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94–290 PDF 2004

S. HRG. 108–541

ACCESS TO ADEQUATE HEALTH INSURANCE:

HOW DOES THE EQUAL EMPLOYMENT

OPPORTUNITY COMMISSION’S RECENT RULE

AFFECT RETIREE HEALTH BENEFITS?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC

MAY 17, 2004

Serial No. 108–34

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

LARRY CRAIG, Idaho, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MIKE ENZI, Wyoming 

GORDON SMITH, Oregon 

JAMES M. TALENT, Missouri 

PETER G. FITZGERALD, Illinois 

ORRIN G. HATCH, Utah 

ELIZABETH DOLE, North Carolina 

TED STEVENS, Alaska 

RICK SANTORUM, Pennsylvania 

JOHN B. BREAUX, Louisiana, Ranking 

Member 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

DEBBIE STABENOW, Michigan 

LUPE WISSEL, Staff Director 

MICHELLE EASTON, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator John Breaux ......................................................... 1

PANEL I 

Leslie E. Silverman, Commissioner, Equal Employment Opportunity Commission, Washington, DC .......................................................................................... 2

PANEL II 

Patricia Neuman, vice president and director, Medicare Policy Project, Henry 

J. Kaiser Family Foundation, Washington, DC ................................................. 16

Erik D. Olsen, D.D.S., president-elect, AARP Board of Directors, Glenbrook, 

NV ......................................................................................................................... 33

Andrew J. Imparto, president and chief executive officer, American Association of People with Disabilities, Washington, DC ............................................. 60

Bruce Meredith, general counsel, Wisconsin Education Association Council, 

Madison, WI ......................................................................................................... 69

James A. Klein, president, American Benefits Council, Washington, DC .......... 77

APPENDIX 

Letter submitted by the ERISA Industry Committee .......................................... 99

Testimony submitted by the National Conference on Public Employee Retirement Systems ....................................................................................................... 100

(III) 

(1)

ACCESS TO ADEQUATE HEALTH INSURANCE: 

HOW DOES THE EQUAL EMPLOYMENT 

OPPORTUNITY COMMISSION’S RECENT 

RULE AFFECT RETIREE HEALTH BENEFITS? 

MONDAY, MAY 17, 2004 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee convened, pursuant to notice, at 2:01 p.m., in 

room SD–628, Dirksen Senate Office Building, Hon. John Breaux, 

presiding. 

Present: Senator Breaux. 

OPENING STATEMENT OF SENATOR JOHN BREAUX, RANKING 

MEMBER 

Senator BREAUX. The committee will please come to order. Good 

afternoon everyone. I would like to first take this opportunity to 

thank our witnesses who are going to be with us this afternoon. I 

would also like to thank Chairman Craig for his support for our 

hearing. 

We are going to hear a number of different but all equally valuable viewpoints during this afternoon’s hearing. The committee 

considered it important to hold this hearing for a number of reasons. As most of you already know, the Equal Employment Opportunity Commission, or the EEOC, recently proposed a final rule 

stating that it would not be a violation of the Age Discrimination 

in Employment Act for employers to offer varied financial benefits 

to their retirees based on their age and/or their Medicare eligibility. 

There has been some controversy about the rule and its potential 

effects, and our purpose today is to lay out both sides of the issue 

and to have a productive debate and discussion about the best possible outcome. 

Employer-sponsored health coverage for retirees is far from being 

uniform in this country. Some employers offer coverage only to 

early retirees who have not yet become Medicare eligible. Others 

may offer varying levels of coverage to retirees, sometimes based 

on whether they have enrolled in Medicare. 

According to the Kaiser Family Foundation, who we will hear 

from today, more than three million retirees age 55 to 64 are covered by employer-sponsored health plans. Additionally, of seniors 

over 65 who are covered by Medicare, about one-third also have an 

employer-sponsored plan which supplements their Medicare coverage. However, the percentage of large employers offering retiree 

2

health benefits has dropped, falling from 66 percent in 1998 to 38 

percent in 2003, and the majority of the firms still offering coverage have shifted some of the cost of the coverage on to their retirees by increasing premiums, reducing benefits, or increasing cost 

sharing. 

In order to preserve existing employer-sponsored retiree health 

benefits, the recently passed Medicare Prescription Drug Improvement and Modernization Act included generous subsidies to those 

employers who continue to offer health benefits to their retirees. 

We hope that this will give employers the help that they need to 

keep offering those much-needed benefits to seniors. 

It is within the context of this retiree health coverage landscape 

that we must consider the EEOC’s recent rule. Today, I hope to 

hear from our witnesses how the rule could affect the different 

groups of retirees. For example, would it have more of an effect on 

the younger, pre-65 retirees, or on Medicare-eligible retirees, or 

might it affect both groups? Should we also consider what the implications are for retiree health coverage in the absence of an 

EEOC rule? 

I want to again thank all the witnesses. I would also just like 

to make a note. My own father had just recently received a letter 

from his former employer announcing their plans to change their 

contributions toward the premium coverage to their retired employees, increasing the percentage of cost to their existing retirees from 

the current 80 percent government contribution to a 20 percent employee contribution, which is what it is now, and that will become 

70–30, reducing the company’s contribution by 10 percent. For future employees, they have eliminated completely the employer’s 

contribution to the retirees’ health plan. 

I point that out for new employees, starting in April of this year, 

which has now started, of course, they will still be eligible for their 

retiree medical coverage, but they will have to pay for the full cost 

of the premium, 100 percent. So it goes from 80–20 to zero-100, 

and that is not atypical of what is happening, and this is a very 

large, very strong corporation that is taking that step, and that is 

just one example. You might imagine the number of questions I got 

from my own father about why this was happening. He thought I 

might have something to do with it. 

So I want to thank all of our witnesses and we will invite up our 

first witness this afternoon. We are pleased to have her with us, 

and that is Leslie Silverman with EEOC. She is a Commissioner, 

and we are delighted to receive your statement. 

STATEMENT OF LESLIE E. SILVERMAN, COMMISSIONER, 

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, 

WASHINGTON, DC 

Ms. SILVERMAN. Good afternoon, Mr. Chairman. I am Leslie Silverman, Commissioner of the Equal Employment Opportunity 

Commission. Our Chair, Cari Dominguez, could not be here today 

and asked that I come in her stead. I am here to discuss the Commission’s final draft rule to permit employers to continue coordinating the retiree health benefits that they provide with Medicare 

eligibility without fear of violating the Age Discrimination in Employment Act, the ADEA. 

3

Mr. Chairman, the EEOC is truly delighted that you have convened this hearing. Our recent action has received a lot of attention in the media. Unfortunately, headlines and sound bites cannot 

capture the history or breadth of this complex issue. Indeed, some 

of the stories have gone so far as to suggest that the Commission 

is fostering age discrimination. 

At the Commission, we are proud of our efforts to protect the 

rights of older Americans against age discrimination in employment. Just last year, we obtained more than $106 million for victims of age bias. Given the Commission’s commitment to fighting 

age discrimination, it is troubling to be misunderstood on this 

issue. 

So on behalf of the Commission, I appreciate the opportunity to 

clarify our draft final rule. This rule and the events that gave rise 

to it can only be understood by explaining the economic and legal 

conditions that prompted the Commission’s action. 

Retiree health benefits are critically important. However, no Federal law requires employers to provide retirees with health benefits, and the fact is, fewer and fewer employers do. Since the Medicare system was first created, the majority of employers providing 

coverage have structured their retiree health benefits around those 

available under Medicare, and the reality is that for many years 

now, employer plans have distinguished between retirees who are 

pre- and post-65. Some employers offer benefits that bridge the gap 

between the time the employees retire and become eligible for 

Medicare. Others continue to provide health benefits to retirees 

after they reach age 65 to supplement Medicare benefits. 

