit health care cost increases, an average of just 
over 11 percent this year alone. Small businesses usually see 
increases that can double those of larger companies. As we have 
discussed many times in recent years, these continual health 
care increases force employers to decide if and how they will 
continue voluntarily providing the same benefits they have in 
the past.
    In response to these annual increases, many employers are 
redesigning their health care plans and implementing new 
options, such as HSAS and other consumer-driven plans, to help 
employees become more savvy consumers of health care. Some are 
rethinking their cost sharing arrangements and are considering 
other approaches to keep the pace of growth in annual costs 
reasonable.
    Many employers currently provide health benefits to their 
retirees who have not yet become eligible for Medicare. The 
coverage these early retirees receive is known as ``bridge'' 
coverage. When retirees turn age 65 and become eligible for 
Medicare, this bridge care is generally modified or coordinated 
to take into account the benefits provided by Medicare. 
Numerous groups, like unions, employers and employees consider 
this a fair and reasonable approach. Simply put, the employer 
often provides the entire benefit to an early retiree, while 
one over 65 receives Medicare plus a benefit.
    Unfortunately, in August 2000, the United States District 
Court for the Eastern District of Pennsylvania, in the case of 
Erie County Retirees Association v. County of Erie, ruled that 
the coordination of employer provided health benefits with 
Medicare was age discrimination and violated the Age 
Discrimination in Employment Act. The Court's decision prompted 
serious concerns from many of us in this room, who feared it 
would encourage employers to reduce or drop coverage all 
together for their retires who are under age 65 rather than 
enrich coverage for retirees age 65 and older.
    Sadly, that is exactly what happened in Erie County. The 
county pared back health coverage for retirees under age 65 and 
began charging them a premium equal to the Medicare monthly 
premium.
    Let's think about this, what is the most fair and logical 
approach that continues to provide peace of mind for seniors 
when it comes to their health benefits? Do we want to 
jeopardize a voluntary employer-provided health benefit for 
some seniors? Does this potentially encourage employers to drop 
this added luxury for its former employees? With rising costs, 
common senses says we should make it easier, not harder, for 
employers to offer retiree health benefits.
    My hope is that today's hearing will explore answers to 
those questions and help educate this Subcommittee on the 
potential ramifications of this important issue, for both 
employees and employers.
    I welcome our witnesses and look forward to their testimony 
today. I will now yield to the distinguished Ranking Minority 
Member of the Subcommittee, Mr. Rob Andrews, for whatever 
opening statement he wishes to make.
    [The prepared statement of Chairman Johnson follows:]

 Statement of the Hon. Sam Johnson, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the Workforce

    Good morning. Let me extend a warm welcome to all of you, to the 
Ranking Member, Mr. Andrews, and to my other colleagues.
    Over the past four years, employers have experienced annual double-
digit health care cost increases-an average of just over 11% this year 
alone.
    Small businesses usually see increases that can double those of 
larger companies.
    As we have discussed many times in recent years, these continual 
health cost increases force employers to decide if and how they will 
continue voluntarily providing the same benefits they have in the past.
    In response to these annual increases, many employers are 
redesigning their health plans and implementing new options, such as 
HSAS and other consumer driven plans, to help employees become more 
savvy consumers of health care.
    Some are rethinking their cost sharing arrangements and are 
considering other approaches to keep the pace of growth in annual costs 
reasonable.
    Many employers currently provide health benefits to their retirees 
who have not yet become eligible for medicare.
    The coverage these early retirees receive is known as ``bridge'' 
coverage.
    When retirees turn age 65 and become eligible for medicare, this 
``bridge'' coverage is generally modified or ``coordinated'' to take 
into account the benefits provided by medicare.
    Numerous groups, like unions, employees, and employers consider 
this a fair and reasonable approach.
    Simply put, the employer often provides the entire benefit to an 
early retiree, while one over 65 receives medicare plus a benefit.
    Unfortunately, in August 2000, the U.S. District Court for the 
Eastern District of Pennsylvania, in the case of Erie County Retirees 
Association v. County of Erie, ruled that the coordination of employer 
provided health benefits with medicare was ``age discrimination'' and 
violated the Age Discrimination in Employment Act.
    The court's decision prompted serious concerns from many of us in 
this room, who feared it would encourage employers to reduce or drop 
coverage altogether for their retirees who were under age 65 rather 
than enrich coverage for retirees aged 65 and older.
    Sadly, that is exactly what happened in Erie county. the county 
pared back health coverage for retirees under age 65 and began charging 
them a premium equal to the medicare monthly premium.
    Let's think about this. What is the most fair and logical approach 
that continues to provide peace of mind for seniors when it comes to 
their health benefits?
    Do we want to jeopardize a voluntary employer-provided health 
benefit for some seniors? Does this potentially encourage employers to 
drop this added luxury for its former employees?
    With rising costs, common sense says we should we make it easier--
not harder-for employers to offer retiree health benefits.
    My hope is that today's hearing will explore answers to those 
questions and help educate this subcommittee on the potential 
ramifications of this important issue--for both employees and 
employers.
    I welcome our witnesses and look forward to their testimony today.
                                 ______
                                 

     STATEMENT OF HON. ROBERT E. ANDREWS, RANKING MEMBER, 
   SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON 
                  EDUCATION AND THE WORKFORCE

    Mr. Andrews. Good morning, Mr. Chairman, thank you for your 
kind greeting this morning. I would like to welcome the sons 
and daughters of the Members and staff that are here. My 
daughters are with their mother today for take your children to 
work day; they made a much wiser choice than coming to work 
with me. See, at an early age they are developing good 
judgment. We are happy that you are with us, and we appreciate 
your participation. I also thank the witnesses for their time 
this morning.
    There is not a person on the panel, I am sure, and not a 
person in the room who does not share the view that we want the 
law to ensure fairness for retirees. We never want any person 
to be deprived of health benefits, or any other benefit, 
because of his or her age. I think that is a starting point for 
this discussion. We do understand that in the pursuit of that 
goal we have a court decision in front of us that I think 
produces precisely the opposite result, and in fact is likely 
to reduce health benefits for retirees across the country. The 
EEOC has attempted to grapple with this problem. And today the 
Committee is joining with the EEOC and the other witnesses to 
try to confront how to solve the problem.
    Here is how I see it. After the Erie County decision was 
handed down in 2000, and especially after the United States 
Supreme Court declined to review the decision, employers were 
put in a situation where they had three very difficult options 
when confronting the question as to what to do with respect to 
retiree health benefits. And in this discussion the world of 
retiree health benefits now falls into two categories. There 
are retiree health benefits for those employees who have not 
yet reached the age of Medicare, and then retiree health 
benefits for those who have. The Erie County decision suggests 
that an employer needs to look very, very carefully at how he 
or she distinguished between those two categories when making a 
decision.
    And as I see it, that case misunderstands the legislative 
history that led to enactment of this law. But, more 
importantly, creates a three-way choice for employers that is 
very difficult indeed.
    The first choice, at least in theory, is to make sure that 
you provide equivalent benefits for the pre-Medicare retiree 
and the post-Medicare retiree. That is, that you produce what 
we might call a wrap-around policy that gives the post-Medicare 
retiree the same benefits that he or she would have had prior 
to attaining the age of Medicare at 65. That sounds achievable 
in theory. It is very, very difficult to achieve in practice. 
And I think it puts the employer into an ambiguity that no 
employer would welcome. For example, if the plan that a person 
was in before attaining 65 is a PPO plan, where you can choose 
whichever provider you want but have to pay different levels 
out of your own pocket, depending upon to whom you go, and then 
the wrap-around coverage that a company's Medicare is based 
upon is an HMO instead of a PPO, is that equivalent coverage? 
Does it matter if they cover exactly the same benefits or not? 
What if the PPO coverage didn't cover eyeglass coverage but the 
HMO does or vice versa, does that make it equivalent or not?
    My experience is that when you confront employers with 
ambiguity, they choose the course of certainty. And there are 
two decisions an employer could make that would certainly put 
them within the ambit of legality under the Age Discrimination 
Act, as interpreted by the Erie County decision. The first 
choice that they could make is to give a flat dollar amount to 
every retiree. Say, all right, here is how we are going to 
resolve this problem. We are going to spend ``X'' number of 
dollars per year for each retiree, whether they are pre-
Medicare or post-Medicare.
    Well, if you do that, my sense is the result will be 
catastrophic for retirees younger than 65, because the amount 
of money that the employer would have to spend on a retiree who 
is in Medicare would be far smaller than the amount of money 
that the employer would have to spend on the pre-65 retiree. 
What that means would be a huge increase in health care costs 
for retirees younger than 65. That is not a desirable outcome 
for anyone.
    The third option, the worst option, would be to spend zero. 
Remove yourself from the world of ambiguity by saying fine, if 
we have to worry about being sued for invidious discrimination 
against our retirees if there is any daylight between what we 
do for our pre-65 people and our post-65 people, let's end the 
ambiguity altogether and not cover either one.
    Now, I don't know that there is data that suggests that 
that is happening yet. I don't believe the data do suggest 
that, and I am glad that the evidence does not suggest that. 
But I am concerned that that is the direction in which we will 
be heading.
    So I see our objective here, Mr. Chairman, as removing that 
ambiguity from employers while preserving the principle of 
fairness so that you can't be discriminated against because of 
your age. And I think the unfortunate consequence of the Erie 
County decision is it may in fact promote age discrimination by 
reducing health care benefits for retirees younger than 65.
    So I look forward to hearing from the witnesses this 
morning and thank you for this opportunity.
    Chairman Johnson. Thank you. I do, too. And it looks like 
it already happened up there, they are charging them for 
insurance where they were providing as part of their benefit.
    We have got a very distinguished panel of witnesses before 
us today, and I want to thank you all for coming. First, we are 
going to hear from the Honorable Leslie Silverman. Ms. 
Silverman is a commissioner at the Equal Employment Opportunity 
Commission. Thank you for being here.
    Next will be Mr. Douglas Greenfield. Mr. Greenfield is an 
attorney with Bredhoff & Kaiser, located here in Washington, 
D.C. He will be testifying on behalf of the National Education 
Association today.
    And following him, Mr. Fred Dochat. Did I say that 
correctly? Dochat. Mr. Dochat is a member of the AARP in 
Lancaster, Pennsylvania.
    And finally, we will hear from Mr. Steven Spencer. Mr. 
Spencer is a partner with Morgan, Lewis & Bockius in 
Philadelphia. He will be testifying on behalf of the U.S. 
Chamber of Commerce.
    Thank you all for being here. We appreciate your presence. 
We are going to be split by a vote here very shortly, and I 
intend to continue with the hearing during the vote.
    Before the witnesses begin their testimony, I would like to 
remind Members we will be asking questions after the entire 
panel has testified. In addition, Committee Rule 2 imposes a 5-
minute limit on all questions. And we would ask you all to 
adhere to the same restriction. There is a series of lights 
down there, you may have seen them. Green means you are in good 
shape. Yellow means you have got a minute. And the red says 
please turn it off if you can.
    With that, I recognize the first witness, Ms. Silverman.

  STATEMENT OF LESLIE E. SILVERMAN, ESQ., COMMISSIONER, EQUAL 
       EMPLOYMENT OPPORTUNITY COMMISSION, WASHINGTON, DC

    Ms. Silverman. Good morning, Mr. Chairman and Members of 
the Committee. 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. 
Although I knew it was bring your child to work day, I couldn't 
quite see my three- and 1-year-old daughters sitting quietly 
while mom testified.
    Chairman Johnson. I don't know, we would have enjoyed them 
walking up and down in front of us here.
    Ms. Silverman. On behalf of the Commission, I appreciate 
the opportunity to discuss our decision to create an exemption 
to the Age Discrimination in Employment Act. The exemption 
would allow employers to do what they have done for a long 
time, coordinate retiree health benefits with Medicare 
eligibility. This decision is best understood by remembering 
that employers are under no legal obligation to provide health 
benefits to retirees, even when they provide them to their 
employees. As you know, the rule is currently the subject of 
litigation, which I will also address briefly.
    In Erie County Retirees Association v. County of Erie, the 
Third Circuit Court of Appeals became the first appellate court 
to rule that coordinating retiree health benefits with Medicare 
eligibility violates the ADEA. Directed to come into compliance 
with the equal benefit/equal cost test, Erie County did so, not 
by improving the benefits of its Medicare-eligible retirees, 
but by curtailing the benefits for its younger retirees.
    Now the Commission initially adopted the Erie County ruling 
as its national enforcement policy. But our decision was widely 
condemned. Critics maintained that the Erie County rule would 
cause a reduction in retiree health benefits, just as it had 
for Erie County retirees.
    In May 2001, GAO issued a report on the status of retiree 
health benefits. The report confirmed that many employers were 
eliminating these benefits and suggested the Erie County ruling 
was a potential contributing factor. In light of the criticisms 
and the GAO report, in August 2001 a bipartisan unanimous 
consent rescinded the Erie County policy and agreed to study 
this issue. We then began a painstaking 3 year process to 
develop a new policy that would not deter employers from 
providing retiree health benefits but would still protect the 
integrity of the ADEA.
    Commission staff met with any stakeholders, including 
employers, labor unions, human resource and benefit 
consultants, actuaries, and state and local government 
representatives, to discuss the Erie County rule and potential 
alternatives. All agreed that many retiree health benefit plans 
do not comply with the Erie County rule.
    The Commission explored every viable alternative that we 
could think of or that was brought to our attention. Most 
focused on modifying the equal benefit/equal cost test to 
ensure that the majority of existing retiree health plans would 
pass muster. Ultimately, we found these alternatives 
unworkable.
    The ADEA provides the Commission with the authority to 
establish reasonable exemptions from the law when necessary and 
proper in the public interest. We concluded that a narrow 
exemption from the ADEA was the most effective way to assure 
that the Act did not cause further erosion of the retiree 
health benefits and that its protections otherwise remained 
intact.
    In July 2003, the Commission issued a Notice of Proposed 
Rulemaking. After reviewing the comments, the Commission 
decided to finalize the proposed exemption. The proposed rule 
supporters had produced evidence that the Erie County rule 
would diminish employer-provided retiree health benefits. 
Opponents produced no contrary evidence. Accordingly, the 
Commission approved a proposed final rule by a vote of three to 
one in April 2004.
    On February 4, 2005, while the rule was still awaiting 
final clearance at OMB, AARP filed suit to stop the rules 
publication, asserting statutory constitutional and procedural 
arguments. On March 30th, the Court enjoined the Commission 
from publishing the proposed exemption. The judge found that 
the Commission had argued persuasively that ``without the 
exemption employers will reduce or eliminate health benefits 
for all retirees, no matter what their age.'' But she ruled 
that we lacked the authority to create the exemption. The 
Commission disagrees with the judge's ruling and has requested 
that the Department of Justice appeal this decision.
    When the Commission initially adopted the Erie County rule, 
it expected that the rule would protect health benefits for 
retirees. In practice, however, that rule threatens to have the 
opposite effect. It encourages employers to curtail retiree 
health benefits or not to provide them at all. This is contrary 
to the public policy of encouraging health benefits for 
retirees and contrary to the spirit of the ADEA. In fact, the 
Commission believes that if the Erie County rule is left to 
stand, it will jeopardize the health benefits of all retirees.
    Mr. Chairman, the EEOC is proud of our efforts to protect 
the rights of older Americans against age discrimination in 
employment. And we remain committed to the vigorous enforcement 
of the ADEA and to the protection of older workers and 
retirees.
    I thank you and the Committee for your time and attention 
to this important matter.
    [The prepared statement of Ms. Silverman follows:]

   Statement of Hon. Leslie E. Silverman, Esq., Commissioner, Equal 
           Employment Opportunity Commission, Washington, DC

    Good morning Mr. Chairman and members of the Committee. I am Leslie 
Silverman, Commissioner of the Equal Employment Opportunity Commission 
(EEOC or Commission). Our Chair, Cari M. Dominguez, could not be here 
today and asked that I come in her stead. I am here to discuss the 
Commission's decision to create an exemption that would allow employers 
to continue coordinating the retiree health benefits they provide with 
Medicare eligibility without violating the Age Discrimination in 
Employment Act (the ADEA).
    On behalf of the Commission, I appreciate the opportunity to 
discuss this important issue. As you know, our proposed rule would 
provide a narrow exemption from ADEA prohibitions for the practice of 
coordinating employer-sponsored retiree health benefits with 
eligibility for Medicare or a comparable state health plan. Our rule, 
and the events that gave rise to it, can only be understood against the 
backdrop of the fact that employers have no legal obligation to provide 
any health benefits to retirees-even when they choose to provide health 
benefits to their employees.
    Let me begin by explaining the history of the rule, including the 
economic and legal conditions that prompted the Commission's action. 
This background explains why the Commission concluded that it should 
promulgate an ADEA exemption for the practice of coordinating retiree 
health benefits with Medicare.