In 2000, a Federal court decision called this longstanding and 

common practice into question. In the case of Erie County Retirees 

Association v. County of Erie, a group of Medicare-eligible retirees 

sued their former employer, Erie County. They alleged that by providing health benefits to them that were less than those it provided 

to retirees who were not yet eligible for Medicare, the county was 

discriminating against them based on their age. 

Initially, the Commission was supportive of the retirees’ claims. 

The Third Circuit Court of Appeals agreed. It ruled that coordinating retiree health benefits with Medicare eligibility violates the 

ADEA unless the county could satisfy the statute’s equal cost-equal 

benefit defense. The county could not. 

Directed by the court to come into compliance with its ruling, the 

county sought to equalize the retiree health benefits it was providing. Ultimately, Erie County did so, not by improving benefits 

for its Medicare-eligible retirees, but by requiring its younger retirees to pay more for health benefits that provided fewer choices. 

The Erie County decision marked the first time that an appellate 

court had held that the longstanding practice of coordinating retiree health benefits with Medicare eligibility violated the ADEA. 

Shortly thereafter, the Commission adopted the Erie County ruling 

as its national enforcement policy. 

The court’s ruling and the Commission’s adoption of it were 

widely condemned. Our stakeholders told us that the Erie County

rule would not protect or improve benefits for Medicare-eligible retirees, but instead would cause a reduction in retiree health benefits, just as it had done for Erie County’s retirees. A GAO report 

4

also concluded that many employers were eliminating retiree 

health benefits. Although it cited cost, changing demographics, and 

changed accounting rules as the main reasons, it also said that the 

Erie County decision might provide an additional incentive. 

In light of the criticism and the GAO report, the Commission decided to revisit the Erie County issue and further study the relationship between the ADEA and retiree health benefits. The Commission met with a wide range of stakeholders, including employers, retiree representatives, labor unions, and benefit consultants. 

We were told that most existing employer-provided retiree health 

benefits did not comply with the Erie County rule. 

To address the problem, the Commission explored many different 

approaches. Most of these alternatives focused on modifying the 

equal cost-equal benefit test in some way to ensure that the majority of existing retiree health plans would pass muster. However, 

the Commission concluded that the complex and frequent calculations and comparisons would be extraordinarily burdensome for 

employers, especially small employers, and for unions and municipal governments that wish to provide their retirees with health 

benefits. 

We recognized that creating a solution that was too burdensome 

or too expensive to comply with would result in more employers 

dropping these important benefits. The Commission also had significant concerns that any modification of the equal cost-equal benefit test could extend to areas beyond retiree health benefits and 

dilute the Age Act’s protections. Therefore, we concluded that a 

narrow exemption from the prohibitions of ADEA was the most effective way to assure that the Age Act did not inadvertently cause 

further erosion of retiree health benefits and that its protections 

otherwise remained intact. 

In Section 9 of the ADEA, Congress gave the Commission the authority to establish reasonable exemptions from the law to address 

unintended consequences when necessary and proper in the public 

interest. While this authority has been exercised on only the rarest 

of occasions, the ability to grant an exemption when it is needed 

is an important responsibility that the Commission cannot shirk or 

ignore. 

In this instance, the Commission has crafted an exemption that 

is narrowly tailored to apply only to the coordination of employersponsored retiree health plans with Medicare and similar State 

plans. We have done so to maintain the status quo. Our action does 

not require any cut in benefits and it is not intended to encourage 

employers to alter the benefits they are providing in any way. 

Now, in response to our Notice of Proposed Rulemaking, the majority of the organizational comments we received expressed support for the exemption. Several of these organizations confirmed 

that the Erie County case was responsible for further erosion of retiree health benefits. Unions said that the Erie County case was already impacting their ability to negotiate for health benefits for future retirees and even impeding efforts to negotiate the renewal of 

benefits for current retirees. Employer groups said that if the Commission did not act, the threat of potential ADEA liability would 

likely force their members to cut or discontinue retiree health benefits. 

5

The most detailed comments in opposition to the proposed rule 

came from AARP and its individual members. The great majority 

were a form letter. Since AARP is here today to explain their position on our rule, there is no need for me to further elaborate here. 

The Commission concluded that the evidence supported the need 

for an exemption. The rule’s supporters had produced evidence that 

the Erie County rule had and would continue to have the unintended consequence of diminishing employer-provided retiree 

health benefits, while its opponents produced no evidence to the 

contrary. 

The draft final rule had the bipartisan support of four of the five 

Commissioners. However, because one of my fellow Commissioners 

was unable to attend our Commission meeting, the Commission approved the draft final rule by a vote of three-to-one. 

In conclusion, the Commission believes that it has acted appropriately for the benefit of all retirees. We recognize that the action 

we are taking has caused concern and uncertainty among older 

Americans. But we believe that this is due to misunderstanding. 

Several news reports and commentaries have erroneously reported 

that we are acting to establish a new retiree health benefit system 

that takes into account Medicare eligibility. That system already 

exists. 

Initially, the Commission believed that the Erie County rule 

would protect health benefits for retirees. In practice, however, that 

rule threatens to have the opposite effect. It encourages employers 

to curtail or eliminate retiree health benefits and it makes it all 

the more difficult for any employer to begin offering them. This is 

contrary to the public policy of encouraging health benefits for retirees and it is contrary to the spirit of the ADEA. 

The Commission cannot compel employers to provide health benefits for their retirees, nor can it control the spiraling cost of health 

care or the way businesses must account for those costs on their 

balance sheets. But the Commission can ensure that the law it enforces does not serve as an additional disincentive, leading to further decline of retiree health benefits. 

After grappling with the issue for 3 years, the Commission has 

concluded that the establishment of a narrow exemption from the 

ADEA is the only way we can end the disincentive created by the 

Erie County decision. 

Mr. Chairman, EEOC remains committed to the vigorous enforcement of the ADEA. I thank you for the committee’s time and 

attention to this important matter. 

Senator BREAUX. Thank you very much, Ms. Silverman, for your 

statement on behalf of the EEOC. 

[The prepared statement of Ms. Silverman follows:]

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Senator BREAUX. It seems to me in looking at this and looking 

at the history of EEOC’s involvement that after the Erie County, 

or during the Erie County consideration, apparently EEOC was 

aware of what was happening out there and then the EEOC came 

out and supported the decision? 

Ms. SILVERMAN. That is correct. We actually filed a brief with the 

court in support of their decision. 

Senator BREAUX. Then what happened? Did a light bulb go off 

somewhere and EEOC, after the decision was handed down, you 

said, ‘‘Oh my God, what have we wrought?’’

Ms. SILVERMAN. We originally made it part of our enforcement 

policy, and then we started looking at the plans out there and what 

we got back was just lots and lots of comments from our stakeholders that this is the way the plans are offered and if you require 

us to change our plans, we are just not going to offer these benefits, 

and that this ruling is an anomaly and it is not the way that anybody had ever thought the age discrimination law ought to apply 

in this instance. 

Senator BREAUX. Was it a question of having to figure out how 

to handle the clear intent of the law with the practical effect of carrying out that intent in this particular circumstance? I mean, it is 

pretty clear that EEOC stands for the proposition that you 

shouldn’t discriminate based on age. 

Ms. SILVERMAN. Correct. 

Senator BREAUX. Here, you have a clear situation in the real 

world where there is discrimination on age based on the fact that 

when you reach a certain age, some other program is going to kick 

in. The EEOC premise, however, is that you can’t do that. So I 

guess initially, you all said, ‘‘Well, you can’t do that.’’ We support 

the Erie case and we filed a brief in support of it, but then you 

found out that the results of that position really created a situation 

that was going to be worse for everybody? 

Ms. SILVERMAN. That is correct. That is exactly what happened. 

We saw that the effect of a law that we are responsible for enforcing and that we believe strongly in was having unintended consequences, and those unintended consequences were going to result 

in less benefits for all retirees and that is why we decided to take 

this further action and use our Section 9 exemption authority. 

Senator BREAUX. Let me give you an opportunity to elaborate 

further. I mean, how in this case does the allowance of discrimination based on age and this narrow area actually benefit the people 

that the EEOC is charged with protecting their rights of not being 

discriminated against based on age? 

Ms. SILVERMAN. Well, the fact is that the coordination of benefits 

with Medicare has been going on for years, as we mentioned, since 

the Medicare law came into effect. What was happening, again, 

was the ADEA, if applied to the way that they were providing benefits, certainly most of the bridge plans out there would be per se 

illegal under the law; particularly those offered in the public sector. 

I think you will hear from schools, et cetera, that are dealing with 

this. 

So what we saw was that this wasn’t going to help anybody out 

there if we enforced the law. It was really going to hurt people and 

15

it was going to hurt older people. So that is why we took the action 

that we did. 

Senator BREAUX. EEOC, I think, was probably aware over the 

previous years that there was a difference based on age and the 

type of health care that was offered by employers for their retired 

workers before 65 eligibility age. Why hadn’t EEOC ever challenged any of those plans over all of those years? 

Ms. SILVERMAN. You know, I am not quite sure of the answer to 

that, but EEOC always had this position, from what I can tell, but 

there was a question at one point in time whether retirees were 

covered under the law. Slowly but surely, we got to the point of the 

Third Circuit decision, where it all came down to whether or not 

the Age Discrimination in Employment Act applies to retiree 

health benefits. 

So I think if it had been called to EEOC’s attention, they probably would have taken that position and probably did take that position before, that the ADEA covered retiree health benefits. I don’t 

think the EEOC is saying now that the law doesn’t cover retiree 

health benefits. But what we are saying is that we think this is a 

proper use of our exemption authority because it is necessary and 

proper and in the public interest. 

Senator BREAUX. OK. Give me a statement, then. There are some 

who would argue that, well, if we applied the nondiscrimination 

based on age rule that it would somehow benefit in everybody getting better coverage for their health benefits. I take it that EEOC’s 

position, and I would like you to elaborate, would be that in the 

absence of following the new position that EEOC has, that many 

of the employers will just, in fact, cut benefits for their retirees. 

Ms. SILVERMAN. What we learned in studying the issue over 3 

years is that we were told that the majority of the plans out there 

just simply don’t comply to the letter of our law, which requires 

that if you offer these different benefits, it has got to be an equal 

cost-equal benefit. It has got to meet that test. Most of the plans 

out there don’t meet the test certainly the bridge plans. Unless 

they are exactly duplicative of what is offered under Medicare, they 

don’t meet that test. About 45 percent of employers that do offer 

the bridge benefits, or 45 percent of employers, what they do for 

younger retirees is they keep them on their current plan. So there 

was that issue to begin with. 

Senator BREAUX. Does EEOC have an idea about what do you 

think will happen if your new position allowing the programs to go 

forward will actually produce? 

Ms. SILVERMAN. First let us talk about what would happen if we 

didn’t act. If we didn’t act, there is this law looming out there. 

There are plans that are already illegal under the law as it is. So 

most employers that we are looking at would have to take an action, and what we thought and what we have been told is that they 

would probably cut their benefits for younger retirees, possibly cut 

all their retiree benefits to come into compliance. Nobody said, with 

escalating costs of retiree health benefits, that they were going to 

prop up the over-65 retirees. So given that threat, we thought it 

was in the best interest of all retirees to act in this instance. 

Senator BREAUX. OK. With the action that you all have taken, 

what do you think the situation will be? 

16

Ms. SILVERMAN. We hope that the Age Discrimination in Employment law won’t—the application of it, with that not being a problem, it won’t cause more employers to look at their plans and thus 

reduce their plans. We understand that retiree health benefits are 

on the decline. We just didn’t want to add to that decline, and we 

think that by taking this action, we will not add to that decline. 

Senator BREAUX. Can you give me EEOC’s position on the allegation by some that says you don’t really have any authority to do 

what you do? 

Ms. SILVERMAN. I think if you look at the Age Discrimination in 

Employment Act, it did provide us authority in Section 9 to make 

an exemption from the law when we thought it was in the public 

interest, and we believe that this was in the public interest here. 

This is a very narrow exemption. So we thought that what we were 

doing was stopping the unintended consequences of the application 

of the Age Discrimination in Employment law to this common practice of coordinating retiree health benefits with Medicare eligibility. 

Senator BREAUX. Would you all prefer having some direction 

from Congress that clearly spells that out? 

Ms. SILVERMAN. We have been aware that Congress has been 

looking at this issue simultaneously, and we were perfectly comfortable with Congress acting. But, we never heard from Congress 

at any time during our rulemaking proceeding, which has been 

going on for 3 years, that what we were doing was incorrect or out 

of bounds or out of our authority. 

Senator BREAUX. But your lawyers tell you they feel comfortable 

with the decision that you have taken based on existing laws? 

Ms. SILVERMAN. Yes. 

Senator BREAUX. OK, Ms. Silverman. Thank you so very much. 

We appreciate your being with us and testifying. 

Ms. SILVERMAN. Thank you, Senator. 

Senator BREAUX. Thank you. 

Senator BREAUX. We would like to welcome up a panel now consisting of Dr. Patricia Neuman, who is vice president of the Kaiser 

Family Foundation; Dr. Erik Olsen, president-elect of AARP, the 

American Association of Retired Persons; Mr. Andrew Imparato, 

president and chief executive officer of the American Association of 

People with Disabilities; Mr. Bruce Meredith, general counsel, Office of General Counsel of the Wisconsin Education Association; 

and Mr. James Klein, who is president of the American Benefits 

Council. 

I thank all of you for being with us. We would like to start, if 

we can, with Dr. Patricia Neuman with the Kaiser Family Foundation. 

STATEMENT OF PATRICIA NEUMAN, VICE PRESIDENT, HENRY 

J. KAISER FAMILY FOUNDATION, WASHINGTON, DC 

Dr. NEUMAN. Thank you, Mr. Chairman. I am very pleased to be 

here to testify on the state of retiree health coverage. 

More than three million retirees between the ages of 55 and 64 

rely on employer-sponsored benefit plans for their health coverage 

today. Without this coverage, many who are in their late 50’s or 

early 60’s, particularly those with health problems, would be hard 

pressed to find comparable and affordable coverage on their own. 

17

Seniors, unlike early retirees, are fortunate to have Medicare as 

their primary source of health insurance. Still, many, roughly 11 

million seniors, rely on employer plans to fill in the gaps in Medicare’s benefit package. 

Over the past 15 years, the share of employers offering retiree 

health benefits has declined dramatically, from 66 percent in 1988 

to 38 percent last year. This decline is a function of the rising number of employers terminating coverage as well as fewer newer companies offering retiree health benefits. Sustained double-digit increases in retiree health costs are a major factor in this decline. 

The total cost of retiree health benefits increased by nearly 14 percent between 2002 and 2003. 

Against this backdrop of rising costs and eroding coverage, two 

recent events are being monitored for their potential impact on retiree health benefits. The first is the new Medicare drug law, and 

the second is the proposed final rule adopted by the EEOC which 

others are discussing today. 

Employers have implemented a number of strategies to curb 

their costs in response to rising health care costs and to changes 

in accounting rules adopted by the Financial Accounting Standards 

Board in the early 1990’s. Notably, the survey that we conducted 

with Hewitt Associates, the Kaiser/Hewitt Survey on Retiree 

Health Benefits, found that nearly half of all firms offering retiree 

health benefits have placed caps on their financial liability for 

these obligations. Among firms with caps, nearly half have already 

hit their cap and another third say they are likely to hit their cap 

in the next one to 3 years. Often, these caps result in a shift in 

financial obligation from the employer to the retiree. 

To understand more about how employers respond to cost pressures, our survey asked employers to report changes made in the 

past year and changes they are likely to make in the next one to 

3 years. However, it is very important to note that this survey was 

conducted prior to the enactment of the Medicare drug law, so the 

findings from our survey do not reflect employers’ reaction to the 

new legislation. 