A PYRRHIC VICTORY-THE ERIE COUNTY DECISION
    In the case of Erie County Retirees Ass'n v. County of Erie, a 
group of Medicare-eligible retirees sued their former employer, 
alleging that by providing health benefits to them that were less than 
those it provided to retirees not yet eligible for Medicare, the county 
was discriminating against them based on their age. These retirees, all 
age 65 and over, alleged that they had been given fewer choices of 
health care and had to pay higher premiums than the non-Medicare-
eligible retirees who were all under age 65 and that this violated the 
ADEA.
    The employer in Erie County provided health benefits for employees 
and retirees. County retirees were offered one of two plans depending 
upon whether or not they were Medicare eligible. If the retiree had 
retired before reaching Medicare eligibility, the employer provided a 
``bridge'' style health benefit until the retiree became eligible, 
usually at age 65. The bridge plan, so named because it bridges the 
period between an individual's retirement and the individual's 
eligibility for Medicare, was a hybrid point-of-service and HMO plan. 
Once a retiree became eligible for Medicare, he or she was converted to 
a plan that took Medicare benefits into account. Those retirees had to 
pay the premium for Medicare Part B, which was more than the premium 
paid by the non-Medicare eligible retirees. The health benefits for 
Medicare-eligible retirees were provided through an HMO that had lower 
deductibles and co-payments, but more restrictions on choice of 
provider than the bridge plan.
    The district court agreed with the retirees that, because Medicare 
eligibility depends on age, providing different retiree benefits based 
on Medicare eligibility was age discriminatory. However, it also held 
that retirees are not covered by the ADEA. The retirees appealed.
    In January 2000, the Commission filed an amicus curiae brief in the 
retirees' appeal, arguing, consistent with previous Commission 
positions, that 1) the ADEA does cover retirees and 2) treating people 
differently based on a criterion--in this case, Medicare eligibility--
that is itself based on age constitutes age discrimination. The Third 
Circuit Court of Appeals agreed with the Commission and found that 
coordinating retiree health benefits with Medicare eligibility violates 
the ADEA unless the employer could satisfy the statute's ``equal 
benefit/equal cost'' defense. To do this the employer, Erie County, 
would have to prove that the health benefits it provided to Medicare-
eligible retirees were equal to the benefits provided to retirees not 
yet eligible for Medicare, or that it was expending the same cost on 
health benefits for each group of retirees.
    The Third Circuit remanded the case to the district court to 
consider whether the defense could be established. On remand, the 
district court concluded that the county had failed to establish the 
defense. It found that Medicare-eligible retirees paid more for less 
generous benefits than did the younger retirees. Directed by the court 
to come into compliance with the equal benefit/equal cost test, Erie 
County ultimately equalized the retiree health benefits it offered--not 
by improving the benefits for its Medicare-eligible retirees--but by 
requiring younger retirees to pay more for health benefits that 
provided fewer choices.

IMMEDIATE CRITICISM OF ERIE COUNTY
    The Erie County decision marked the first time that an appellate 
court held that the long-standing practice of coordinating retiree 
health benefits with Medicare eligibility violated the ADEA. Just two 
months after the Third Circuit issued this historic decision, in 
October 2000, the Commission adopted the Erie County ruling as its 
national enforcement policy. Pursuant to this enforcement policy, the 
Commission also filed charges against school districts and unions in 
the Midwest with retiree bridge plans that were not in compliance with 
the Erie County rule.
    The Commission's adoption of the Erie County rule was widely 
condemned, particularly by teachers, unions, and school boards. In 
addition, the Commission heard from members of the House of 
Representatives and the Senate from both parties who voiced concerns 
about the policy, or sought to gather further information on behalf of 
constituents.
    Unions contended that the rule not only threatened current retiree 
health benefits, but made it increasingly difficult to negotiate for 
the provision of benefits for future retirees. Other critics argued 
that because employers--particularly school districts and other public 
employers--lacked the resources to provide health benefits to retirees 
indefinitely, the Commission's new position would force employers to 
eliminate retiree health benefits entirely, or to provide fewer 
benefits to retirees under age 65 who lack access to Medicare benefits. 
In other words, the Commission heard over and over again that the Erie 
County rule would not protect or improve benefits for Medicare-eligible 
retirees, but, instead, would ultimately cause a reduction in retiree 
health benefits. As noted earlier, these fears were realized by the 
plaintiffs in Erie County.
    In May 2001, the General Accounting Office (GAO) issued a report to 
the Senate Committee on Health, Education, Labor and Pensions, 
entitled, ``Retiree Health Benefits: Employer-Sponsored Benefits May Be 
Vulnerable to Further Erosion.'' The report concluded that many 
employers were eliminating health benefits for retirees. Although it 
cited cost, changing demographics, and changed accounting rules as the 
primary reasons for the declining coverage, it also said that the Erie 
County ruling might provide an additional incentive for employers to 
eliminate retiree health benefits.

COMMISSION RESCINDS ERIE COUNTY RULE
    In light of the stakeholder criticisms and the GAO report, in 
August 2001, with a bipartisan and unanimous vote, the Commission 
decided to rescind its enforcement of the Erie County ruling and study 
the relationship between the ADEA and retiree health benefits. 
Explaining the rescission, then-EEOC Vice Chair Paul M. Igasaki 
observed that the agency ``must carefully craft a policy which protects 
the rights of older retirees but does not deter employers from 
providing health benefits to retirees in general.''
    For the next several months, Commission staff met with a wide range 
of stakeholders to discuss the impact of the Erie County rule. The 
stakeholders, including employers, labor unions, human resource 
consultants, benefit consultants, actuaries and state and local 
government representatives, agreed that many existing employer-provided 
retiree health benefit plans did not comply with the Erie County rule. 
Most predicted that, if the Erie County rule was left to stand, 
employers would respond just as Erie County had--by curtailing existing 
coverage for retirees not yet eligible for Medicare, or by eliminating 
coverage for retirees entirely, not by improving health benefits for 
Medicare-eligible retirees.
    Though it was clear that retiree health benefits had been declining 
before the Erie County decision, the Erie County rule appeared to 
exacerbate the problem.

ALTERNATIVES EXPLORED
    After an in-depth examination of this problem, the Commission 
determined that it was in the public interest for it to act to end the 
Erie County rule's incentive for employers to reduce or eliminate 
retiree health benefits. The Commission explored various ways to do 
this.
    In particular, it focused on whether a variant of the equal 
benefit/equal cost test could be utilized for employer-provided retiree 
health plans. For example, the Commission considered modifying the 
equal benefit/equal cost test to ensure that most existing retiree 
health plans would meet the equal benefits standard. However, any such 
showing would require that employers make complex comparisons between 
multiple objective and subjective variables, including the types of 
plans offered, the levels and types of coverage provided in each plan, 
the Medicare premium assessed for each gender in each geographical 
area, and the deductibles and co-pays charged in each plan. Because 
fees and benefits change from year to year, all of these calculations 
would need to be made, with any necessary resulting plan adjustments, 
on an annual basis. Such calculations, the Commission concluded, would 
be extraordinarily burdensome for employers, unions and municipal 
governments that wished to provide their retirees with health benefits.
    Similarly, the Commission found that it would be extremely 
difficult to quantify the ``costs'' of providing retiree health 
benefits. In fact, health benefits for retirees under the age of 65 are 
uniformly more costly for employers because the employer is the sole 
source of the benefit. The Commission considered whether the costs of 
Medicare taxes paid during workers' careers might somehow be factored 
in for purposes of establishing equal cost, but could not develop a 
fair and workable way to make the calculation. Medicare taxes paid by 
employers are paid into the general Medicare trust fund, rather than 
into individual employee accounts. Moreover, by the time they reach 
retirement, most employees have previously worked for other employers 
that have also paid Medicare taxes on their behalf. Further 
complicating the matter, any such calculation would have to factor in 
the employee's portion of costs. Employees contribute to the cost of 
Medicare through Medicare taxes that are also paid to the general 
Medicare trust fund and are tied to the employee's compensation. In 
addition, employees pay a portion of their own health-care costs under 
Medicare and their claims may vary greatly from year to year. Such 
calculations would be even further complicated for employers who have 
multiple employer-sponsored plans with different benefits and would be 
insurmountably complex for small employers.
    Even assuming that a formula could be devised that would allow 
employers to prove that they were providing equivalent benefits or 
expending equivalent costs, the Commission feared that employers would 
rather lower or eliminate benefits, as done by the employer in Erie 
County, than perform the complex calculations necessary to ensure they 
are offering an equal benefit or paying the same cost. The Commission 
also had significant concerns that any attempt to modify the equal 
benefit/equal cost rule for purposes of coordinating retiree health 
benefits with Medicare would carry over to areas beyond retiree health 
benefits, thereby diluting the Act's protections.
    Given all of these difficult problems and concerns, the Commission 
rejected the idea of attempting to redefine the equal benefit/equal 
cost defense. It concluded that a narrow exemption from the 
prohibitions of the ADEA was the most effective way to assure that the 
Act did not cause further erosion of retiree health benefits and that 
its protections otherwise remained intact.

PROPOSED RULE
    Given that many factors are eroding health care coverage, the 
Commission concluded that it should eliminate any contribution the ADEA 
might be making to the problem. Therefore, on July 14, 2003, the EEOC 
issued a Notice of Proposed Rulemaking (NPRM) proposing that the ADEA 
would not apply to the practice of coordinating retiree health benefits 
with eligibility for Medicare.

EXEMPTION AUTHORITY
    The exemption was promulgated under the Commission's broad 
authority in Section 9 of the ADEA, 29 U.S.C. Sec. 628, which provides 
that EEOC ``may . . . establish such reasonable exemptions to and from 
any or all provisions of this chapter as it may find necessary and 
proper in the public interest.'' On its face, the exemption language 
makes clear that Congress believed that there would be instances in 
which applying the ADEA's prohibition against age discrimination would 
have unintended results that would be contrary to the public interest. 
Accordingly, it vested the enforcement agency with authority to correct 
such problems.
    Section 9 exemption authority has been used rarely, but is not 
without precedent. For example, the Department of Labor, which 
originally held enforcement authority over the ADEA, exempted certain 
programs designed to provide employment for youth from the Act's 
prohibitions. This exemption, which allowed distinctions based on age, 
was deemed necessary and in the public interest to promote the 
employment of groups with ``special employment problems.''
    Here, too, it became clear to the Commission that applying the 
Act's prohibitions to the practice of coordinating retiree health 
benefits with Medicare was having the unintended consequence of 
encouraging employers to end or limit their retiree health benefits 
and, as such, was contrary to the public interest. Thus, the Commission 
concluded that a narrow exemption was necessary and proper in the 
public interest.
    The Commission also determined that an exemption was consistent 
with the purposes of the ADEA. As the Commission stated in the preamble 
to the proposed rule, one of the Act's stated purposes is to ``find 
ways of meeting problems arising from the impact of age on 
employment.'' Given the continuing decline in the availability of 
employer-provided retiree health benefits and the additional 
disincentive to provide such benefits created by the Erie County rule, 
the exemption reasonably addresses a serious problem confronting older 
Americans.
    The Commission's exemption is narrowly tailored to apply only to 
the coordination of employer-sponsored retiree health plans with 
Medicare and similar state plans. In essence, it enables employers to 
continue to provide the types of retiree health benefits that are 
provided today without fear of violating the age discrimination law. It 
does not require any cut in benefits and is not intended to encourage 
employers who already offer bridge, supplemental or wrap-around plans 
to alter those benefits in any way.

COMMENTS TO PROPOSED RULE
    The Commission received 44 organizational comments in response to 
the NPRM. Twenty-seven commenters expressed support for the proposed 
exemption, including 16 organizations that requested no revisions to 
the proposed rule. The Commission also received approximately 30,000 
letters from individual citizens. Most of these individual comments 
were a form letter generally expressing concern about providing an 
exemption for the practice of coordinating retiree health benefits with 
eligibility for Medicare or a comparable state health benefits program.
    Several of the organizations that supported the proposal confirmed 
that Erie County was responsible for further erosion of retiree health 
benefits. For example, the American Federation of Teachers, 
representing 1.2 million workers, said that many school districts and 
public employers offering retiree health benefits concluded that their 
benefit structures could be challenged under the Erie County rule, and, 
as a result, chose to end or reduce their benefits for all retirees. 
AFT explained, ``[i]n the post-Erie County period[,] older workers 
faced the reality of working until they were much older or retiring 
without retiree health benefits.'' Several school districts, boards, 
and associations echoed the concerns of AFT. The National Education 
Association, which represents 2.7 million employees nationwide, further 
expressed concerns that ``as long as education employers are subject to 
potential ADEA liability under the reasoning of the court in Erie 
County, many employees will lose their employer-provided retiree 
medical insurance benefits altogether.''
    The comments also showed that the problem created by the Erie 
County decision was not limited to professional educators. The Society 
for Human Resource Management, the nation's largest organization 
devoted to human resource management, with 175,000 members, commented 
that the Commission's earlier adoption of the Erie County rule caused 
``the organizations they represent to have grave concerns about the 
potential application of the ADEA to employer-sponsored retiree health 
benefits. . . . With no regulatory protection . . . many employers who 
had offered retiree health that changed when a retiree reached Medicare 
age opted to eliminate retiree health care coverage altogether.'' The 
National Rural Electric Cooperative Association informed the Commission 
that ``without this clarification . . . many NRECA members will be 
forced to discontinue providing benefits to both pre- and post-
Medicare[-]eligible retirees--effectively leaving most, if not all, of 
these more than 7,000 retirees with no health insurance until they 
become Medicare[-]eligible.''
    The most numerous and detailed comments in opposition to the 
proposed rule came from AARP and its individual members. Since AARP is 
here today to explain their position on our rule, there is no need for 
the Commission to elaborate further here.

THE PROPOSED FINAL RULE
    After considering the public comments, the Commission concluded 
that the evidence they presented supported the exemption. The rule's 
supporters produced evidence that the Erie County rule has had, and 
would continue to have, the unintended consequence of diminishing 
employer-provided retiree health benefits. The rule's opponents, 
however, produced no contrary evidence. Thus, the majority of the 
Commissioners feared that, if the Commission failed to act, many more 
retirees would lose their benefits as a result of the Erie County 
policy. Accordingly, with only minor clarifications to the NPRM, the 
Commission approved the proposed final rule, by a vote of 3-1, at a 
public meeting on April 22, 2004. A complete transcript of the meeting 
proceedings are set forth on the Commission's web site at www.eeoc.gov.

COURT ACTION
    On February 4, 2005, while the rule was awaiting final clearance at 
OMB, AARP filed suit in federal district court to stop the rule's 
publication. AARP challenged the exemption on statutory, 
constitutional, and procedural grounds.
    Two amicus briefs were filed, both in support of the Commission. 
One was filed on behalf of the National Education Association, the 
American Federation of Teachers, and the UAW. The other was filed on 
behalf of the Equal Employment Advisory Council, HR Policy Association, 
America's Health Insurance Plans, American Benefits Council, The 
Chamber of Commerce, The ERISA Industry Committee, The Society for 
Human Resource Management, and NRECA.
    The court issued a decision enjoining the Commission from 
publishing the proposed exemption on March 30, 2005. The judge found 
that the Commission had argued persuasively ``that without the 
exemption, employers will reduce or eliminate health benefits for all 
retirees, no matter what their age.'' She ruled, however, that we 
lacked the authority to create the exemption.
    The Commission disagrees with the district court's ruling and has 
formally requested that the Department of Justice appeal the decision.

CONCLUSION
    When the Commission initially adopted the Erie County rule back in 
2000, it expected that the rule would protect health benefits for 
retirees. In practice, however, the Erie County rule threatens to have 
the opposite effect--it encourages employers to curtail or eliminate 
retiree health benefits. The Commission views such a consequence as 
contrary to the public policy of encouraging health benefits for 
retirees, and contrary to the spirit of the ADEA. In fact, the 
Commission believes that if the Erie County rule is left to stand it 
will jeopardize the health benefits of all retirees.
    After studying the issue for three years, the Commission concluded 
that there was only one way it could end the negative incentive created 
by the Erie County decision. Accordingly, the Commission created the 
proposed rule to provide a narrow exemption from ADEA prohibitions for 
the coordination of health benefits with Medicare. The Commission is 
not acting to establish a new retiree health benefit system that takes 
into account Medicare eligibility. That system already exists.
    Mr. Chairman, the EEOC is proud of our efforts to protect the 
rights of older Americans against age discrimination in employment. We 
remain committed to the vigorous enforcement of the ADEA and to the 
protection of older workers and retirees.
    I thank you for your and the Committee's time and attention to this 
important matter.
                                 ______
                                 
    Chairman Johnson. Thank you, ma'am. Thank you for your 
testimony. We agree. You all are doing a great job. Thank you.
    Mr. Greenfield, you may begin.

  STATEMENT OF DOUGLAS GREENFIELD, ESQ., ATTORNEY, BREDHOFF & 
  KAISER, P.L.L.C., WASHINGTON, DC, ON BEHALF OF THE NATIONAL 
                     EDUCATION ASSOCIATION

    Mr. Greenfield. Thank you, Mr. Chairman. Good morning. My 
name is Doug Greenfield. I am a lawyer with the Washington, 
D.C. firm of Bredhoff & Kaiser. I am testifying today on behalf 
of the National Education Association. NEA advocates on behalf 
of our nation's public school children, teachers, and education 
support personnel. In that capacity, they deal with public 
school districts and other employers throughout the country on 
behalf of teachers and other education employees over the terms 
and conditions of employment, including the provision of 
retiree health benefits.
    For several years, I have represented the NEA, its state 
affiliates, and several other unions regarding employee benefit 
matters, particularly matters involving retiree health 
benefits. I am grateful to have the opportunity to provide a 
union side perspective on the topic of this hearing. That 
perspective is based on NEA's long experience negotiating to 
obtain and maintain employer-provided health benefits for its 
retired members.
    As the Committee is aware, the climate for employer-
provided retiree health benefits has been bad for several years 
and it continues to get worse. There are a number of reasons 
for this. One is the fact that in the private sector and in 
most states there is no statutory requirement forcing employers 
to provide health benefits to its retirees. By and large, these 
benefits are only enforceable by retirees if the employer has 
made a contractual commitment to provide them. Sadly, such 
commitments are becoming rarer and the enforcement of those 
commitments is becoming more onerous.
    Another reason for the decline in employer-provided retiree 
health benefits is that employers have little incentive to make 
economic commitments to their retirees because the employers do 
not perceive that they receive a commensurate economic return 
for doing so. Whatever value employers derive from providing 
retiree health benefits increasingly is being overshadowed by 
employers' concerns over such economic factors as volatile 
medical inflation rates, shifts in demographics as baby boomers 
reach retirement, and accounting rules that require them to 
front-load long-term benefit liabilities on their balance 
sheets. These legal and economic factors are the big drivers of 
the continuing downward trend with respect to the prevalence of 
employer provided health benefits, and I believe all the 
panelists will agree with that proposition.
    Today, though, we are here to talk about the effect of the 
Erie County rule on this decline in the prevalence of health 
benefits. NEA, and all of the unions that I am aware of, 
believe that the Third Circuit's decision in this case was 
incorrect as a matter of law. But it is not NEA's disagreement 
with the legal rule that resulted from the Erie County case 
that causes NEA to advocate so vigorously for its reversal. 
Rather, it is the practical effect of that rule that creates 
such concern among NEA and so many other unions. And that 
practical effect is caused in large part by the legal and 
economic context in which the Erie County rule would be applied 
if it were ever adopted as the law of the land.
    The legal conclusion in Erie County shocked employers and 
unions alike because they had a long history of providing and 
negotiating retiree health plans that could not comply with the 
new Erie rule, such as bridges and supplements. Under the Erie 
County rule, only wraps planned to provide full benefits to all 
retirees regardless of their eligibility for Medicare could 
avoid exposure to claims of age discrimination. Unfortunately, 
very few employers provide wraps.
    Faced with complying with the Erie rule, employers 
maintaining bridges and supplements have three basic choices: 
upgrade their plan to a wrap; reduce the health benefits 
provided to the retirees who are not eligible for Medicare; or 
terminate the entire retiree health medical plan. There is 
practically no chance that an employer would choose to upgrade 
its plan as a compliance measure unless it were stuck with an 
iron-clad contractual commitment to maintain the status quo 
benefits, which unfortunately, from the union's perspective, is 
a lot less frequently the case than we would hope. Of course, 
this is exactly what happened to the victorious retirees in the 
Erie County case itself.
    Now in forums such as this hearing our description of these 
choices is often challenged. It is typically suggested that 
employees could adopt some fixed number of years as a trigger 
for the termination or the change in benefits provided to the 
retirees. This solution is both impractical and does not 
promote the goals of the retirees to provide more benefits or 
to preserve the benefits for the Medicare-eligible retirees.
    NEA is a strong supporter of the civil rights laws and we 
do not take an exemption from those laws lightly, but we 
believe in this context equity in the promotion of the goals of 
the Act requires it.
    Thank you.
    [The prepared statement of Mr. Greenfield follows:]

  Statement of Douglas Greenfield, Esq., Attorney, Bredhoff & Kaiser, 
     P.L.L.C, Washington, DC, on behalf of the National Education 
                              Association

    Chairman Johnson and Ranking Member Andrews:
    Thank you for the opportunity to testify on the challenges that 
unions face in preserving employer-provided health benefits for our 
retired members, and obtaining such benefits for future retirees. As 
discussed below, these challenges are rooted in the long-standing 
legal, economic and practical factors that influence employers' 
decisions regarding the provision of health benefits to retirees. 
Further, the impact of a 2000 decision of the United States Court of 
Appeals for the Third Circuit, Erie County Retirees Ass'n v. County of 
Erie, 220 F.3d 193 (3d Cir. 2000), threatens to exacerbate those 
challenges.\1\ Consequently, NEA has advocated, since the publication 
of the Erie County decision, the legislative or judicial reversal of 
the Erie County rule, or an exemption of the practices proscribed 
therein by the Equal Employment Opportunity Commission (``EEOC''), \2\ 
lest the loss of employer-provided retiree health benefits become even 
more pronounced.
---------------------------------------------------------------------------
    \1\ In Erie County, the court held that an employer violates the 
Age Discrimination in Employment Act (``ADEA'') by providing different 
health benefits to retirees who are Medicare-eligible than provided to 
retirees who are not Medicare-eligible, unless such benefits are equal 
in value or cost.
    \2\ The EEOC issued a final rule exempting from the prohibitions of 
the ADEA the coordination of employer-sponsored retiree health benefits 
with the benefits for which those retirees are eligible under Medicare 
(or a counterpart state-sponsored health benefits plan). 29 C.F.R. 
Sec. Sec. 1625 and 1627 (RIN 3046-AA72). The final rule--a product of 
the EEOC's exercise of its exemption authority under Section 9 of the 
ADEA--states that an employer does not violate the ADEA by providing 
different health benefits to retirees who are not Medicare-eligible 
than are provided to Medicare-eligible retirees. Last month, although 
noting that ``without [the] exemption, employers will reduce or 
eliminate health benefits for all retirees, no matter what their age,'' 
the United States District Court for the Eastern District of 
Pennsylvania permanently enjoined the EEOC's exemption regulation on 
the ground that the Third Circuit's Erie County decision precluded the 
EEOC's action. AARP v. EEOC, No. 05-CV-509 (E.D. Pa. March 30, 2005). 
The EEOC's Chair has stated publicly that the EEOC would seek an 
appeal. See EEOC Seeks to Appeal Court Order on Retiree Health Benefits 
Rule, available at http://www.eeoc.gov/press/3-30-05.html.
---------------------------------------------------------------------------
    The National Education Association (``NEA'') is a nationwide 
employee organization with over 2.7 million members, the vast majority 
of whom are employed by public school districts, colleges, and 
universities throughout the United States. The NEA operates through a 
network of affiliated organizations, including some 13,000 local 
affiliates. Through collective bargaining where allowable, and through 
other means of bilateral decision-making in jurisdictions that do not 
allow collective bargaining for public sector employees, these local 
affiliates represent NEA members and other education employees in 
dealing with their employers regarding terms and conditions of 
employment, including the provision of retiree health benefits.
    Many of NEA's members are eligible to retire with pension benefits 
prior to becoming eligible for Medicare. Most members would not be able 
to retire when first eligible, however, absent employer-provided 
retiree health benefits to cover them until they become eligible for 
Medicare. As a result, NEA's affiliates have long negotiated for 
employer-provided health benefits for retired members who are not 
eligible for Medicare, as well as for Medicare-eligible retirees.

Legal, Economic and Practical Challenges to Employer-Provided Retiree 
        Health Benefits
    As a threshold point, it is important to emphasize that there is no 
federal law that requires employers to provide retirees with health 
benefits. In the private sector, employers are generally free under the 
Employee Retirement Income Security Act (``ERISA'') for any reason, at 
any time, to adopt, modify, or terminate welfare plans such as retiree 
health benefit plans. Therefore, under ERISA, only a private sector 
employer that affirmatively promises to provide retiree health benefits 
is bound to continue the benefits. Because ERISA does not apply to 
public sector employers, the law governing retiree health benefit 
commitments made by public sector employers is more varied, including 
state contract law and, in some cases, state or local statutes, 
ordinances and regulations. As in the private sector, unless the 
employer has made a contractual commitment, retiree health benefits in 
many states are not guaranteed by statute.
    Nor can it be said that practical pressures routinely fill that 
legal void and require employers to provide retirees with such 
benefits. A retiree has provided the employer with all of the services 
that she is going to provide, and the employer is no longer under the 
pressure that drives employers to compensate their employees--namely, 
the pressure to provide a compensation package to employees that is 
adequate to retain the best possible employees. Consequently, only a 
minority of employers have determined to bear the cost of providing any 
health benefits to any of their retirees. See Retiree Health Benefits: 
Employer-Sponsored Benefits May Be Vulnerable to Further Erosion, GAO-
01-374, at 6, 8 (May 2001) (citing studies indicating that ``just over 
one-third of large employers, and [approximately 9 percent] of small 
employers, offered health coverage to some of their retirees in 
2000'').
    Of equal importance, the number of employers providing retiree 
health benefits has declined sharply over the last decade. See id. at 
6-7, 9-10. And, among those employers that continue to provide retiree 
health benefits, many have taken such cost reduction steps as: limiting 
the class of eligible retirees; reducing benefits to retirees; or 
increasing the share of costs that the retirees bear. Id. As the 
foregoing demonstrates, a large and growing number of employers are re-
evaluating the viability of continuing to maintain retiree health 
benefit plans as a component of their employee compensation packages. 
Employers are making these decisions in reaction to such factors as the 
high and unpredictable rate of inflation for medical costs; the 
increasing cost of providing retiree benefits as the baby boomers reach 
retirement; and changes in the accounting rules that require employers 
to front-load long-term benefit liabilities on their balance sheets.\3\
---------------------------------------------------------------------------
    \3\ See Financial Accounting Standards Board, Financial Accounting 
Foundation, Statement of Financial Accounting Standards No. 106: 
Employers Accounting for Postretirement Benefits Other Than Pensions 
(Dec. 1990); Government Accounting Standards Board, Financial 
Accounting Foundation, Statement No. 43: Financial Reporting for 
Postemployment Benefit Plans Other Than Pension Plans (Apr. 2004).
---------------------------------------------------------------------------
    Against this background, the basic element of the retiree health 
benefit plans offered by the minority of employers that determine to 
provide such benefits--or that are convinced by unions to do so through 
collective bargaining--is a ``bridge'' program that covers retirees 
until they reach Medicare eligibility. Indeed, the aforementioned GAO 
survey, id at 6, indicated that, of the large employers that provide 
some form of retiree health coverage, approximately 25% provide only a 
bridge for retirees who are not Medicare-eligible. See id. (stating 
that 92% of such employers provide benefits for retirees who are not 
Medicare-eligible, but only 67% provide some form of coverage for 
Medicare-eligible retirees).
    There are numerous reasons why an employer may only go so far as to 
provide a bridge program for retirees who are not Medicare-eligible: 
bridge programs make it feasible for employees to take advantage of the 
employer's early retirement programs; cover individuals for an 
ascertainable, limited time period (only until they are eligible for 
Medicare); provide coverage for individuals who might otherwise lack 
any health benefit coverage at all; and entail little, if any, 
administrative cost or complexity, as the retirees who are not 
Medicare-eligible typically may be placed in the same group plan as the 
active employees, given that both groups receive their primary 
insurance coverage through the employer.
    In contrast, from the employer's perspective, going further and 
providing health benefits to Medicare-eligible retirees entails a 
different--and more substantial--range of costs and complications:
      First, when considering Medicare-eligible retirees, there 
is no longer any need to provide health benefits to make it feasible 
for retirees who are pension-eligible, but not Medicare-eligible, to 
retire.
      Second, a health benefit commitment to Medicare-eligible 
retirees is open-ended (as opposed to the time-limited commitment of a 
bridge program for the retirees who are not Medicare-eligible), 
rendering this class of retirees much more numerous.
      Third, the fact that Medicare-eligible retirees already 
receive health benefit coverage through a government-sponsored program 
undercuts the concern that, absent employer action, the retirees would 
be left without coverage.
      Fourth and finally, in contrast to retirees who are not 
eligible for Medicare, Medicare-eligible retirees cannot simply be 
placed under the group plan covering active employees. When retirees 
become Medicare-eligible, Medicare becomes their primary insurer; the 
employer, if it provides any coverage at all, provides only secondary 
coverage, and an employer providing secondary coverage is confronted 
with an entirely different set of questions regarding plan design than 
when the employer is providing primary coverage. Secondary coverage 
provided to Medicare-eligible retirees must be coordinated with 
Medicare coverage, requiring changes in the design of the health 
benefits plan itself (and the insurance policy that may underwrite it). 
And, because Medicare itself contains very distinctive benefits and 
requirements which differ substantially from most primary insurance 
policies on the market today, a secondary plan that is designed to 
supplement Medicare is apt to differ in form and substance from a 
primary plan covering active employees and retirees who are not 
eligible for Medicare.
    As a result, employers that provide retiree health benefits always 
treat Medicare-eligible retirees as a discrete group. And employers 
that have been willing on their own, or as a result of collective 
bargaining, to extend coverage to this group, have often gone only so 
far as to provide a limited ``supplement,'' such as reimbursement of 
Medicare Part B premiums, or a prescription drug benefit. Only a small 
number of employers provide what is termed ``wrap'' coverage, under 
which Medicare-eligible retirees receive the same benefits as retirees 
who are not Medicare-eligible--albeit from two sources, rather than 
one.