Our survey suggests that current retirees appear to be shielded 

from outright terminations in coverage. However, the news is far 

less promising for current workers. Ten percent of surveyed employers said they had eliminated subsidized health benefits for future retirees in the past year, which would be current workers, and 

that mostly affects new hires. Looking to the future, 20 percent 

said they are likely to terminate subsidized health benefits for future retirees. There also appears to be substantial interest among 

employers in providing access only to health benefits, having retirees pay 100 percent of their own costs. These findings of our survey 

are consistent with the examples in the letter that you referenced, 

Mr. Chairman. 

Far more common than benefit terminations are increases in retiree premium contributions and cost sharing. In the past year, 71 

percent of firms said they had increased retiree premium contributions and 57 percent increased retiree prescription drug cost sharing requirements. Again, looking to the future, more of the same 

seems in store. Nearly nine in ten employers said they are likely 

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thirds said they are likely to increase deductibles, physician office 

copays, and out-of-pocket limits. 

With the recent enactment of the Medicare drug law, there is 

much interest in whether the legislation will accelerate the erosion 

of highly valued retiree health benefits or reverse these trends by 

allowing more employers to stay in the game by alleviating some 

of the cost pressure. The law allows employers to maintain benefits 

by offering considerable financial incentives, more flexibility, and 

multiple options for coordinating around Medicare. 

Employers have a number of options to consider. They could, for 

example, accept the subsidy from Medicare and provide a benefit 

that is at least as equivalent in value to the standard Medicare 

drug benefit. They could decline the subsidy and instead choose to 

supplement the new Medicare Part D benefit in some manner. Or 

they could terminate coverage altogether. 

How employers respond is, of course, of critical interest. The relative generosity of employer coverage as compared to the forthcoming Medicare drug law could add to concerns among seniors 

about losing this valued coverage and we plan to continue our efforts to monitor employers’ activities in this area. 

While millions of retirees enjoy the financial protections offered 

by employer-sponsored plans today, all signs do point to an erosion 

of this coverage in the years ahead, an erosion that was predicted 

prior to the enactment of the Medicare drug law. Continued erosion 

of this coverage has the potential to undermine the health and 

financial security of retirees as they grow older and underscores 

the need to monitor these trends in the future and their impact on 

aging Americans. 

Thank you, Mr. Chairman. 

Senator BREAUX. Thank you, Ms. Neuman. 

[The prepared statement of Ms. Neuman follows:]

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Senator BREAUX. Dr. Olsen. 

STATEMENT OF ERIK D. OLSEN, D.D.S., PRESIDENT-ELECT, 

AARP BOARD OF DIRECTORS, GLENBROOK, NV 

Dr. OLSEN. Thank you, Senator Breaux. My name is Erik Olsen. 

I am president-elect of AARP. I am a real honest to goodness Medicare beneficiary who receives a retirement benefit from my company. I am from Glenbrook, NV, and I am a volunteer. 

First of all, I want to thank you for the opportunity to address 

the importance of retiree health benefits for all retirees and the 

critical need for employers to continue to provide these benefits to 

supplement Medicare. 

AARP has been seeking an equitable solution to the age discrimination issues. It is in the interest of everyone—employers, unions, 

retirees—to find an alternative to the EEOC rule that best protects 

retiree health benefits. An equitable solution is not one that denies 

benefits to the oldest and often sickest retirees. Unfortunately, this 

is the solution the Commission has chosen. 

Its rule sanctions age discrimination. It allows employers to terminate the supplemental health benefits of older retirees while providing benefits to younger retirees that may be significantly better 

than Medicare. The rule will risk millions of older retirees losing 

their health benefits by encouraging employers who currently provide health benefits to older retirees to consider dropping them. 

Supplemental health benefits cover many of the costs and services not covered by Medicare. More than 12 million Medicare beneficiaries currently receive some form of retiree health benefits that 

are vital to their health and economic security. Employers may legally coordinate these supplemental benefits with Medicare so that 

older retirees are generally much less expensive to insure than 

younger retirees. 

AARP believes the EEOC rule is both illegal and unsupported by 

its own record. It does not protect the rights of older workers or 

retirees or enforce the ADEA. Congress recently rejected a similar 

amendment. Rather than health policy, the Commission should enforce the age discrimination laws. 

In considering the rule, the Commission did not assess how many 

Medicare-eligible retirees will lose their employer-provided supplemental benefits, where or whether they will find alternatives, or 

how they will afford them. Nor did it assess the impact of the recent improvements to Medicare, including tens of billions of dollars 

in employer subsidies to encourage employers to maintain these 

benefits. 

The Commission has also ignored broader public sentiment. Almost 60,000 people filed comments in opposition to the rule. More 

than 160,000 people contacted Congress. The lack of public enthusiasm for the rule is pervasive. 

In a broad AARP national survey of people aged 50 and above, 

73 percent disagreed with the EEOC ruling. This sentiment prevails among all age and demographic segments, all political affiliations, and all income levels. In fact, younger AARP members, between ages 50 and 65, as well as union members, were slightly 

more likely to disagree with the ruling than the average group, and 

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ceptions of the EEOC Ruling Among the 50-Plus Population.’’ We 

have released that survey today. Finally, 79 percent believe that 

Congress should take steps to prevent age discrimination in retiree 

health benefits. 

The lack of support for the rule is especially troubling because 

it represents an abrupt about face from the Commission’s position 

only 4 years ago in its successful brief in the Erie County case. The 

decade-long decline in retiree health benefits is not a result of the 

age discrimination laws, but other factors such as health care cost 

increases and accounting changes to the treatment of retiree health 

expenses. I believe I just heard Ms. Silverman state that the GAO 

report that she cited supported that contention, that the Erie 

County was not one of the main issues. 

We share with EEOC the goal of encouraging employers to provide retiree health benefits. We are encouraged by the EEOC’s willingness to discuss with us a solution that better protects these benefits for all retirees, regardless of age. We believe that it is possible 

to design an approach that is equitable for older retirees and reasonable for employers. 

AARP and its members urge you to protect retiree health benefits for both younger and older retirees. Thank you. 

Senator BREAUX. Thank you, Dr. Olsen. 

[The prepared statement of Dr. Olsen follows:]

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Senator BREAUX. Mr. Imparato. 

STATEMENT OF ANDREW J. IMPARATO, PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, AMERICAN ASSOCIATION OF 

PEOPLE WITH DISABILITIES, WASHINGTON, DC 

Mr. IMPARATO. Yes. Thank you, Senator Breaux, for chairing this 

hearing and for inviting me to be a participant. We in the disability 

community see your Special Committee on Aging as an important 

committee for people with disabilities because there is such a 

strong correlation between aging and the acquisition of a variety of 

disabilities. 

By way of personal background, I am a disability rights lawyer 

and I run a national membership organization that has about 

80,000 members around the country. We have got a little ways to 

go before we are as big as AARP. But we are happy to be with 

them on this panel talking about the implications of EEOC’s final 

rule for retirees with disabilities, in particular. 

I am also a member of the Ticket-to-Work and Work Incentives 

Advisory Panel, and one of the things we are looking at in that 

panel, which advises the Social Security Administration, is how to 

make it easier for people on Medicare to return to work. So we try 

to look at the broad health policy issues that affect people’s decision to work or to continue working. 

The main point that I wanted to make today is that retiree 

health benefits must be looked at in the broader context of public 

and private health insurance, both on the acute care side and on 

the long-term care side. As you know with all the work you have 

done in the Medicare program, Senator Breaux, there are a lot of 

problems with Medicare in terms of its ability to meet the needs 

of Medicare beneficiaries with disabilities and chronic health conditions I appreciate Mr. Olsen talking about the fact that there are 

12 million Medicare beneficiaries who see the need to supplement 

the benefits that Medicare provides because they know that if they 

relied solely on Medicare, they wouldn’t get all of their health care 

and long-term care needs met. I can just tell you from the perspective of my mother, who is 74 and on the Medicare program, she has 

a lot of needs that the Medicare program is unable to meet in 

terms of her personal health care needs. So that is Medicare. 