The Impact of the Erie County Rule
    NEA does not believe that the practice of providing different 
benefits to Medicare-eligible retirees than to those retirees who are 
not Medicare-eligible constitutes a violation of the ADEA. And, it has 
long been the general practice of employers to proceed on the pre-Erie 
County understanding that distinguishing between retirees based on 
their eligibility for Medicare is permissible under the ADEA. There are 
two reasons for this understanding:
    First, such a differentiation is not based on the recipient's age, 
but rather on the receipt of a government benefit. Indeed, Medicare 
eligibility is not always even correlated with age; retirees under age 
65 are Medicare-eligible if they are receiving Social Security 
disability or have end-stage renal disease. 42 U.S.C. Sec. 1395c.
    Second, the legislative history of the Older Workers Benefit 
Protection Act of 1990 (``OWBPA''), amending the ADEA, clearly states 
that the ADEA as amended by OWBPA is not meant to prohibit such 
differentiation. See Final Substitute: Statement of Managers, 136 Cong. 
Rec. S25353 (Sept. 24, 1990), 136 Cong. Rec. H27062 (Oct. 2, 1990) 
(``In many of these cases, the value of the medical benefits that the 
retiree receives before becoming eligible for Medicare exceeds the 
total value of the retiree's Medicare benefits and the medical benefits 
that the employer provides after the retiree attains Medicare 
eligibility. These practices are not prohibited by the substitute.'')
    For these reasons, NEA believes that Erie County wrongly decided 
that this practice constitutes a violation of the ADEA. However, even 
if one accepts the Erie County conclusion that this constitutes a 
technical violation of the ADEA, the effect of the Erie County rule is 
contrary to the overarching purpose of the ADEA, in that it is harmful 
to the interests of older individuals. If the Third Circuit's view of 
the law prevails, the very likely impact would be a significant 
reduction in the number of retirees who would continue to be covered by 
employer-provided health benefits at their pre-Erie County levels. The 
employers that provide bridge program retiree health benefits and those 
that provide Medicare supplement programs--the greatest number of the 
minority of employers providing retiree health benefits--would, under 
the Erie County rule, have the following compliance options:
    1)  augmenting the employer's retiree health benefit plan by 
providing Medicare-eligible retirees wrap coverage equal in value or 
cost to the bridge program benefits being provided to retirees who are 
not Medicare-eligible;
    2)  reducing the benefits available to retirees not eligible for 
Medicare so that these benefits do not exceed the value or cost of 
those benefits provided to Medicare-eligible retirees; \4\ or
---------------------------------------------------------------------------
    \4\ This can be accomplished either by restructuring the plan to 
provide Medicare-eligible retirees wrap coverage equal in value or cost 
to reduced bridge program benefits that will henceforth be provided to 
retirees who are not Medicare-eligible, or, for those employers 
providing only a bridge program, by eliminating the bridge program 
altogether.
---------------------------------------------------------------------------
    3)  terminating the entire retiree health plan so as not to incur 
the inevitable and substantial administrative cost of restructuring the 
plan, and the inevitable increase in cost resulting from an open-ended 
obligation to Medicare-eligible retirees.
    For the reasons explained above--which include the absence of any 
affirmative federal statutory requirement to provide retiree health 
benefits, the financial and practical pressures on employers that 
militate against providing such benefits, and the demonstrated 
disinclination of employers to provide such benefits--employers are 
unlikely to choose to comply with the Erie County rule by augmenting 
their retiree health benefit plans (thereby increasing the employer's 
costs and open-ended obligations). They would rather: (1) restructure 
their plans in a way that reduces benefits to the retirees who are not 
Medicare-eligible (who have no alternative source of benefits) and that 
provides little if anything in benefits over and above Medicare for 
Medicare eligible retirees; or (2) terminate the plan altogether to the 
detriment of both groups of employees.
    The best evidence in this regard is the result ``won'' by the Erie 
County plaintiffs following the Third Circuit's remand to the district 
court. The parties there settled for a one-time cash payment to the 
Medicare-eligible retirees, a reduction in the health benefits provided 
to retirees not eligible for Medicare, and no increase in the health 
benefits provided to the Medicare-eligible retirees. See J. Colberg & 
J. Muehl, Erie County Settlement Unsettling, J. of Pension Planning & 
Compl. (Jan. 1, 2003), 2003 WL 8730627. In short, Erie County made the 
choice to bring down the health benefits provided to retirees who are 
not Medicare-eligible, rather than to bring up the health benefits 
provided to the Medicare-eligible retirees. If this is the best 
settlement that the plaintiff class could obtain from Erie County, 
despite its ``complete victory'' in the Third Circuit and the necessity 
for federal court approval of the class action settlement, it is wholly 
unlikely that the employers that face no legal constraint on their 
ability to reduce or to terminate retiree health benefits will take the 
higher cost option of augmenting their plans.
    Thus, it is NEA's considered judgment, based on its extensive 
experience in negotiating and otherwise advocating for retiree health 
benefits, that--absent the reversal or exemption of the Erie County 
rule--employee organizations will have substantial difficulty in 
maintaining the employer-provided retiree health benefits that they 
previously have achieved, and even greater difficulty in securing 
retiree health benefits from employers that do not presently provide 
such benefits. NEA, like other labor organizations, seeks to achieve 
the maximum in health benefits coverage for all retirees. But in the 
real world that goal has not proved to be consistently obtainable given 
the severe constraints on the finances of many of the employers with 
whom unions negotiate, including local governments and school 
districts. Indeed, health care coverage has become one of the most, if 
not the most, contentious issues in collective bargaining. Most 
employers are strongly committed to reducing their costs in this area, 
and are unwilling to take any steps that would increase these costs.
    In this context, in order to bring themselves into compliance with 
the Erie County rule, the employers that have agreed in bargaining to 
provide bridge programs or Medicare supplement programs are likely to 
insist on reducing those program benefits or on terminating the retiree 
health benefit plans. Even the employers that have agreed to provide 
comparable benefits for retirees who are not Medicare-eligible and for 
Medicare-eligible retirees, but that use different plan designs for the 
two groups, will press to scale down or eliminate benefits, rather than 
face the prospect of litigating complex factual issues regarding plan 
comparability if the equality of the benefits is subject to challenge.
    Equally important, where the employer is one of the majority of 
employers that has not yet instituted a retiree health benefit plan, 
often the best that a collective bargaining representative can achieve, 
even through the most determined effort, is a bridge program to ensure 
that no retiree is left completely uninsured, or a supplement program 
for Medicare-eligible retirees. The Erie County rule will deprive 
parties to collective bargaining of this option of agreeing to provide 
a limited health benefit plan, even if that would be an improvement 
over what the employer previously provided retirees. In other words, 
the ``perfect'' ideal of a wrap program benefit design is made the 
enemy of the possible--bridge programs and supplements that may be the 
only benefit designs achievable.
    The counter argument--that exempting or overturning the Erie County 
rule will be detrimental to the interests of Medicare-eligible retirees 
who are covered by wrap programs because it will put them at increased 
risk of having their health benefits reduced or eliminated--rests on a 
false premise as to the legal status quo prior to the Erie County 
ruling. To begin with, as explained above, employers that have not made 
affirmative contractual commitments to maintain their retiree health 
benefits are generally free to reduce or eliminate those benefits at 
any time. No action to overturn the Erie County rule, either through 
legislative amendment or through exercise of the EEOC exemption 
authority, would diminish an employer's contractual obligations or 
increase an employer's right to reduce or terminate such benefits. 
Moreover, there is no evidence that any employer, as a compliance 
response to Erie County, has improved the health benefits provided to 
its Medicare-eligible retirees or has indicated that it would reduce 
such benefits to their prior level if the Erie County rule were 
overturned or if the EEOC exempted this practice.
    Given those two points, all that remains of the argument in support 
of the Erie County rule is the suggestion that the employers that have 
provided Medicare-eligible retirees with a wrap program have done so 
because they believed that the ADEA so required, and that those 
employers are poised to eliminate these benefits should the Erie County 
rule be overturned. But, as explained above, prior to Erie County, 
employers had been operating on the understanding that the ADEA allowed 
them to provide different health benefits to retirees who are not 
eligible for Medicare than to those that are eligible for Medicare. 
See, e.g., Hearing on Retirement Security for the American Worker: 
Opportunities and Challenges Before the House Comm. on Educ. & the 
Workforce Subcommittee on Employer-Employee Relations (Nov. 1, 2001) 
(testimony of Charles K. Kerby, III, William M. Mercer, Inc.) 
(testifying that the Erie County ``decision came as a surprise to many 
employers who assumed, based on ADEA's legislative history, it was 
permissible to offer different benefits to Medicare-eligible retirees 
[and] caused great consternation among retiree health plan sponsors'').
    Thus, the suggestion that employers will reduce or eliminate 
benefits to Medicare-eligible retirees if the EEOC's exemption 
regulation is implemented is without any basis in fact or in reason. 
The employers that have made a unilateral determination to provide wrap 
programs to cover Medicare-eligible retirees have done so on 
compensation policy grounds, not on ADEA compliance grounds. And, the 
employers that have agreed in collective bargaining to provide wrap 
coverage have done so under the pressure of collective bargaining, not 
under the pressure of the ADEA. There is nothing to support the claim 
that the exemption or reversal of the Erie County rule will cause any 
employer providing Medicare-eligible retirees wrap coverage to reduce 
or eliminate those benefits.
    Up until this point, the Erie County ruling has not led to 
additional lawsuits by Medicare-eligible retirees raising ADEA 
challenges to the medical benefits provided them as compared with non-
Medicare-eligible retirees, even though it continues to be common 
practice--even in those states governed by the Third Circuit's ruling--
for employers to distinguish between these two groups of retirees. 
Perhaps this is because such potential plaintiffs recognize that 
winning the lawsuit would not provide them with greater medical 
benefits. But notwithstanding the lack of litigation, the Erie County 
rule creates a chilling effect which affects employers' decisions 
regarding plan design and unions' approach to collective bargaining. As 
a result of Erie County, employers and unions are now considering a 
host of inferior and administratively complex retiree medical benefit 
plan designs that incorporate crude approximations for Medicare-
eligibility as targets for benefit termination or triggers for Medicare 
supplements.
    Moreover, the new Medicare Part D program further complicates the 
process of negotiating retiree health benefits, and, when the Medicare 
Part D rules are combined with the Erie County rule, the challenges 
facing unions in obtaining prescription drug benefits for their 
retirees only increase. Under the Medicare Prescription Drug, 
Improvement and Modernization Act (``MMA''), every employer must decide 
the basis upon which it will coordinate its retiree prescription drug 
benefit with the Medicare Part D program. Any option an employer 
chooses, other than fully substituting its own coverage in lieu of 
Medicare Part D coverage, is likely to make the prescription drug 
benefits provided for Medicare-eligible retirees at least different 
than, and usually inferior to, the prescription drug benefits provided 
to retirees who are not eligible for Medicare. And because every 
employer sponsor of retiree benefits is now focusing on this 
coordination issue, the employers are also focusing--many for the first 
time--on their exposure to ADEA claims resulting from the Erie County 
rule.
    Finally, the equal benefit/equal cost test that the Erie County 
court viewed as a safe harbor to such ADEA is not workable in practice. 
Plan design considerations are very different for primary coverage 
plans covering retirees who are not Medicare-eligible and secondary 
coverage plans covering Medicare-eligible retirees. See J. Colberg & J. 
Muehl, Erie County Settlement Unsettling, J. of Pension Planning & 
Compl. (Jan. 1, 2003), 2003 WL 8730627 (attempting to give guidance in 
applying test and concluding that comparing benefits provided under 
different policies ``is an onerous task at best, an impossible one at 
worst.''). Again, in considering the utility of the equal benefit/equal 
cost test for complying with the Erie County rule, it is important to 
remember that no federal statute requires employers to provide retiree 
health benefits. If the test is merely expensive to apply, or poses a 
not-insignificant risk that a retiree would bring suit challenging the 
calculations, it is unlikely that employers would choose that expense 
and risk, when much simpler and cost efficient options--reducing 
benefits for retirees who are not Medicare-eligible or terminating the 
retiree health plan altogether--are available.

Conclusion: the Erie County Rule Should be Overturned or Exempted
    As a practical matter, the Erie County rule constitutes only one 
new, and for the time being, relatively small barrier to the 
maintenance of employer-sponsored retiree health benefits plans--the 
fear that this novel interpretation of the ADEA will take hold and lead 
to the invalidation of many commonly designed retiree health benefits 
plans that coordinate employer-provided benefits with Medicare. As 
described above, there already exist other formidable barriers to the 
maintenance of employer-sponsored retiree health benefits plans. 
However, if the Erie County rule were to become widely accepted as the 
law of the land, a barrier of similar magnitude would soon emerge.
    Even though the EEOC advocated the legal result reached by the 
Third Circuit in the Erie County case, it later recognized the counter-
productive practical results that would occur if the Erie County rule 
were permitted to prevail. Consequently, the EEOC concluded that an 
exemption was necessary in the public interest and, in particular, in 
the interests of retirees. The EEOC based that conclusion on its 
determination that, if left in place, the Erie County rule ``may cause 
a class of people--retirees [over 40 but] not yet 65--to be left 
without any health insurance,'' and ``may contribute to the loss of 
valuable employer-sponsored coverage that supplements Medicare for 
retirees age 65 and over.'' Notice of Proposed Rulemaking, 68 Fed. Reg. 
41542, 41546 (July 14, 2003). NEA believes that the EEOC's practical 
judgment that this exemption is necessary in the public interest and to 
protect the interests of retirees is entirely sound.
    Further, the exercise of the EEOC's exemption power in this context 
would be consistent with the Congressional purpose in providing the 
EEOC with such powers in the first instance. While recognizing that 
discrimination on the basis of age is no less pernicious than 
discrimination based on other arbitrary criteria, such as race, gender, 
national origin, or religion, Congress did not want the prohibition on 
age discrimination to have any unintended consequences on older 
Americans. See, e.g., 113 Cong. Rec. at 31251 (``Administration of this 
law must place emphasis on a case-by-case basis, with unusual working 
conditions weighed on their own merits.''); H.R. No. 805, 90th Cong., 
1st Sess. (1967), reprinted in 1967 USCCAN 2213, 2220 (``Too may 
different types of employment occur for the strict application of 
general prohibitions and provisions.''). For this reason, Congress 
empowered the EEOC to exempt certain facially age discriminatory 
practices from the ADEA's prohibitions where doing so would serve the 
public interest. Here, the EEOC exemption regulation is born out of the 
reality that an interpretation of the ADEA that would result in a net 
loss of employer-sponsored retiree health benefits cannot promote the 
purposes of the ADEA and cannot be in the public interest.
    NEA has long supported the vigorous enforcement of all civil rights 
laws, and has worked to protect the civil rights of its members through 
collective bargaining, litigation, and legislative advocacy. NEA would 
not lightly endorse any exemption to the reach of these laws. However, 
in this particular and narrow instance, NEA believes that the ADEA was 
not meant to encompass this practice, and that applying the ADEA to 
this situation is harmful, not helpful, to the class of individuals 
that the law seeks to protect.
    Therefore, whether by the implementation of the EEOC exemption 
regulation or an act of Congress to overturn the Erie County rule, the 
legal landscape for employer-sponsored retiree health plans should be 
returned to the status quo before Erie County, so that employers, 
unions, employees, and retirees can make rational economic choices 
based on the availability of health benefits from all sources and other 
factors unrelated to age, and without the specter of potential ADEA 
claims reducing the ability of all of the interested parties to 
optimize the retiree health benefits made available. In that 
environment, unions will have a better chance of preserving employer-
sponsored retiree health benefits for a greater number of retirees.
    For all of these reasons, NEA supports the implementation of the 
EEOC's exemption regulation, or any other means by which the Erie 
County rule would be overturned as a matter of law. Thank you for 
considering this testimony.
                                 ______
                                 
    Chairman Johnson. Thank you, sir. We appreciate your 
testimony.
    Mr. Dochat, you may begin.