Another huge program that people with disabilities, both under 

65 and over 65, rely upon is the Medicaid program. Again, even 

though Medicaid is a lot more generous than Medicare, there are 

serious problems with the Medicaid program in terms of its ability 

to meet the needs of people who need long-term care. As you know, 

the Medicaid program requires States to pay for long-term care if 

it is in a nursing home or other institutional setting, but it does 

not require States to pay for long-term care in home and community-based settings, which is where the vast majority of Medicaid 

beneficiaries want to receive the care, and that is true whether 

they are over 65 or under 65. 

Then finally, we have heard about the problems with the retiree 

health benefits provided by employers, the fact that employers are 

providing less and less of those benefits, and I appreciated Patricia 

Neuman’s testimony regarding employers’ use of caps. If an employer is applying a cap to what it is going to pay for in terms of 

61

its retiree health benefits, those caps are going to play out in a way 

that people who have the higher-cost needs are going to run up 

against caps earlier and they are not going to have their needs met 

by the retiree health benefits system, either. 

So in this context, I think the EEOC final rule is moving us in 

the wrong direction. We see it as having a strong potential to make 

it easier for employers to remove benefits for the people who are 

the most disabled and the most in need of those benefits. I have 

a lot of respect for Cari Dominguez, for Commissioner Silverman, 

and I do believe that they sincerely believe they are helping older 

retirees. 

I trust AARP’s analysis on this more than I do the Commission’s, 

and I say that as a former EEOC Commission attorney. I don’t 

think they are experts in health policy. I think AARP has a lot 

more expertise in what is going on in the market and I think we 

should listen to their perspective on the issue. 

Finally, I just wanted to touch on the fact that today is the 50th 

anniversary of the Brown v. Board of Education decision. We in the 

disability community see access to health care and access to longterm services and supports as implicating civil rights laws. People 

with disabilities want to be able to participate fully in society, and 

that is true whether we are over 65 or under 65. If we don’t have 

access to the adequate services and supports that we need, we can’t 

participate fully in society. 

You may have heard that today we won a huge victory in the Supreme Court in the Tennessee v. Lane decision, where the Court is 

upholding your power as a Senator to recognize the civil rights of 

people with disabilities under the Constitution. We are delighted 

with that ruling, but we think that it is important that we recognize laws like the Americans with Disabilities Act have important 

goals that are affected by things like retiree health benefits, Medicare and Medicaid. 

So in closing, I just want to say that we in the disability community look forward to working with you, particularly with your colleagues on the Finance Committee, which has a large role to play 

in all of this, and with my colleagues here on the panel to try to 

address the ongoing barriers to full participation for people with 

disabilities. Thank you very much. 

Senator BREAUX. Thank you. 

[The prepared statement of Mr. Imparato follows:]

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Senator BREAUX. Mr. Meredith. 

STATEMENT OF BRUCE MEREDITH, GENERAL COUNSEL, 

WISCONSIN EDUCATION ASSOCIATION COUNCIL, MADISON, WI 

Mr. MEREDITH. First, thank you, Senator Breaux, for giving me 

the opportunity to give the union’s perspective on this very complex 

issue. 

My name is Bruce Meredith and I am general counsel for the 

Wisconsin Education Association Council, the NEA affiliate in Wisconsin. We represent about 90,000 members throughout the State. 

I am here on behalf of the NEA for two reasons. First, most collective bargaining agreements in Wisconsin contain voluntary early 

retirement provisions, frequently referred to as ERPs, and most of 

these contracts provide for medical coverage prior to Medicare eligibility. 

Second, Wisconsin was one of the States targeted by the EEOC 

prior to its rule change, and WEAC and school districts faced almost 200 lawsuits before the lawsuits were withdrawn. Thus, I saw 

firsthand the potential disaster triggered by an overly legalistic, 

overly rigid, and in my opinion, legally wrong interpretation of the 

ADEA, which for convenience I will label the Erie doctrine. 

I wish to make one central point. Contrary to the misleading information provided by opponents, the EEOC’s rule regarding medical benefits will not jeopardize a single retiree’s health benefits. In 

fact, the EEOC rule is necessary to give unions a chance to save 

the post-retirement health plans we still have. 

To understand why this is the case, I need to discuss what actually happens in negotiations over these provisions. Unions and employers agree to ERPs because some senior members want to retire 

before they become eligible for Medicare and full pension benefits. 

Because most of these members are at the top of the salary schedule, many employers believe that there are financial and educational advantages to give these employees the option to retire 

early. Some decline this option and continue to teach long past 

when they become eligible for Medicare and other benefits. 

But the key to obtaining these provisions that give employees the 

option to retire is that they make financial sense to the employer. 

If they do not make financial sense, unions have great difficulty 

maintaining them and even more difficulty in negotiating them for 

the first time. 

Most of Wisconsin plans consist of medical plans to ensure coverage prior to Medicare. The reason why this is so important is 

when workers retire, being able to be assured of insurance coverage 

is probably the single greatest component in making a decision to 

retire. If you are not assured of coverage in a plan, private or Medicare, you are basically putting your whole life savings at risk if a 

serious medical injury strikes. 

There are three types of plans in Wisconsin, as well as, I believe, 

in the rest of the country. The first is called a wrap plan. Under 

this plan, the employer supplements Medicare benefits to approximate the same benefits provided to active employees. 

A second is called a supplement, and this frequently adds additional benefits such as pharmaceutical benefits, but not complete 

coverage. 

70

The third and perhaps most common are a cutoff of eligibility for 

insurance at Medicare, and these are called bridges. Unions typically try to bargain a wrap plan, but many employers simply believe these plans are too expensive and will not agree to them. Absent job actions, which are typically illegal in most States, there is 

simply no way to force an employer to provide a wrap if it believes 

such a plan is too financially onerous. In those situations, the only 

realistic plan is for the union to scale down its demands. 

While most future and current retirees would prefer wraps, what 

is most essential is that they have a plan until they reach Medicare 

coverage. Once Medicare covers them, they are ensured basic coverage and typically can purchase more. 

So why is the Erie doctrine so dangerous for workers? Because 

under that doctrine, the union is allowed only one bargaining position on early retirement health care. If it cannot achieve a full 

wrap, it risks abandoning all programs whatsoever. 

Today, obtaining full wraps is extraordinarily challenging, and 

you have heard some of the reasons—rapidly escalating health care 

costs, financially difficult times, and new accounting rules. It would 

be naive, at best, to believe that employers, when threatened with 

an age discrimination suit, will simply provide a full wrap-around 

plan. In the real world, most employers will do exactly what the 

employer did in Erie, simply end the plan or reduce benefits to current employees. A lawyer may get attorney’s fees, but everyone else 

loses. 

Just last week, a local school board in Bristol, WI, in response 

to a threatened age discrimination suit based on Erie, announced 

that it was invoking the contract savings clause, a common provision that allows employers to revoke provisions that are arguably 

illegal, and stated that it was suspending all early retirements 

until a new agreement was negotiated. Under Erie, the union will 

basically have one and only one proposal to make, a full wrap, and 

the school board will likely counter with no plan at all and there 

is no clear resolution in bargaining. 

Many of our members are also members of AARP. They have 

been outraged by AARP’s position, which they feel threatened one 

of their most cherished provisions. Although I have not been privy 

to their conversations with the AARP members, there seems to be 

two themes to these conversations. The first is that the union will 

be able to negotiate an even better provision with the Erie threat. 

They typically respond by saying, ‘‘Well, have you met our school 

board president?’’ or ‘‘Have you ever tried bargaining for increased 

health care benefits in these difficult times?’’

The other is that if the contract cuts off benefits at Medicare, 

then maybe they shouldn’t retire at all. In response, many of them 

reply this is a personal decision they have thought a lot about and 

it is basically our decision and shouldn’t be theirs. 

In short, in the real world of current bargaining over health care, 

it is not the EEOC’s rule that threatens the health care benefits 

of future and current retirees. It is the Erie doctrine. 

On behalf of the NEA and other public and private sector unions, 

we wish to thank the EEOC for their careful and well-crafted rule. 

Without its vision, some of our members’ most valued benefits 

would have been lost forever. Thank you. 

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Senator BREAUX. Thank you. 

[The prepared statement of Mr. Meredith follows:]


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Senator BREAUX. Next, Mr. Klein. 

STATEMENT OF JAMES A. KLEIN, PRESIDENT, AMERICAN 

BENEFITS COUNCIL, WASHINGTON, DC 

Mr. KLEIN. Thank you, Mr. Chairman. By way of introduction, 

the American Benefits Council represents companies that either 

sponsor or provide services to health and retirement plans that 

cover 100 million Americans, so our interest in this issue is very 

keen, indeed. 

I would really just like to use my few moments to make five relatively quick points. The first is that the business community, my 

organization, and the organized labor community’s views are in 

complete alignment that the Erie County case was wrongly decided 

and that the EEOC rule is not somehow breaking some new public 

policy ground, but really, it is simply helping to restore us to the 

situation that business and labor always understood was both the 

correct law, as well as good public policy, before the Erie County

case. The fact is that the EEOC’s action is consistent with what the 

law has continued to be for the last 4 years everywhere in the 

country other than the Third Circuit. 

My second point is that I really would like to take head-on this 

criticism that the EEOC’s rule will somehow give employers a 

green light to reduce or drop coverage for the over-65 group. I suppose by the same rationale I could point to the decline of retiree 

health care coverage in the last 4 years and say that it is the faulty 

decision in the Erie County case that accounts for the fact that this 

retiree health care coverage has been declining. But I think that 

both that contention, as well as the claim that somehow the EEOC 

rule will contribute to the drop of coverage, both of those contentions, both of those claims, would be terribly misleading to you in 

Congress. 

I think that the unfortunate reality is that absent other public 

policy initiatives, health care coverage for retirees, both those before age 65 as well as those over age 65, are likely to continue on 

their downward trend for reasons that have absolutely nothing to 

do with the EEOC’s rule, and for reasons that have nothing to do 

with the Third Circuit Court of Appeals decision. I think virtually 

all of my fellow panelists here have identified what those reasons 

are. 

You pointed out in your opening statement the statistics about 

that incredible decline that we have seen over the last 15 years. 

I would add one other reason for the decline in coverage, apart 

from the ballooning health care costs and apart from the accounting standards that require these liabilities to be reflected on the 

balance sheet. I would also point out a lack of adequate vehicles 

to pre-fund, to pay for retiree health care coverage, and I would 

like to discuss that further in what will be my fifth point. 

But in summarizing this one, I would just say that I really cannot come before you in good conscience and say that the EEOC rule 

will somehow rejuvenate the retiree health care system. What I can 

say is that the rule is one of the few things that can be done right 

now to at least make the declining trend less severe than it otherwise might be, especially for those who are most vulnerable, as Mr. 

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Meredith said, those younger retirees who are not yet eligible for 

Medicare. 

My third point is that both we and the labor community, the 

business community and others, as well as the critics of the EEOC, 

could speculate indefinitely about the impact of this EEOC rule. 

But the one thing that we don’t need to speculate about is what 

actually happened to the retirees in the Erie County case. Following the Third Circuit Court of Appeals decision in the Erie 

County case, the older retirees did not have their benefits increased, as the plaintiffs would have liked. Rather, the younger retirees had their benefits reduced, which the employer found necessary to do in order to ensure that it was not violating the age 

discrimination law. 

That result, reducing the benefits to younger retirees, is exactly 

the outcome that Congress hoped to avoid when in 1990 it passed 

the Older Worker Benefit Protection Act. I think anyone who 

thinks that employers are somehow going to boost benefits to older 

retirees is not really paying attention to the realities of the health 

care system. 

My fourth point is really that most employers view Medicare as 

the principal health plan for their retirees once they reach age 65. 

Most employers that do provide retiree health coverage, do provide 

some additional benefits for those things that are not covered by 

Medicare. But by contrast, the benefits that are provided to nonMedicare-eligible retirees are typically just an extension of whatever coverage the company has been providing to its active workers. So that is a very crucial distinction to be made. 

In no way should this be somehow considered age discriminatory. 

It is just common sense, and it was the topic of considerable legislative history in the Older Worker Benefit Protection Act. 

I spoke in my second point about the EEOC rule and the contention that it might give a green light to businesses to cutoff coverage. I see that I have a red light, so I will just wrap up with my 

fifth point if I may, very, very quickly, and that is that I think that 

this controversy is really a very serious distraction from what Congress should be considering, which is how to reverse this trend that 

we all have spoken about and that you introduced in your opening 

remarks. 

We have just three specific suggestions, which I would be happy 

to elaborate on further in the question period, and in fact, since my 

time is up, why don’t I stop there and just invite you if you would 

like to ask me questions about them. 

Senator BREAUX. Thank you very much, Mr. Klein. 

[The prepared statement of Mr. Klein follows:]

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Senator BREAUX. I thank each and every panel member for their 

presentations. It is an incredibly important issue and there is a 

great deal, I would say, of misunderstanding about the EEOC decision. I have had people come up to me and say that the Erie case 

and EEOC decision are going to mean that retirees will lose all 

their health coverage and they are scared to death. That is unfortunate. 

But it seems to me that there are about three million or so, Ms. 

Neuman, pre-65 retirees that have employer-sponsored health insurance and there are about 11 million post-65 that have some 

form of supplemental or employer-sponsored health assistance. It 

seems to me that without the EEOC decision, that if somehow we 

are going to say there cannot be a difference between those two 

categories and what an employer provides them, then employers 

have two choices. One, they can increase 11 million and make it 

equal to the three million, or they can reduce the three million to 

make them equal to the 11 million. It is a simplification, but is 

that sort of correct? 

Dr. NEUMAN. I think that is fair. 

Senator BREAUX. Dr. Olsen, I don’t know any company in the 

United States, and maybe in the AARP shop there is a library of 

companies on a computer, that are increasing the retirees’ health 

benefits. In fact, I think there are libraries full of companies in this 

country that are doing just the opposite. So how does AARP reach 

the conclusion that disagrees so vehemently with the EEOC and 

hopes that the result will be that both sides would have an increase in their benefits, as opposed to what has happened? 

Dr. OLSEN. Well, first of all, probably in the library there might 

be one company, but I doubt it. 

Senator BREAUX. Yes. 

Dr. OLSEN. The second thing is, this is really a company-by-company situation and obviously it would vary by the company, and it 

did with Erie County. My understanding is after Erie County and 

the issue was settled, including with the support of the EEOC, 

there was a guidance issue that provided that, in fact, they would 

supplement up to Medicare and the Medicare counted as an 

equivalency factor. Therefore, I think these things can be worked 

out to make them equal. 

What we are having a problem with, instead of doing something 

like this, we are doing this, is just taking away the benefit from 

those, and I take your word if it is 11 million, I thought it was 12, 

but a lot of people——

Senator BREAUX. It is close enough for Congressional purposes. 

Dr. OLSEN. It is close enough, right. You said it, not me. [Laughter.] 

But anyway, to me, that seems to be the solution we are taking. 

We recognize health care costs are rising and there are all these 

problems and we have worked with you, as you know, on these 

issues and it just seems to us there has got to be some equitable 

solution for these folks and a reasonable answer for the employer 

without just giving the green light to toss all these folks out to pasture. 

Now, the thing to remember—— Senator BREAUX. Which folks are AARP——

91

Dr. OLSEN. We are representing both of them. 