     STATEMENT OF FRED DOCHAT, MEMBER, AARP, LANCASTER, PA

    Mr. Dochat. Good morning, Mr. Chairman and Members of the 
Committee. My name is Fred Dochat. I live in Lancaster, 
Pennsylvania. I am here today with my wife, Barbara Ann. I am 
77 years old and she is 72. I am one of the plaintiffs who 
successfully prevented the EEOC from issuing its regulation 
that would have given my former employer the green light to 
cancel my health care benefits.
    I spent my entire career working for Armstrong World 
Industries. When I retired, I was a technical specialist in 
their research center, earning $36,000 a year. After 45 years 
of continuous employment with Armstrong, I was forced to retire 
in 1989 as a result of corporate downsizing. In exchange for 
almost five decades of dedicated service to Armstrong, I 
received my pension and health care benefits, that included 
prescription drugs and coverage and dental benefits. My wife 
and I live on my pension, which is $1,465 a month, and my 
Social Security, $1,110 a month. We are able to survive because 
of the health care benefits that I have earned in exchange for 
my faithful service to the company.
    Since the time I became 65, we have relied on Medicare and 
my health care benefits from Armstrong to address our health 
care needs. While we don't think we are in poor health, I guess 
like many Americans in their 70's we have experienced some 
health care problems along the way. Six years ago, I had a 
quadruple bypass surgery so I have got an ongoing issue with my 
heart and my cholesterol. Barbara Ann fought a battle with 
cancer, and we continue to hope that her recovery is complete. 
We both rely on prescription medications to control glaucoma, 
osteoporosis, and other chronic ailments.
    As you can imagine, the health benefits that I earned from 
Armstrong have played an essential role in defraying our health 
care expenses. These benefits don't come free. We pay our 
contribution to the premium. In January of 2004, the company 
doubled my premium contribution. In January 2005, the company 
increased our co-payments and our deductibles, taking another 
chunk out of our fixed income.
    I understand the cost of health care continues to climb, 
and while I don't like paying more and getting less, I find 
some consolation in the fact that the company's retirees are 
sharing the burden together. Sharing the burden means that at 
least all of us are getting something, which is exactly why I 
became involved in the lawsuit in Philadelphia. Older retirees 
like me have nothing to protect us but the law, the Age 
Discrimination Act. It would be a financial catastrophe for me 
to lose my health care benefits from Armstrong, which is 
exactly what could happen if the EEOC rule is published or if 
Congress passes a law just like it. Our struggles with cancer 
and my heart bypass will make it very difficult to find 
insurance if I would lose access to my former employer's plan. 
And even if I could find it, there is no way I could afford it 
on my fixed income.
    I know there is a health care crisis, and I am willing to 
shoulder my part of the load. Every year Armstrong asks me to 
pay more, and I am not here complaining about that. But I am 
not going to sit here and be told that because I am old I am 
not entitled to the same health care benefits somebody younger 
is getting. It is just ridiculous.
    I don't think you have to be a health care expert to 
understand that the EEOC's rule just doesn't make sense. Even 
if my employer paid all the premium costs, and let me assure 
you it doesn't, I am so much cheaper to insure than a younger 
retiree because Medicare covers a lot of my health care. My 
employer only has to provide a wrap-around plan that mostly 
covers our deductibles and co-pays and prescription drugs. I 
know for a fact that my wrap-around plan is a lot cheaper than 
the plan the younger retirees get.
    The EEOC never bothered to look at what people like me 
would do if our employees just dropped us from their plans. 
There are about 12 million of us who are not planning for this. 
How are we going to afford the more expensive private insurance 
plans? Where are we going to find them? And what if we can't 
find one that offers all the benefits we get from our employer 
plan?
    And most frightening for people like Barbara and me who 
have been sick, who is going to be willing to sell us a policy 
or sell us a policy we can afford? I need the answers to these 
questions and so do you. It is really a matter of life and 
death for us.
    I just don't get it. The EEOC is supposed to be protecting 
me, not my employer, not younger people than me. Instead I 
stand to be badly hurt just because I am getting older. I 
thought that is what the age discrimination law is supposed to 
prevent.
    I worked long and hard for my health care benefits and I 
just can't believe that Congress is even considering telling my 
employer that it is OK to cut me out of that plan so younger 
retirees can get a better benefit, that it is OK for my 
employer to go back on his promise to me. I urge you and all 
Congressmen and Senators in the Congress to please listen to 
the tens of thousands of us who have already told you that we 
can't just lose these benefits so that younger people can get 
better benefits. Simple fairness requires that you come up with 
a better answer.
    I know firsthand that health care is a real problem. We all 
need to pitch in together to address the health care issues. I 
am prepared to do my part, but I am hoping you are not going to 
tell me that older Americans are the only ones expected to 
sacrifice.
    Thank you.
    [The prepared statement of Mr. Dochat follows:]

        Statement of Fred G. Dochat, Member, AARP, Lancaster, PA

    Good Morning Mr. Chairman and members of the Committee. My name is 
Fred Dochat. I live in Lancaster, Pennsylvania. I'm here today with my 
wife, Barbara Ann. I'm 77 years old, and Barbara Ann is 72. I am one of 
the plaintiffs who successfully prevented the EEOC from issuing its 
regulation that would have given my former employer the green light to 
cancel my health care benefits.
    I spent my entire career working for Armstrong World Industries. 
When I retired, I was a technical specialist in the research center 
earning $36,000 a year. After forty-five (45) years of continuous 
employment with Armstrong, I was forced into retirement in 1989 as a 
result of A corporate downsizing. In exchange for almost five decades 
of dedicated service to Armstrong, I received my pension and health 
care benefits that included prescription drug coverage and dental 
benefits. My wife and I live on my pension which is $1,465 a month , 
and social security of $1,010. per month.. We are able to survive 
because of the health care benefits that I earned in exchange for my 
faithful service to the company.
    Since the time I became 65, we have relied on Medicare and my 
health care benefits from Armstrong to address our health care needs. 
While we don't think we are in poor health, I guess, like many 
Americans in their seventies, we have experienced some health care 
problems along the way. Six years ago I had quadruple bypass surgery, 
so I've got ongoing issues with my heart and my cholesterol. Barbara 
Ann recently fought a battle with cancer and we continue to hope that 
her recovery is complete. We both rely on prescription medications to 
control glaucoma, osteoporosis, and other chronic ailments.
    As you can imagine, the health benefits that I earned from 
Armstrong have played an essential role in defraying our health care 
expenses. These benefits don't come free--we pay a contribution to the 
premium. In January 2004, the company doubled our premium contribution. 
In January 2005, the company increased our co-payments and our 
deductibles, taking another chunk out of our fixed income. I understand 
that the cost of health care continues to climb, and while I don't like 
paying more and getting less, I find some consolation in the fact that 
all of the company's retirees are sharing the burden together. Sharing 
the burden means that at least all of us are getting something. Which 
is exactly why I became involved in the lawsuit in Philadelphia.
    Older retirees like me have nothing to protect us but the law--The 
Age Discrimination in Employment Act. It would be a financial 
catastrophe for me to lose my health care benefits from Armstrong, 
which is exactly what could happen if the EEOC rule is published, or if 
congress passes a law just like it. Our struggles with cancer and my 
heart bypass will make it very difficult to find insurance by 
ourselves, if I lose access to my former employer's plan. And even if I 
could find it, there's no way I could afford it on my fixed income.
    I know there's a health care crisis, and I'm willing to shoulder my 
part of the load. Every year, Armstrong asks me to pay more--and I'm 
not here complaining about that. But I'm not going to sit by and be 
told that because I'm old I'm not entitled to the same health care 
benefits somebody younger is getting. That's just ridiculous.
    I don't think you have to be a health care expert to understand 
that the eeoc's rule just doesn't make sense. Even if my employer paid 
all the premium costs--and let me assure you, it doesn't--I'm so much 
cheaper to insure than a younger retiree because medicare covers a lot 
of my health care. My employer only has to provide a wrap around plan 
that mostly covers our deductibles and co-pays, and prescription drugs. 
I know for a fact that my wraparound plan is a lot cheaper than the 
plan the younger retirees get.
    The EEOC never bothered to look at what people like me would do if 
our employers just dropped us from their plans. There are about 12 
million of us who were not planning for this. How are we going to 
afford the more expensive private insurance plans? Where are we going 
to find them? What if we can't find one that offers all the benefits we 
get from our employer plan? And, most frightening for people like 
Barbara Ann and me, who have been sick--who's going to be willing to 
sell us a policy--or sell us a policy that we can afford?
    I need the answers to these questions--and so do you. It's really a 
matter of life and death for us.
    I just don't get it--the EEOC is supposed to be protecting me--not 
my employer, not people younger then me. Instead, I stand to be really 
badly hurt, just because I'm getting older. I thought that's what the 
age discrimination law is supposed to prevent.
    I worked long and hard for my health care benefits, and I just 
can't believe that congress is even considering telling my employer 
that it's ok to cut me out of that plan so younger retirees can get a 
better benefit; that it's ok for my employer to go back on his promise 
to me. I urge you, and all the congressmen and senators in the 
congress, to please listen to the tens of thousands of us who have 
already told you that we can't just lose these benefits so that younger 
people can get better benefits. Simple fairness requires that you come 
up with a better answer.
    I know first hand that health care costs are a real problem. We all 
need to pitch in together to address the health care issue; I'm 
prepared to do my part, but I'm hoping you're not going to tell me that 
older Americans are the only ones expected to sacrifice.
    Thank you.
                                 ______
                                 
    Chairman Johnson. Thank you, sir. Thank you for your 
testimony.
    Mr. Spencer.

STATEMENT OF STEVEN D. SPENCER, ESQ., PARTNER, MORGAN, LEWIS & 
BOCKIUS LLP, PHILADELPHIA, PA, ON BEHALF OF THE U.S. CHAMBER OF 
                            COMMERCE

    Mr. Spencer. Mr. Chairman, Members of the Committee, thank 
you for having me here. I appreciate it. My name is Steve 
Spencer. I am a partner in the law firm of Morgan, Lewis & 
Bockius. I practice in Philadelphia, Pennsylvania, which is the 
home of the Third Circuit, the circuit that gave us the Erie 
County decision.
    In my practice, I represent single employer plans, multi-
employer plans, and various plan sponsors. For those of you who 
may not be familiar with the terminology, multi-employer plans 
are those plans that are jointly administered by labor and by 
management. I have practiced in this area since 1978. And in my 
spare time, I teach courses in employee benefit law at the 
University of Pennsylvania and at the Villanova School of Law.
    Today, I am testifying on behalf of the Chamber of 
Commerce. And I am here to testify in favor of, and as the 
Chairman so eloquently stated, in favor of preserving retiree 
health benefits. But I fear if the present state of the law 
continues, there will be an accelerated decline in retiree 
health benefits.
    The problems confronting labor, employers, and all plan 
sponsors are threefold. First, you are well aware of the rising 
health care costs. Second, you are aware of the changing 
accounting rules. And third, while all of this is going on 
there are now rising pension costs. These three forces are 
creating competitive problems in the local and global markets 
for plan sponsors.
    The facts of the Erie County case are actually illustrative 
of this. Faced with changing accounting rules and rising health 
care costs, in 1992 Erie County decided that employees hired 
after January 22 of 1992 would no longer receive retiree health 
benefits. So the entire case focused on a grandfathered group 
of employees because new employees, like me, will never get 
benefits if I were working for Erie County.
    Now in 1997, Erie County took another look at their plan 
and they decided to divide their retirees into two groups, 
those who are Medicare eligible, who would be covered by a 
Medicare HMO, and those who were not Medicare-eligible, who 
would be covered by a PPO or point of service plan. As 
Representative Andrews and the Chairman have already noted, the 
Third Circuit found this plan design to violate the Age 
Discrimination in Employment Act. And as all the other speakers 
have noted today, Erie County reacted by not increasing the 
benefits for those who are Medicare-eligible but by reducing 
the benefits for those who are Medicare- eligible.
    Now following the Erie County decision, a lot of plan 
sponsors called me and said, ``What should we do? Should we 
terminate our benefits? Should we reduce the benefits? What 
should we do?'' And many of them were panicking over this. But 
once the EEOC came out and noted that they were going to issue 
an exemption in this area or were considering issuing an 
exemption in this area, plan sponsors decided to take a wait 
and see attitude. But everything changed on March 30th of 2005. 
The status quo changed when Judge Brody enjoined the EEOC from 
issuing its proposed regulations. Once again, plan sponsors are 
considering their alternatives.
    The best hope for preserving retiree benefits lies in 
either an EEOC exemption or in a similar legislative exemption. 
Now when I think about retiree health benefits, I think of them 
in two types: Medicare bridge benefits and Medicare carve-out 
or supplemental benefits, which you have already heard about 
this morning.
    Absent a regulatory or legislative solution, Medicare 
bridge benefits will disappear because faced with rising health 
care costs, changes in accounting rules, and rising pension 
costs, few, if any, plan sponsors will create new plans.
    Now let me be clear about this. We are not talking about 
taking away benefits from anyone who currently has been 
promised post-65 Medicare supplemental or carve-out benefits. 
What we are talking about today, though, is maybe coming up 
with something where there is already ample precedent in the 
Age Discrimination in Employment Act. For example, under 
Section 4L of the Age Discrimination in Employment Act we see 
Social Security bridge benefits. Absent relief, those who lose 
their job in a reduction in force, like Mr. Dochat, will be 
without medical benefits.
    Now in the city of Philadelphia, to get an HMO, it costs a 
couple, a husband and wife, $840 a month. And at the current 
rate of inflation of 13 percent in the medical area, you can 
imagine over 10 years, from age 55 to 65, an early retiree will 
have to shell out $175,000 if we don't permit Medicare bridge 
benefits to continue.
    The EEOC's exemption recognizes this reality and it 
attempts to preserve the Medicare bridge benefit. Absent an 
exemption, I think we will see an elimination of these benefits 
and all employees will be losers.
    Thank you for your time and attention.
    [The prepared statement of Mr. Spencer follows:]

Statement of Steven D. Spencer, Esq., Partner, Morgan, Lewis & Bockius 
    LLP, Philadelphia, PA on behalf of the U.S. Chamber of Commerce

    Chairman Johnson and members of the subcommittee, I am pleased and 
honored to be here today. Thank you for your kind invitation.
    By way of introduction, I am a partner at the law firm of Morgan, 
Lewis & Bockius LLP. I work in Philadelphia, Pennsylvania, where the 
United States Court of Appeals for the Third Circuit--the court that 
issued the Erie County decision in 2000'resides. My practice focuses on 
advising single-employer and multi-employer benefit plans, i.e., those 
managed jointly by employers and unions, regarding employee benefit 
matters. I have been practicing in this area of law since 1978. In my 
spare time, I am a lecturer at the University of Pennsylvania Law 
School and an adjunct professor of law at the Villanova University Law 
School where I teach courses on employee benefit law. I am testifying 
today on behalf of the U.S. Chamber of Commerce.
    I am sure that you are aware of the spiraling cost of health care 
coverage in this country. A nationwide survey of large employers found 
that the cost of providing retiree health benefits increased by an 
estimated 12.7 percent on average between 2003 and 2004 alone. The 
Henry J. Kaiser Family Found. & Hewitt Assocs. LLC, Current Trends and 
Future Outlook for Retiree Health Benefits (Dec. 2004), at 9. The 
experiences of our clients bear out the conclusions of the many studies 
that have found that the steadily rising costs of health care, changes 
in the accounting rules and rising pension costs have placed employers 
and organized labor under ever-increasing pressure to reduce 
expenditures on all benefit programs--including retiree health 
benefits. For example, a recent study suggests that if current trends 
continue, the employer-share of health benefit costs could increase by 
more than 236 percent between 2002 to 2010. Employment Policy 
Foundation, Employer's Share of Health Benefit Costs Could Top $10,000 
per Employee by Decade's End (May 1, 2003). This pressure has forced 
plan sponsors to constantly reexamine the coverage provided to 
employees and retirees in order to remain competitive in local and 
global markets. Today, plan sponsors face the same pressures that led 
Erie County to restructure its plans and to the Third Circuit decision 
that has resulted in today's important hearing. To fully understand the 
impact of the Erie County decision on future retiree health benefits, 
it is important to understand the history of retiree health coverage in 
this country.