Senator BREAUX. OK. Which folks are AARP concerned about 

being tossed out? 

Dr. OLSEN. Well, under the way we are seeing it, these after-65 

folks on Medicare will no longer receive any supplemental—well, I 

shouldn’t say all, but this will accelerate that tendency and that is 

our problem. We just think there must be some solution that can 

be worked out. 

As I understand the guidance that the EEOC had issued after 

Erie was allowing this system to operate, and that subsequently 

has been removed as part of this rulemaking process. 

Senator BREAUX. Why would not companies, if they are faced 

with a choice of not having to be able to provide two different packages, not simply reduce the size and benefits of the pre-65 retirees——

Dr. OLSEN. Well, I think there——

Senator BREAUX [continuing]. In order to be in compliance? 

Dr. OLSEN. First of all, there is the entire health care situation. 

That is a subject in another hearing. But there are ways, and I 

think Ms. Neuman mentioned, within the retiree system of reducing these costs. There are annual maximums. There are these 

kinds of things. There are different ways of approaching it. 

But we just think there must be some equitable way that is also 

reasonable to employers that we don’t have to have a system that 

allows the entire over-65 people to be pushed out of the system. 

Senator BREAUX. It defies logic, at least to me, that if we have 

a situation in this country where companies are, in fact, reducing 

rather dramatically their retiree health benefits in this country, 

that if all of a sudden we say that you are going to have to add 

11 or 12 million more that are going to have to have exactly the 

same benefit and cost type of health plans as everybody, that they 

have to increase it by 11 or 12 million more, that that is not going 

to dramatically reduce the benefits, particularly to those under 65. 

Those over 65 are eligible for Medicare, so they are protected, I 

would argue, very adequately under the Medicare program. 

Mr. Klein, can you comment on the discussion I have just had 

with Dr. Olsen? 

Mr. KLEIN. I think you are 100 percent correct in your analysis 

of the impact and, in fact, that is precisely what happened to the 

retirees in the Erie County case. The older retirees did not have 

their benefits increased. The employer there realized that to protect itself against a claim of age discrimination, it would have to 

reduce the benefits for the younger retirees. 

Senator BREAUX. In the real world, I think everybody in Congress, at least I think, is trying to make sure that retirees get the 

best coverage they can possibly receive and it is a combination of 

Medicare and some supplemental benefits to raise the standard 

and to encourage through any way we can employers to take care 

of those retirees before 65. That is what I think everybody would 

hope we could reach. 

Mr. Meredith, it seems that your emphasis was on the damage 

that it does to your union members’ negotiating ability and I am 

not sure I followed it quite as well as I needed to. Can you elaborate on the point you were trying to make? 

92

Mr. MEREDITH. Yes, and I am sorry if I wasn’t clear enough. Essentially—— Senator BREAUX. Oh, you were. I just didn’t understand. 

Mr. MEREDITH. Under the EEOC—I mean, part of negotiations 

is to listen to the other side and try reaching compromises. Under 

the Erie doctrine, the union cannot compromise. By law, the union 

has one position, and when you can’t compromise, it is hard to get 

a deal. 

Senator BREAUX. So you can’t compromise because you have to 

have a whole package? 

Mr. MEREDITH. We have got to tell the employer, in order to 

make it legal, you have to give the post-retirees the exact same 

benefits you give pre-retirees on a wrap program, and sometimes 

we are able to get that. But increasingly, it is difficult—— Senator BREAUX. That would be a good goal if you could get that. 

Mr. MEREDITH. That is always our first position in negotiations. 

But with the EEOC, it is our first and last position, and as a result, we feel we can lose everything, because when you are stuck 

with all or nothing, you frequently end up with nothing, and that 

is what we feel the Erie doctrine was driving unions into, the inability to reach reasonable compromises with the employer to get 

the best deal available. 

Senator BREAUX. For non-union retirees, they don’t have a shot. 

Mr. Imparato, you have listened to this debate. From my opinion, 

EEOC has clearly carved out a position of discrimination, but they 

would argue, and I would tend to agree, that in doing that, they 

are actually trying to increase the benefits of both categories that 

they are, in fact, discriminating against, because they feel that if 

we don’t have this, that those in the previous category, pre-65, run 

the risk of having nothing at all, which companies can legally do 

right now. Rather than risk that, they have said, ‘‘All right, they 

can have a plan that is different from what is received by people 

in the post-65.’’ So discrimination, under their argument, at least as I see it, 

would actually bring about a greater equality of both sides having 

a pretty solid, even set of health benefits, one being employer partially provided and the rest picked up by Medicare, so they have 

got a pretty good plan that equals what is over here by the private 

employer. I mean, that is their argument as I understand it. What 

is wrong with that? 

Mr. IMPARATO. I would go back to this whole issue of what is equitable and what are the purposes of the Age Discrimination in 

Employment Act? Why do we have the law to begin with? 

In terms of what is equitable, from my perspective, an employer 

is going to spend X-amount of money on retiree health benefits. We 

want the Age Discrimination in Employment Act to be enforced in 

a way that makes sure that that money gets spent in a way where 

people under 65 and over 65 are able to benefit, but that it is not 

disproportionately benefiting the people under 65. 

To me, the reason we have this Age Discrimination in Employment Act is because there is a long history of employers writing 

people off after they get to a certain age and trying to focus on the 

younger, healthier workforce, and to me, this phenomenon of providing greater benefits for people under 65 than for people over 65 

93

is part of that history. People over 65 are more vulnerable. They 

are not in the workforce anymore. They are not represented by the 

unions, to a large extent. If their benefits are not protected by this 

Federal law, they are more likely to experience discrimination and 

to experience inequitable distribution of the money that the employers are willing to spend on retiree health benefits. 

Senator BREAUX. I would argue that the nondiscrimination law 

is to ensure equal results. It is not to ensure that an employer put 

up the same amount of money for a pre-65 as opposed to a post65. The law is to require health benefits to people in all categories. 

Under the EEOC’s concept, is that everybody would end up with 

approximately the same health benefits, one of them 100 percent 

provided by their employer, the other one 100 percent provided by 

the Federal Government through Medicare, both with a small contribution from the individual. But the end result is they are both 

getting the same amount of health care. 

Mr. IMPARATO. But Senator——

Senator BREAUX. That is not discrimination. 

Mr. IMPARATO. Senator, what you just articulated is the Erie doctrine. The Erie doctrine, which was the law before EEOC’s final 

rule, was that there are equal benefits or equal costs to the employer for the two populations, and what you just described, if the 

over-65 population has Medicare and the under-65 has the equivalent of Medicare, unless I am missing something, that would satisfy 

the Erie doctrine. They are both getting equal benefit as retirees. 

Am I missing something? 

Senator BREAUX. I am missing it, because my understanding is 

it is a question of what kind of plan the employer provided, and 

if the employer provides more benefits for a pre-65 than that employer provides to a post-65, that is, under the Erie case, illegal discrimination based on age by the employer. 

Mr. IMPARATO. Let us go back to your hypothetical. Let us say 

an employer for the over-65 population only provides Medicare. So 

basically, they provide no retiree health benefits. 

Senator BREAUX. They provide zero. 

Mr. IMPARATO. For the under-65 population, they provide the 

exact equivalent of Medicare plus, let us say, better prescription 

drug coverage than Medicare, even the revised Medicare. From my 

perspective, that is not equitable because they are spending more 

money on the under-65 population on a benefit that the over-65 

population equally needs. 

Senator BREAUX. Mr. Klein. 

Mr. KLEIN. I just think that it may be an accurate portrayal of 

the case, but it is a tortured explanation of what constitutes discrimination. As I said, employers consider Medicare to be the basic 

plan that individuals get when they reach age 65, and for reasons 

that have been amply discussed by everyone here, there are more 

and more employers finding it difficult to continue to sponsor their 

own coverage both for actives as well as for retirees. 