Background on Retiree Health Care
    For decades, employers and unions have taken Medicare eligibility 
into account when designing and implementing retiree health benefit 
plans. These plans have generally provided one of two forms of 
benefits, or both: (1) ``Medicare Bridge'' benefits for early retirees, 
which typically continue the same health benefits as are provided for 
active employees until the retiree becomes eligible for Medicare; and 
(2) Medicare supplement or carve out plans for retirees who are 
eligible for Medicare. Like many plan sponsors, Erie County provided 
its retirees who were not Medicare-eligible with ``Medicare Bridge'' 
benefits and its Medicare-eligible retirees with a Medicare 
supplemental plan. This plan design was widely regarded as legal under 
the Age Discrimination in Employment Act (ADEA)'the federal statute 
that bars employment discrimination based on age until 2000 when the 
Third Circuit Court of Appeals changed the status quo with its decision 
in Erie County.

Background of Erie County Case
    Faced with increasing health insurance costs, the Erie County 
Employees' Retirement Board (the Board), which administered the medical 
coverage, decided that employees hired after January 23, 1992, would 
not be eligible for continued health insurance benefits upon 
retirement. On December 12, 1995, the Board further restricted 
eligibility by declaring that persons the county hired prior to January 
23, 1992, would remain eligible only if they fell into one of four 
groups: (1) employees unable to continue their employment due to a 
disability, who otherwise were eligible for a disability retirement 
pension; (2) employees who retired from the county government with at 
least 20 years of service and 55 years of age; (3) employees 
involuntarily terminated from county government employment with at 
least eight years of service; and (4) employees who retired from the 
county with at least eight years of service and 60 years of age. Prior 
to 1998, all county employees and retirees were covered by traditional 
indemnity plans. With health care costs still increasing and a change 
in financial accounting standards, the county announced late in 1997 
that going forward Medicare-eligible retirees would be covered by an 
HMO Medicare supplement that required coordination of all health care 
by a primary care physician, while early retirees would be covered by a 
point-of-service plan. A group of Medicare-eligible retirees sued their 
former employer, alleging that Erie County discriminated against its 
older retirees in violation of the ADEA because the HMO Medicare 
Supplement required retirees to coordinate their medical care through a 
primary care physician, while younger retirees under the point-of-
service plan were not required to coordinate their benefits through a 
primary care physician. The Third Circuit Court of Appeals found that 
this plan design violated the ADEA unless Erie County could show that 
it could satisfy the ADEA's ``equal cost/equal benefit'' defense. 
Directed to come into compliance, Erie County ultimately equalized the 
retiree health benefits it offered the only way that it could afford to 
not by improving the benefits for its Medicare-eligible retirees--but 
by reducing the level of health care benefits offered to early 
retirees.

Impact of Erie County Decision
    Following the Erie County decision, many clients asked whether they 
should terminate their retiree health plans that were at risk. Until 
recently, we have advised that while they are at risk, rather than 
terminate their plans, they should consider a ``wait and see'' approach 
to see how the other Circuits and the EEOC would react, particularly 
because the EEOC had announced that it would promulgate a narrow 
exemption to the ADEA, which would recognize that plans could continue 
offering Medicare-coordinated retiree health benefits. However the 
legal landscape changed on March 30, 2005, when Judge Brody of the 
Eastern District of Pennsylvania permanently enjoined the EEOC from 
issuing the exemption. Once again plan sponsors have asked whether they 
should terminate their plans.
    According to the Third Circuit, the only way that a plan sponsor 
can justify providing different benefits to Medicare-eligible retirees 
as compared to younger retirees would be to meet the ``equal benefit or 
equal cost'' test established in Section 4(f)(2) of the ADEA and EEOC 
regulations. To do so, the plan sponsor would have to show either (1) 
that the benefits provided to Medicare-eligible retirees (factoring in 
Medicare) were equal or better than those offered to early retirees or 
(2) that it spent the same amount buying health insurance for each 
retiree, without considering the value of the Medicare benefit. As 
illustrated by the Erie County case, subtle differences in the benefits 
provided to pre- and post-Medicare-eligible retirees may be found by a 
court to violate the equal benefit test. Moreover, plan sponsors may be 
unable to demonstrate that they satisfy the equal cost test where they 
provide a Medicare carve-out or Medicare supplement plan, because 
Medicare will bear a substantial portion of the cost.
    The problem with the Erie County decision is that, given the 
rapidly escalating costs of health care, it leaves plan sponsors with 
few options other than to restructure and reduce the health benefits 
provided to retirees. Plan sponsors can comply with the Erie County 
decision only by: (1) increasing health benefits for retirees over the 
age of 65; (2) reducing health benefits for retirees under the age of 
65 to match those provided by Medicare; (3) limiting the duration of 
health benefits to a specified number of years regardless of age; or 
(4) terminating health benefits for all retirees. In light of the ever-
increasing cost pressures on plan sponsors, few would choose to raise 
the benefit levels for post-65 retirees, opting instead to reduce or 
eliminate retiree health benefits.
    It is estimated that more than 3 million retirees between the ages 
of 55 and 64 rely on employer-sponsored plans for their health 
insurance coverage, while about 11 million people over the age of 65 
have supplemental coverage from an employer-sponsored plan. See 
Statement of Patricia Neuman to the U.S. Senate Special Committee on 
Aging, May 17, 2004 (Exhibits 1 and 2). For early retirees, employer-
sponsored plans generally provide access to relatively affordable and 
comprehensive coverage. Without this coverage, many retirees who are 
pre-65 and too young for Medicare would be hardpressed to find 
comparable, affordable coverage on their own. While Medicare-eligible 
retirees, unlike early retirees, have Medicare as their primary source 
of health insurance, many rely on employer-sponsored retiree plans to 
provide needed assistance in supplementing Medicare's benefits.

Why the EEOC Exemption Is Appropriate
    Retiree benefits are not like other forms of compensation for 
employees, and therefore should be approached differently when 
evaluating age discrimination concerns. First, our society has in place 
certain protections for retirees age 65 or older that are not available 
to younger retirees, e.g., Social Security and Medicare. Second, we are 
talking only about retirees, not employees. No one is suggesting that 
employees should be treated differently based on their age. With regard 
to retirees, however, the law, recognizing the existence of protections 
such as Social Security and Medicare, already permits distinctions that 
favor younger retirees. For example, Section 4(l) of the ADEA and 
Section 204(b)(1)(G) of the Employee Retiree Income Security Act 
(ERISA) both explicitly permit employers to pay subsidized early 
retirement benefits to retirees until they are eligible to receive 
Social Security. See 29 U.S.C. Sec. 1054. These bridge benefits permit 
employees to retire early and receive a subsidized benefit that 
disappears when the employee becomes eligible for Social Security. 
These ``Social Security Bridge'' benefits are particularly important 
when employees are terminated, as businesses downsize and restructure. 
But early retirees will face severe hardships if the law prohibits 
``Medicare Bridge'' benefits. The fact is that most employees cannot 
retire before age 65 unless they have medical insurance to cover them 
until Medicare is available. For most retirees, buying individual 
coverage is cost prohibitive. For a couple age 55, one year's health 
care insurance this year could easily reach or exceed $8,400,\1\ rising 
at 13 percent per year. The cost for that couple to purchase coverage 
until they qualify for Medicare at age 65 would total more than 
$175,000 if medical costs continue to increase at only percent per 
year.
---------------------------------------------------------------------------
    \1\ Quote obtained from www.ehealthinsurance.com.
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    Plan sponsors want to ensure that adequate health benefits are 
available to their employees upon retirement. That's why labor and 
management support the EEOC exemption, which would remove a significant 
obstacle to achieving that goal. The EEOC exemption, if implemented, 
would preserve Medicare Bridge benefits. In the absence of the proposed 
exemption, plan sponsors will either terminate their retiree health 
plans or structure them in a way that reduces the level of benefits to 
early retirees while producing no additional benefits to Medicare-
eligible retirees. The EEOC exemption merely recognizes the reality 
that an interpretation of the ADEA that would result in a net loss of 
employer-sponsored retiree health benefits does not promote the 
purposes of the ADEA and is not in the public interest.
    Mr. Chairman and members of the subcommittee, thank you for the 
opportunity to testify today and for your attention to this very 
important issue. I would be happy to answer any questions that you 
might have.
                                 ______
                                 
    Chairman Johnson. Thank you, sir. We have got a vote on, 
and Mr. Andrews and I are going to go vote here in a few 
minutes, but we will continue with the meeting during the vote, 
because we only have one vote.
    I would like to ask Ms. Silverman, the ADEA has been around 
since about 1967. Why was the coordination of retiree health 
benefits with Medicare not an issue until the Erie County 
decision in 2000?
    Ms. Silverman. Well, until the Erie County decision 
employers never really had a reason to believe that 
coordinating the retiree health benefits they offer with 
Medicare eligibility was unlawful. And I understand that they 
have been doing this for quite a long time. In fact, when 
Congress enacted the Older Worker Benefit Protection Act, which 
amended the ADEA in 1990, the joint statement of managers, 
which accompanied the final bill, included a clear statement 
that the coordination of retiree health benefits with Medicare 
eligibility was permissible.
    So, frankly, before this they just didn't even realize that 
it would be problematic. They didn't think it was legal.
    Chairman Johnson. Thank you. Mr. Greenfield, I understand 
from your testimony in many cases retiree health benefits for 
teachers cease once the retiree reaches 65. So, in other words, 
the typical teacher is only eligible for retiree health 
benefits up until the time the person becomes eligible for 
Medicare. Is this a typical retiree health benefit designed for 
teachers? And if school districts were not allowed to provide 
these benefits only to retired teachers prior to age 65 are 
teachers likely to lose their health benefits entirely?
    Mr. Greenfield. It is, Mr. Chairman, a typical design. 
There are a full panoply of designs in the various school 
districts across the country but bridge payments like the one 
you just described where benefits are only provided until 
someone is eligible for Medicare and then stopped is a typical 
design and it is done for a number of reasons. One, it makes it 
possible for the person to retire when the pension is eligible 
at that time, when they are eligible for a pension but they are 
not eligible for Medicare yet.
    And, second, that it is practical because you can keep 
those people on your primary plan the same inactive where you 
couldn't if they were already eligible for Medicare. In terms 
of what will happen if that is no longer available, we do fear 
that it will assuredly cause a number of people to lose 
benefits or have reduced benefits.
    Chairman Johnson. Thank you, sir. Mr. Spencer, can you tell 
us based on your experience what you would expect your clients 
to do if the Erie County decision was allowed to stand?
    Mr. Spencer. Sure. Right now employers are really 
considering four options: they are considering terminating 
retiree health benefits entirely, offering benefits for a 
limited duration, making the benefits for the pre-65 group of 
employees equal to those who are older than 65 by basically 
giving them just Medicare-type benefits, or improving the 
benefits to provide benefits that go beyond Medicare, providing 
Medicare supplement. And what we are seeing, though, is since 
the design that Mr. Greenfield is very typical, where benefits 
stop at age 65. We are not seeing employers and plan sponsors 
or labor unions advocating to provide additional benefits 
beyond 65.
    And so I think the general approach is that most plan 
sponsors are thinking about terminating their benefits or 
reducing them.
    Chairman Johnson. Thank you, sir. That is not a good deal, 
is it?
    Mr. Andrews, you are recognized.
    Mr. Andrews. Thank you. I would like to thank all the 
witnesses for their testimony, especially Mr. Dochat, is that 
how you pronounce your name?
    Mr. Dochat. Yes.
    Mr. Andrews. Thank you for being here today, and I hope 
that your wife continues to be recovering. I heard your story, 
and it rang a bell for me. If I got this correctly, when you 
were 61 your company down-sized----
    Mr. Dochat. When I retired.
    Mr. Andrews. You were 61 when you retired?
    Mr. Dochat. Yes.
    Mr. Andrews. So that meant you had 4 years to go before you 
got to Medicare. The reason it rang a bell was I know a 61-
year-old man who had worked at a place, a shipyard, for 40 
years and the shipyard closed and let everybody go. And he did 
not have health insurance at all for the 4 years until he got 
to Medicare.
    It was my dad. When I was 14 years old that is what 
happened to my father. And a lot of employers don't do what 
your employer did, but that doesn't mean we should change the 
law to let them discriminate against anyone on the basis of 
age. And I understand that.
    I wanted to ask Mr. Greenfield how this is affecting people 
in the education field. My understanding is a lot of teachers 
retire at around age 55, is that correct?
    Mr. Greenfield. They typically retire--or a wave of 
teachers retire when they are first eligible to retire under 
the state retirement system, and those can go as early as 55, 
and some 60.
    Mr. Andrews. So there is maybe a 5-year or 10 year time for 
teachers before they hit Medicare where they are totally 
dependent upon whatever benefit the school board is 
contractually obligated to pay or willing to pay.
    Mr. Greenfield. That is right, and it would not be feasible 
for most teachers to be able to take advantage of the earlier 
pension availability if they didn't have health care benefits.
    Mr. Andrews. In listening to what Mr. Spencer has to say 
and Ms. Silverman has to say, I am concerned that what a lot of 
school boards are going to look at is the exposure that they 
are subjecting themselves to with respect to liability. You 
could make a claim, as happened in the Erie County case, that a 
school district that provides a comprehensive plan at a cost of 
$15,000 a year for a 56-year-old retiree and her spouse/his 
spouse is violating a law if they only spend $3,500, $4,000 a 
year on a Medicare retiree.
    If either of you, Mr. Spencer or Mr. Greenfield, were 
representing that school board and they came to you and said, 
``We want your opinion letter, we want your assurances, or 
better yet, we want you to tell us how we can design a plan 
that will immunize from liability under the Age Discrimination 
statute. We are going to hire a great Philadelphia law firm 
like yours, Mr. Spencer, or a great Washington law firm like 
yours, Mr. Greenfield, to write a plan for us that will assure 
us that we are going to be OK if we get sued for age 
discrimination,'' could you do it?
    Mr. Greenfield. I am going to let Mr. Spencer talk for the 
employer.
    Mr. Spencer. Well, that is what we get paid for doing, so I 
guess I would. Let me tell you how we would design the plan, 
and I don't think these choices are particularly good results. 
We could say for the younger pre-65 retirees, let's duplicate 
what Medicare provides, exactly the same thing. So the 65 and 
older do not get anything more, they just stay where they are.
    The second choice would be let's provide it for a limited 
duration. Let's provide people with retiree health benefits for 
5 years. It is going to cost us more, but that is not going to 
help if we have a reduction in force and somebody is let go at 
55.
    Mr. Andrews. It also says to someone you better not retire 
before you are 60.
    Mr. Spencer. Absolutely. And it could be 3 years, the costs 
are phenomenal. So at the end of the day, unfortunately, you 
come back to the conclusion that maybe the safest alternative 
is just to terminate retiree health benefits entirely, and 
clearly that is not a satisfactory result.
    Mr. Andrews. What is your opinion, Mr. Spencer, I know it 
is in your written testimony, the practicality of designing a 
standard for equivalent benefits. If we said as long as the 
benefits of the wrap-around plus Medicare are equivalent to the 
pre-65 health care plan, you are OK. How precise and accurate 
do you think we could be in writing such a definition?
    Mr. Spencer. I think you summed it up at the beginning of 
the hearing very well; this is a very complicated area, and to 
try to have complete parallelism in the two different plans is 
virtually impossible. I think it is an extremely difficult 
task. And quite frankly, as Congress tinkers with Medicare, it 
causes ripple effects and you would have to constantly keep 
changing. Plus the other problem is that health benefits are 
not like pension benefits, it is not static. Treatments that we 
have today are going to be very different from treatments in 
the future. And we are going to have to constantly look at the 
plans and redesign them.
    Mr. Andrews. The other point I would close on--I see my 
time is up--I also think that the new prescription drug 
benefits under Medicare further complicate the matter, because 
it is hard to understand in and of itself, but then if you have 
to compare it to a plan that existed before '65, it even 
further increases the complexity.
    Thank you, Mr. Chairman.
    Mr. Kline [presiding]. Thank you, and I know that the 
Chairman indicated at the start of this hearing that we were 
going to be disrupted by votes; that is, of course, in fact 
what is happening. We are sort of trading; Mr. Kildee and I 
went over to allow Mr. Andrews and Mr. Johnson a chance to 
vote. That is the explanation. The result of that is that we 
missed some testimony, and we do have your written statements. 
But this is my preamble to explain that we may have some 
disconnects sometimes in questions we are asking and cover some 
ground that was covered earlier, so I apologize for that. That 
is by way of explanation.
    It seems to me that in this case we had two fairly clear 
laws that the Congress had enacted and the President had 
signed, we are dealing with a couple of laws, the Age 
Discrimination and the secondary law in the 1990's. And in the 
Erie court decision my looking at it is that the court clearly, 
clearly avoided the congressional intent in the law. Another 
way of putting that is they overreached and created new policy 
that was never intended by the crafters of the legislation or 
the President who signed it.
    But now we have got that decision and so we are grappling 
with it. And I would like to turn to Ms. Silverman, 
Commissioner Silverman, and look at that, sort of following up 
on what Mr. Andrews said earlier. When the EEOC started to 
craft the narrow Erie County exception, I understand that the 
EEOC looked at alternative means, some of which you alluded to 
in your testimony, of addressing this issue, in particular 
whether some variable of the equal cost/equal benefit test 
would suffice. The EEOC chose not to go that route. Can you 
explain, expand on that and explain why those alternatives were 
insufficient?
    Ms. Silverman. I can try to. The equal cost/equal benefit 
rule we simply found it unworkable in this situation. We first 
tried to apply it in a way that would make most of the existing 
plans out there fit in some variable so that we wouldn't have 
the problem with the schoolteachers and many of the bridge 
plans, and that was simply impossible.
    And then we tried to see what else we could do. Well, it is 
impossible to do it with equal cost because it is never going 
to be equal cost because Medicare exists for the post-65 
population. So you can't expend the same amount of money. The 
equal benefit is the area that we really spent the most time 
on, but because of the many nuances and variables, health plans 
contain incredibly complex calculations, and that would often 
be required to establish the equal benefit defense. And we 
feared that with such calculations and the ADEA liability, if 
an employer got it wrong, they would simply cut or eliminate 
the benefits just as they did in Erie County.
    So what we found is there was just no way to get the 
benefit just right. We don't think that they could have 
possibly duplicated Medicare, we just don't think it could have 
been done. So that is why we came to the conclusion that there 
wasn't some variable of the equal cost/equal benefit rule that 
we could interpret and use in this. And that is why we went 
with the full exemption.
    Mr. Kline. Thank you. It is enormously frustrating for many 
of us, if not all of us, sitting up here as we look at 
legislation that we craft and it looks like the law that my 
predecessors, me being a relatively new Member of Congress, put 
together is pretty clear, and yet we are now trying to work 
around that or find some solution. And I am wondering myself if 
we are going to have a legislative solution, again picking up 
on what Mr. Andrews said, what could we possibly say that would 
restore the situation we had where we had employers willingly 
providing that health coverage until the retiree reached 
Medicare age. And then working together to try to ensure the 
highest level of benefits? I am just having difficulty 
imagining what possible language that we could put in 
legislation that would make it sufficiently clear to the courts 
that we mean what we say and this is the public policy.
    I see my time is about to expire. I had a question for Mr. 
Spencer but I am going to hold on that and see if my colleague, 
Mr. Kildee, would like to inquire.
    Mr. Kildee. Thank you very much, Mr. Chairman. Mr. Spencer, 
you used the word ``complicated,'' as I think Mr. Andrews used 
the word ``complicated.'' And it certainly is complicated both 
legislatively but it is complicated also in our desire to 
support traditional allies that are very often at odds with one 
another now because I have great respect for the various groups 
not having the same position, have worked with them through the 
years. So it is complicated in various ways.
    I would like to ask you a question. What guarantee do we 
have that cuts to retiree health benefits won't continue to be 
made for a whole variety of reasons if the EEOC rule takes 
effect? And what is stopping those cuts from being made in the 
following manner, perhaps first only to just the oldest 
retirees but perhaps sooner than would have otherwise been the 
case if the EEOC hadn't paved the way?
    Mr. Spencer. I think that is an excellent question, and one 
I tried to address in my opening statement. The ADEA does not 
protect or prevent a company like Armstrong, for instance, as 
an example, from terminating retiree health benefits. It 
doesn't prevent that. The statute that prevents that is the 
Employee Retirement Income Security Act. Under that statute, 
participants have brought lawsuits to enforce the terms of the 
plan, to enforce the promises that were made to them. And if 
those promises said that those participants were going to get 
benefits for the rest of their life, then they would get 
benefits for the rest of their life. If those promises 
contained conditions, then they would be subject to those 
conditions.
    Nothing in the proposed ADEA exemption changes those rules. 
That is the protection. That is the source of protection. The 
exemption that we are talking about today doesn't change that 
one iota.
    Mr. Kildee. I appreciate your answer on that. And Congress 
will have to come up with some--the courts basically said 
Congress can do this because they are citing not constitutional 
questions, they are citing statutory questions. So we certainly 
want to work with all the groups involved. And as I said, 
traditional allies take contrary positions on this and so it is 
not that easy but we look forward--and the gentleman from the 
AARP, do you have any comment on that at this time?
    Mr. Dochat. No, I was just listening.
    Mr. Kildee. OK, all right. Thank you very much.
    Mr. Kline. I thank the gentleman. Mrs. McCarthy, would you 
care to inquire?
    Mrs. McCarthy. Thank you, Mr. Chairman. Thank you for 
having this hearing. It is very hard for us to sit up here, 
because I think all of us want to the right thing for our 
seniors, but it always seems our seniors are getting the short 
end of it. The rules change. You worked 45 years for a company. 
You gave the loyalty to your company, and then the rules 
change. It is going to be our job to try and find some solution 
that is going to protect you, to protect all those seniors that 
have worked so hard, and thinking especially with your fixed 
income.
    I come from Long Island. We have many, many seniors that 
are being forced to move, mainly because they can't afford the 
health care in the New York market. They have to leave their 
families, their grandchildren, and they can't get their 
medications--which doesn't matter, anywhere you go in the 
country, you are going to have that problem.
    I guess the thing, Mr. Dochat, what would happen to you and 
your wife if you lost everything as far as your health care, 
would you be forced to move from Pennsylvania, where your home 
has been all your life? Forty-five years, I would consider that 
most of your life, that you have been there. I know with the 
EEOC rule, you are facing a difficult decision on what is going 
to happen. But the problem is going to be, we are going to end 
up hurting probably a vast majority of our seniors one way or 
the other because somebody is going to get hurt to fit into the 
rule and to the money. I think the problem with this nation is 
the health care system in whole. And that is a problem, and we 
have to face that.
    When we go over to Europe, and I know everybody talks about 
Europe not having good health care, Tony Blair changed it three 
or 4 years ago. Everybody gets good health care over there now. 
You don't have the long lines. And we have to start seriously 
looking at how we are going to service our seniors, how we are 
going to service everyone, because to me that is a basic right. 
I spent my life as a nurse, and I spend a lot of time in 
hospitals today, and the care is so stretched for the United 
States of America, to even be thinking about the health care 
that we are giving to our citizens to me is really a shame. Not 
without everybody trying their best, but it is just not 
working.
    I hope this Committee can come up with some sort of answer, 
but knowing how we work and we are going to have to compromise, 
someone is going to get hurt and that is a shame, it really, 
really is, because it always comes down to money. Loyalty, the 
care about working for a company, those things are going out 
the window and everybody is me first, whether it is the 
teachers, and you have every right to certainly protect the 
teachers, the businesses, you have every right to protect the 
businesses, but it's someone like Mr. Dochat that is going to 
get hurt and we are going to have millions of them. And that is 
really, really too bad. And I am sorry that I missed because we 
had to go down to vote on any solutions. But anyone who wants 
to try and offer a solution that we can work on, because that 
is what this Committee is here for, I would appreciate hearing 
it.
    Mr. Kline. I don't think there is a ready solution 
forthcoming, despite our best efforts.
    Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. Mr. Spencer, I want 
to say this without getting into an argument with you, but I 
want to make a point. You made a comment that the companies are 
doing this but they are not taking away promised benefits to 
people like Mr. Dochat. The fact of the matter is that more and 
more companies are taking away the retiree benefits of people--
first, they are increasing the cost, as Mr. Dochat said, and 
they are taking the deductibles and all of that. And then some 
are just losing it entirely. So this is a serious, serious 
issue. In fact, we have legislation on this, H.R. 1322. We have 
had some hearings in this Committee on it where basically, if 
it is a profitable company, they ought not to be able to break 
that promise.
    I think Mr. Dochat makes an incredibly good point. These 
are promises made. People took home less pay when they were 
working over a period of 40 years, 50 years, 35 years, because 
they had the promise of the health care on retirement. And I 
think these are promises being broken. And I think what 
disturbs me most of all, besides the promise being broken, is 
that we can't get private industry to get serious about a 
debate about universal health care, about how we are going to 
take care of this.
    This system is falling apart at all edges. And I would hope 
that the United States Chamber of Commerce and others would 
find a way to try and get beyond where we are right now and 
cover everybody on that. I simply think it is wrong to put 
people like Mr. Dochat in the situation that he is in, whether 
you are in a private company, but particularly if you are in a 
profitable private company.
    Can you tell me the why--if a company feels it is having 
some financial pressure but it is profitable, why it is they 
feel they have to protect themselves by going after one of 
those vulnerable parts of our society? Is there no place in 
their corporate structure that they can look for cost savings 
other than to pick on people that are the most vulnerable and 
the least likely to be able to afford to get back the coverage 
that they are losing?
    Mr. Spencer. Mr. Tierney, your question is actually an 
excellent one. In my testimony, I didn't say in answer to Mr. 
Kildee's question, what I said was that the Employee Retirement 
Income Security Act provides the vehicle to protect benefits. 
Let's take Mr. Dochat, for an example. He is being provided 
those retiree health benefits. He is getting those benefits. 
Erie County hasn't changed that at all.
    So the issue before us today is are we going to require 
employers, labor unions, plan sponsors, to create new plans, 
plans for people who have no expectation of having post-age 65 
Medicare benefits. And what we see in the Erie County case is 
illustrative. It shows us that the way the companies are 
reacting to this are by saying new employees are not going to 
get these benefits, OK, they are too expensive. We are not 
going to give these benefits. With respect to these 
grandfathered groups of people, we are going to give those 
benefits.
    In Mr. Dochat's case, which is an excellent example, he is 
getting those benefits today. And what is protecting it? Not 
the Age Discrimination in Employment Act, not what you are 
being asked to look at today, it is the Employee Retirement 
Income Security Act.
    And you are correct, Mr. Tierney, that there are numerous 
lawsuits that have challenged this and have tested this and the 
courts are deciding those, whether or not an employer promised 
something and to enforce those promises when they have to do 
it. But what we are considering here today really doesn't 
change the rules of the game on that. What we have is a lot of 
people, like in the NEA, who have a lot of plans that are 
designed to provide retiree health benefits until somebody 
becomes Medicare-eligible.
    And so what we would be doing here is requiring those 
employers--if they want to continue to do that, we would be 
requiring them to establish new benefits, new plans for people 
who had no such expectations.
    Mr. Tierney. I appreciate what you are saying, but what 
seems clear to me, we had at one point in our society a pretty 
clear view of where we were going. And I think Roosevelt used 
to talk about the vagaries and the vicissitudes of life, and 
when people came up against the wall, the corporations didn't 
provide for, we tried to do something, whether it is Social 
Security or whatever else we put in place. And, in fact, 
corporations got involved in that and they gave us health care 
for employees, they gave us retirement plans.
    That is sort of falling apart right now. What you are 
talking about here doing is going forward is you are now saying 
there is going to be one vulnerable part of our society that is 
no longer going to get the good health care that they got 
through their employment. They are going to go to what 
unfortunately is a lesser health care, probably without 
prescription drug benefits and some other benefits on that by 
being kicked off of the corporate responsibility into the 
public realm. We are going to put them into Medicare and they 
already had that, I understand that, but Medicare is not going 
to be doing the things for them that we all would like them to 
do.
    Yet nobody is stepping forward saying what is government's 
role in this? If corporations decided they are not going to 
participate and do that anymore, and individuals can't afford 
it, the debate in this country I think ought to be, and I would 
hope that the Chamber of Commerce and others, the debate ought 
to be what are we going to do as a public group, a society to 
cover health care? We should be talking about universal health 
care, I don't care if it is single, pair, or any of the other 
three major things that are out there, we ought to be talking 
about how we are going to do it.
    The Institute of Medicine came out with a report a couple 
of years back, one of the recommendations they have that is in 
legislative form that we have here, let states experiment, let 
them find ways to cover everybody in their state with a form of 
health care. They can take the debate out of Congress, where we 
can't seem to settle on what type we are going to do, whether 
it is going to be a tax credit, whether it is going to be a 
single pair, or whatever. Let states decide how they are going 
to do it and use the ones that work as models. And the Federal 
Government perhaps ought to step forward and make sure the 
funding is there to do those experiments.
    But we are not even talking about that. And I guess I don't 
mean to rail at the witnesses that are down here, but the fact 
of this matter is this is a societal issue that we should be 
talking about as a Congress. And I appreciate your role here 
today. It is frustration that we are talking about, because we 
can't seem to get this debate talking, but people don't want to 
hear about a lot of the stuff that is being debated down here. 
What they want to talk about is these people that are now going 
to fall between the cracks, what are we going to do about them. 
And there is an increasing number.
    And I thank you for your testimony today.
    Mr. Kline. The gentleman's time has expired. Mr. Marchant.
    Mr. Marchant. This is a question to Mr. Spencer. Mr. Dochat 
testified that he is a lot cheaper to insure than a younger 
retiree because Medicare covers a lot of his costs. His 
employer only has to pay for the deductibles, co-pays, and the 
prescription drugs. Am I correct to understand that under the 
Erie County decision his employer can only provide exactly 
those same benefits to someone else who doesn't have Medicare 
covering the bulk of the cost? And what happens to a 58-year-
old retiree who doesn't have the Medicare picking up much of 
the tab?
    Mr. Spencer. OK, under the Equal Pay Act--I am sorry, under 
the Age Discrimination in Employment Act--there is a safe 
harbor and that safe harbor is found in Section 4F of the Act. 
That section provides that if an employer abides by the terms 
of a bonafide employee benefit plan, that they either provide 
equal benefits or expend equal dollars. That plan will be in 
compliance with the law.
    There is a recognition in the Age Discrimination in 
Employment Act, unlike Title VII, for instance, that older 
workers are going to be more costly when it comes to providing 
benefits. For example, if I took 1,000 65-year-olds and 1,000 
29-year-olds, we know that at the end of 1 year there are going 
to be far fewer 65-year-olds who are then 66 alive.
    So life insurance is going to be more costly for that older 
group of employees. And the Age Act recognizes that. And they 
say instead of requiring the exact same benefits for employees 
regardless of age, you can show and comply with the law by 
spending the same dollar amounts to provide those benefits.
    Now Mr. Dochat, I think, is correct. He has said that it is 
cheaper to insure older employees on Medicare than younger 
employees, and the reason for that is because Medicare is going 
to pick up some of the cost.
    But the problem with that analysis is as follows. Right now 
most of these plans are designed not to provide any benefits 
after age 65. And because they are designed not to provide any 
benefits after age 65, any time we extend benefits to a new 
group of employees, there is going to be additional and 
substantial costs.
    And in response to Mr. Tierney's question before, the group 
that I am concerned about, the ones that I think are truly the 
most vulnerable, are those who are, like Mr. Dochat, at the age 
of 61 was forced to leave his job as a result of a reduction in 
force. He didn't have Medicare to fall back upon. Fortunately, 
his employer provided him with early retirement benefits. And 
so it is that pre-65 group that I think are the most vulnerable 
here because if they are forced out in a reduction in force, 
they are not going to have the money to pay for benefits.
    Mr. Marchant. Thank you. Mr. Greenfield, as a 
representative of a large teacher's union, how do you respond 
to the claims by AARP that your support of EEOC's proposed 
retiree health will open the floodgates and give employers 
permission to drop retiree health benefits?
    Mr. Greenfield. Thank you, Congressman. The claim is often 
made, it was in Mr. Dochat's testimony as well, that if the 
exemption were to be implemented or if the Erie rule were 
otherwise overturned, that it would give the ``green light'' to 
employers to cut back benefits provided to post-Medicare 
eligible retirees. The supposition of that question or the 
premise of it is that currently employers are only providing 
wraps and supplements to Medicare-eligible retirees because 
they think they have to under the age discrimination laws. That 
is not actually true, nobody actually thought that was the law 
before the Erie case came down. And, second, there is no 
evidence that anybody has--that any employer has complied with 
the Erie rule by enhancing their benefits. So there is really 
no logic to that analysis.
    The problem is worse than that, though, because in addition 
to not having a cause and effect, it might have the opposite 
cause and effect, because if you force an employer to provide 
equal benefits to everybody, it makes it more likely that they 
will provide no benefits or reduced benefits to everybody.
    Mr. Marchant. That is all I have, Mr. Chairman.
    Chairman Johnson. Thank you for your comments. I think that 
you all have been informative, and obviously we have heard both 
sides of the issue. I just hope that employers don't drop 
health care totally across the board, and that is what could 
happen. We were worried about that with pension plans, with 
Medicare and Medicaid, and all the other forms of government 
support, that companies that are having a harder time making 
the ends meet and one of the first things they consider is 
reducing or eliminating health care. And we don't want that to 
happen. Whatever we can do to help, we would appreciate your 
input.
    I want to thank you for being here, all of you, for your 
time and testimony. And both the witnesses and Members for 
their participation. And if there is no further business--yes, 
you are recognized.
    Mr. Andrews. Thank you, Mr. Chairman. I also appreciate the 
contribution of the witnesses this morning. I do think this is 
a hearing that has to have a next step and has to have a 
consequence. I assume that the EEOC--I read that the EEOC is 
appealing Judge Brody's decision in Philadelphia, is that 
correct, Ms. Silverman?
    Ms. Silverman. We asked the Department of Justice to appeal 
on our behalf. It is their decision, ultimately.
    Mr. Andrews. Well, we need to see what the Department of 
Justice does and if there is an appeal, see what the appeal is. 
But the present situation, I think, is untenable, where we have 
Erie as the controlling law. Again, I put great significance in 
the fact that the Supreme Court declined to review the Erie 
decision. And I think that we need to see what the Justice 
Department does but then consider some action on our part, 
because the present ambiguity, I think, is going to lead to 
trouble. And I would just extend my hand of cooperation to the 
Chairman to see what we can do to fix the problem.
    Chairman Johnson. Yes, we will work together on it. What 
length of time do you anticipate the Justice Department taking 
on this thing, does anybody know?
    Ms. Silverman. They have until the end of May to file an 
appeal.
    Chairman Johnson. OK, there is a time limit, isn't there? 
OK. Mr. Payne, you can be recognized.
    Mr. Payne. Right, I won't belabor the meeting. Conflicts 
prevented me from being here, but my name is Congressman Payne.
    [Laughter.]
    Chairman Johnson. He is from New Jersey, by the way.
    Mr. Payne. In New Jersey we are a special breed. I'm here 
to support my colleague from New Jersey, Mr. Andrews, but this 
is an issue that we certainly are very concerned about, the 
whole question about retirees' health benefits. It is something 
that I think is--health care in general to me is the most 
important issue facing this country right now. There is talk 
about a crisis in Social Security; health care is where the 
crisis is, whether it is for retirees, whether it is for 
newborns, whether it is for middle-aged, whether it is for 
children.
    And I hope that we will put in general the attention 
necessary to talk about what is broken in the health care 
system in general, because there is too much finger-pointing. 
Some say it is the lawyers, others say the doctors get too 
much. Others say that malpractice insurance is too high. Others 
claim that Medicaid benefits are too low. Others say the 
pharmaceuticals are the problem. Others say the lack of 
research is the problem. Others say that there is too much 
labor-intensive care needed. Others say there is too much 
infections in hospitals and you can't contain it and people who 
go in well get sick.
    That is where the real issue is. And I would hope that our 
Committee would at some point just deal with health care in 
general, where the crisis is. We can fix Social Security. If we 
don't do something with health care in general, we are going to 
find that it is going to be an albatross around our neck.
    But thank you, Mr. Chairman.
    Chairman Johnson. Thank you, Mr. Payne. We are glad you 
came. No further business, we thank you again for being here, 
all of you. And the Committee stands adjourned.
    [Whereupon, at 11:50 a.m., the Subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

Statement of the Hon. John A. Boehner, Chairman, Committee on Education 
                           and the Workforce

    Thank you all for being here. Over the last 10-15 years, there has 
been a continuing erosion of employer-sponsored retiree health 
benefits, benefits that employers provide on a voluntary basis. A 
number of important factors have contributed to this erosion, including 
skyrocketing health care costs as well as significant demographic 
challenges as more baby boomers move into retirement age. A 2000 
federal court ruling in Erie County Retirees Association v. County of 
Erie is also contributing to this erosion, according to the Government 
Accountability Office (GAO).
    The Erie County decision says employers may not ``coordinate'' 
health benefits for retirees who turn age 65 and take into account the 
additional benefits they receive from Medicare, citing concerns about 
potential age discrimination. Until this ruling, coordinating retiree 
health benefits with Medicare had been standard practice among 
employers for years as a way for them to continue to offer generous 
benefits to their retired workers.
    The court's decision has prompted serious concerns from labor 
unions, employer groups, and lawmakers who rightly fear it would 
encourage employers to reduce or drop altogether coverage for their 
retirees who were under age 65 rather than enrich coverage for retirees 
aged 65 and older. Indeed, that is precisely what happened in Erie 
County. The county pared back health coverage for retirees under age 65 
and began charging them a premium equal to the Medicare monthly 
premium.
    In a move strongly supported by organized labor, workers, and 
employers, the Equal Employment Opportunity Commission (EEOC) last year 
voted to move forward with a regulation to reverse the Erie County 
decision. The agency's action was consistent with a letter sent to the 
EEOC by several of us in December 2003 expressing bipartisan support 
for the regulation. The letter was signed not only by myself, but also 
Chairman Johnson and Mr. Andrews, our ranking Democrat on the 
Subcommittee as well.
    The EEOC regulation is supported by a wide variety of organized 
labor and employer groups, including the AFL-CIO, the American 
Federation of State, County and Municipal Employees, the International 
Association of Fire Fighters, the American Federation of Teachers, the 
American Benefits Council, and the U.S. Chamber of Commerce.
    I'm disappointed by the recent court decision halting 
implementation of the EEOC regulation at the behest of an AARP lawsuit. 
This court ruling is clearly not in the best interests of retirees. 
It's also clear that the courts are ignoring the intent of Congress on 
this issue. I'm expecting the ruling to be appealed, and it's my hope 
the regulation will be upheld.
    The AARP has made a fundamental miscalculation about how the Erie 
County decision affects the millions of American seniors it claims to 
represent. It's quite clear to me that the AARP's misguided position 
would actually endanger the retiree health benefits of millions of 
American seniors--the very Americans AARP claims to be protecting--by 
encouraging employers to drop health benefits they currently provide 
voluntarily.
    I'm pleased we're holding this hearing today, because it's 
critically important that we examine the Erie County decision and its 
consequences on retiree health care for retirees, workers, and 
employers. With that, I yield back to my friend Mr. Johnson.
                                 ______
                                 

 Statement of the HR Policy Association, Washington, DC, Submitted for 
                               the Record

    Mr. Chairman and Members of the Subcommittee:
    The HR Policy Association (HR Policy) is pleased to present our 
views to the Committee on challenges to employer efforts to preserve 
retiree health care benefits, specifically the impact of the Erie 
County court decision on retirees. HR Policy was a strong supporter of 
the Equal Employment Opportunity Commission (EEOC) rule to exempt from 
all prohibitions of the Age Discrimination in Employment Act of 1967 
(ADEA) the practice of altering, reducing, or eliminating employer-
sponsored retiree health benefits when retirees become eligible for 
Medicare or a comparable state-sponsored retiree health benefits 
program. We are concerned that the recent decision by the U.S. District 
Court for the Eastern District of Pennsylvania to enjoin the EEOC's 
rule creating the exemption will have severe consequences for early 
retirees. The exemption is urgently needed to remove a threat to 
employers' ability to continue to provide health benefits to retirees 
both before and after they reach the age of eligibility for Medicare.
    HR Policy is an organization of the senior human resource 
executives of more than 250 of the nation's largest private sector 
employers, collectively employing nearly 13 million Americans, more 
than 12 percent of the private sector workforce. HR Policy's principal 
mission is to ensure that laws and policies affecting employment 
relations are sound, practical, and responsive to the realities of the 
modern workplace. All of HR Policy's members provide health care 
benefits to employees, and a substantial number provide benefits to 
retirees.
    The exemption is necessary to remove the threat to retiree health 
plans posed by the 2000 decision by the U.S. Court of Appeals for the 
Third Circuit in Erie County Retirees Ass'n v. County of Erie, 220 F.3d 
193. In Erie County, the court ruled that the county violated the ADEA 
by coordinating its retiree health plan with Medicare so that Medicare-
eligible retirees received coverage that differed from that of non-
Medicare-eligible retirees. The court found Medicare eligibility to be 
a proxy for age 65, and thus the benefits change constituted 
discrimination ``because of'' a retiree's age.
    This ruling contradicted the legislative intent behind the Older 
Workers Benefit Protection Act (OWBPA), which added benefit protection 
to the ADEA in 1990. The legislative history of OWBPA clearly states 
that it was intended to allow employers to continue to provide bridge 
coverage to pre-Medicare retirees at a different level than that 
provided after the age of 65. Final Substitute: Statement of Managers, 
136 Cong. Rec. S25353 (Sept. 24, 1990); 136 Cong. Rec. H27062 (Oct. 2, 
1990) (``Many employer-sponsored retiree medical plans provide medical 
coverage for retirees only until the retiree becomes eligible for 
Medicare. . . .In many of these cases, the value of the medical 
benefits that the retiree receives before becoming eligible for 
Medicare exceeds the total value of the retiree's Medicare benefits and 
the medical benefits that the employer provides after the retiree 
attains Medicare eligibility. These practices are not prohibited by 
this substitute.'').
    Because the Erie County retiree medical plan drew distinctions 
among retirees based on Medicare eligibility and not ``because of'' 
their age, we believe the Erie County decision is a fundamental 
misinterpretation of the ADEA. In any event, regardless of the correct 
statutory interpretation, the EEOC clearly has authority under Section 
9 of the ADEA to ``establish such reasonable exemptions to and from any 
and all provisions of [the Act] as it may find necessary and proper in 
the public interest.'' 29 U.S.C. Sec. 628. The sole limitation on this 
delegation of authority is that such exemptions must be ``reasonable.''
    Clearly, the interests of those to be protected by the statute 
individuals over the age of 40'' justify the exemption proposed by the 
EEOC. Rather than enhancing protections for workers over the age of 65, 
the perverse result of the Erie County decision is to encourage 
employers to either reduce health insurance coverage for pre-Medicare 
retirees, as was the response of Erie County following the ruling, or 
drop retiree health care coverage altogether.
    To appreciate the dilemma Erie County poses for employers, it is 
critical to understand the role played by so-called bridge coverage in 
assisting those who take early retirement. Because Congress has chosen 
to limit eligibility for Medicare to those over the age of 65, many 
employers provide bridge coverage to early retirees so that they are 
ensured coverage until they reach the age of 65 and become eligible for 
Medicare. For example, one of our member companies, pursuant to its 
collective bargaining agreement, provides early retirees with medical 
coverage equal to the coverage they have as active employees at no cost 
until they attain Medicare eligibility, at which point they are covered 
exclusively by Medicare. If Erie County is allowed to stand, the 
company will have little choice but to declare this provision illegal 
and drop the coverage for early retirees.
    Yet, because it has been uncertain as to whether Erie County is the 
law of the land, this and myriad other companies have maintained bridge 
coverage for early retirees and coordination with Medicare after the 
age of 65. However, in the absence of an administrative or statutory 
correction of the Erie County problem, these companies may have to 
choose between expanding benefits for those eligible for Medicare--thus 
substantially increasing their health care costs--or diminishing or 
eliminating benefits for those who are not yet eligible for Medicare.
    The economic realities of health care today virtually dictate that 
the companies will choose the latter approach. A recent survey by the 
Henry J. Kaiser Family Foundation and Hewitt Associates found that 
costs for retiree health care increased 16 percent between 2001 and 
2002. The study also found that 13 percent of large employers have 
terminated benefits for future retirees over the past two years, and an 
additional 22 percent are considering doing so within the next three 
years. (See ``The Current State of Retiree Health Benefits: Findings 
from the Kaiser/Hewitt 2002 Retiree Health Survey,'' (Dec. 2002), 
available online at http://www.kff.org/content/2002/20021205a/.)
    To avoid putting companies in the position of having to reduce 
retiree health benefits in order to comply with the ADEA, it is 
critical that employers receive the clarity that would have been 
provided by the EEOC's rule creating the exemption. Despite its 
injunction of the rule, the Eastern District opinion acknowledged that 
the EEOC and amici HR Policy, other business organizations, and 
organized labor persuasively'' argued that, without the rule, employers 
would likely reduce or eliminate benefits for early retirees rather 
than increasing benefits for Medicare-eligible retirees. We are pleased 
that the EEOC has asked the Justice Department to appeal, and we plan 
to file an amicus curiae brief as we did in the lower court.

Conclusion
    Congress did not intend to create a disincentive for employers to 
continue offering retiree health benefits when it enacted the ADEA in 
1967 and amended it in 1990 via OWBPA. Yet, this has been the practical 
effect of the Erie County decision, which treats the coordination of 
employer-sponsored retiree health care benefits with Medicare as a 
violation of the ADEA. Rising costs of health care, together with 
increases in longevity and changes in accounting rules, have placed 
employers under ever increasing pressure to reduce expenditures for 
benefits such as retiree health, and by tying the hands of employers 
with respect to their ability to control those costs, Erie County has 
only added to the pressure to reduce costs by cutting or eliminating 
benefits. This could lead to a greater number of uninsured pre-65 
retirees. When employers coordinate retiree health benefits with 
Medicare, they are motivated not by the age of the individual retirees, 
but by the fact that those retirees are now eligible for government 
sponsored health benefits. Accordingly, the coordination of retiree 
health benefits with Medicare is in keeping with the law.
    Thank you for consideration of our views.

                                 
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