If the employer nonetheless wants to help bridge people over 

until they reach that point where they will get Medicare, and, in 

fact, may offer something in addition to Medicare, as most employers do who offer coverage, it is hard for me to understand how that 

94

can be construed as being discriminatory. I think it just artificially 

pits one group of retirees against another. 

Employer-sponsored coverage is something that is the cost is 

borne by employers and employees or early retirees. Medicare is 

something that is paid for through employer and employee contributions through payroll taxes. I just think that it is a rather tortured interpretation. 

Senator BREAUX. Ms. Neuman, can you help us out from a Kaiser 

perspective, not arguing for or against, but what is the projection 

from maybe your people as to what would likely happen, considering where we are today, in the area of health care if the Erie case 

had been allowed to stand as it was originally decided? 

Dr. NEUMAN. Mr. Chairman, we have been tracking trends in 

coverage and we continue to do that. We are looking to see what 

will happen in the future. I don’t think it is possible to tell from 

the work that we have done how the Erie decision, one way or another, would have affected changes in the coverage. 

Senator BREAUX. OK. Is the Erie decision a positive for an employer providing health benefits to their retirees or is it a negative? 

Dr. NEUMAN. You know, I wish I could answer that question. I 

am not trying to be evasive, but based on the work that we have 

done, I really can’t speak to that. 

Senator BREAUX. Well, let us discuss it, then. How would it be 

positive? How would a decision that says that they have to provide 

the same benefits to post-65 retirees be positive for them and how 

would it be negative? 

Dr. NEUMAN. Well, from a retiree point of view—— Senator BREAUX. No, from an employer who is providing the insurance, how would the requirement that you add the 11 to 12 million more to have the same benefits as those you are providing to 

pre-65 be good for the employer’s ability to provide health insurance and how would it be bad? 

Dr. NEUMAN. The issue from an employer point of view is one of 

costs and employers have to make decisions about how they are 

going to be controlling costs. One thing our survey has suggested 

is that employers are looking at a variety of strategies that are out 

there, including where to look for savings, and this could be one of 

the places that they would need to turn to in order to be responsive 

to a requirement to provide equal—— Senator BREAUX. I want to keep it very simple. If I am having 

trouble providing an employee plan for somebody that used to work 

for me that is not yet 65 and I provide less for the people that used 

to work for me that are over 65, and I am having trouble with the 

first group and somebody tells me I have also got to provide the 

same benefits for those who are after 65, how in the heck can that 

be nothing but terrible? They are already dropping the ones pre65. 

Dr. NEUMAN. Right. 

Senator BREAUX. If I have got to add 11 million more that have 

insurance after 65, how can that be anything but awful? Mr. Klein? 

Mr. KLEIN. I can’t say it any more eloquently than you just did, 

sir. 

Senator BREAUX. It is not very eloquent. That is Louisiana. 

[Laughter.] 

95

Dr. Olsen. 

Dr. OLSEN. I guess I don’t think anybody is saying to raise the 

level of Medicare benefits. I think we are trying to discuss with the 

EEOC of a way of establishing this as an equivalency that makes 

some sense, and in discussions, and maybe the—— Senator BREAUX. Let me jump in on that point. I am sorry to interrupt, but you talked about an equivalency. 

Dr. OLSEN. Right. 

Senator BREAUX. Is AARP satisfied, if the employers were providing a health benefit plan for pre-65 and then they were providing a plan for those over 65 that was equivalent when you consider what Medicare contributes and what the employer contributes, is that the equivalency you are OK with? 

Dr. OLSEN. Yes. We have been satisfied with the idea of the supplement representing an equivalency, and that was the guidance of 

the EEOC after Erie and up until now. 

If I could make one other comment, I know we were involved a 

few months ago relative to employee retirement coverage when the 

Medicare Rx thing was at its peak. 

Senator BREAUX. We heard a word or two from you. 

Dr. OLSEN. Yes, a word or two. [Laughter.] 

So Congress, I think very fortunately, added a lot of subsidies 

and incentives for the employer community to continue coverage, 

and there is even some thought that maybe this would help a little. 

We have to wait and see. But clearly, we are in an interim period 

before this starts in 2006. 

Therefore, I guess I am somewhat astonished and amazed that 

we would now come out about halfway through this interim period 

with a rule that almost seems to give a green light to dropping coverage when just a few months ago, we created all these subsidies 

for employers to keep the coverage. 

Senator BREAUX. I recognize that. 

Dr. OLSEN. Thank you. 

Senator BREAUX. Mr. Klein, back to the point we talked about, 

the concept of an employer providing one set of benefits for pre-65 

retirees and providing a different set for post-65 but with the Medicare benefits would be the same as the pre-65. Dr. Olsen says that 

is what AARP is supporting. What is your comment on that? 

Mr. KLEIN. I think my understanding, too, of the ‘‘equal costequal benefit’’ rule is that if the benefits that are being provided 

are equal, that is considered per se to be not discriminatory. But 

if you have a result where the benefits are less for one group than 

another, you can nonetheless still demonstrate that you are not discriminating if the cost that you incur is the same. 

Therefore, I think we have to take the analysis further to answer 

your question. If you have a situation where the under-age 65 

group is actually getting overall better coverage, more coverage 

than the over-age 65 group when you add up Medicare plus whatever it is their employer is providing, I think the AARP would say 

that that is discriminatory, and I think that there are two compelling reasons that it is not. 

The first is the ample legislative history, which is described in 

some length in my written testimony, that Congress specifically addressed this point when it took up the Older Worker Benefit ProVerDate 0ct 09 2002 10:13 Jul 27, 2004 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 C:\DOCS\94290.TXT SAGING1 PsN: JOYCE
96

tection Act in 1990 and specifically sought to exempt the retiree 

situation. It spoke about older versus younger workers. It wasn’t 

referring to retirees and specifically had discussions and colloquies 

about being able to preserve this kind of, if you want to call it, disparate treatment. 

The second reason is that it is a somewhat convoluted interpretation of discrimination to say that that older group is being somehow discriminated against simply because the employer is spending 

more money on the younger group. Absent the employer spending 

that money, that younger group is going to get nothing. 

Senator BREAUX. But I have a little bit of a problem with the 

concept that an employer would be able to spend $5 on a pre-65 

retiree, but then for a post-65 retiree, I am only going to spend $2, 

even though Medicare is not going to make up the other $3. That 

would mean that that employer’s actual contribution does not 

produce the same result. Is that not discrimination that should be 

avoided and illegal? 

Mr. KLEIN. I don’t think so, and I don’t think that that is the position of Congress back when it amended the Age Discrimination 

in Employment Act, and I think even if you feel——

Senator BREAUX. Why should an employer be able to spend less 

money for an older worker than a younger retiree when the older 

worker generally will have substantially higher needs from a 

health standpoint? 

Mr. KLEIN. Well, the younger worker—I am sorry, the younger 

retiree would still have health care needs that might not be 

met——

Senator BREAUX. Yes, but it is clear that the post-65 is going to 

have substantially higher health costs than a pre-65 worker. I 

mean, that is just a fact. 

Mr. KLEIN. Well, I think that we have to sort of accept the notion, whether as a matter of social policy, what we are providing 

under Medicare is an appropriate benefit for a group that is age 

65 and over. 

Senator BREAUX. Yes, but we talked about—my question was——

Mr. KLEIN. No, and once one accepts that——

Senator BREAUX. My question said, suppose you are not reaching 

an equal point. Then you are saying that the employer should have 

the right to contribute less to a post-65 retiree’s health benefits 

who has higher cost than they would be able to contribute to a pre65 retiree who has a lower cost. That, I am not sure I can handle. 

Mr. KLEIN. Well, I guess I would just say two things in response 

to that. One, as a general rule, it is certainly an accurate statement that older retirees have higher health care costs than younger retirees. But on an individualized basis, that wouldn’t, of course, 

necessarily be the case. 

The other point is that even if one disputes the conclusion of 

Congress previously as to the non-applicability of any of this to retiree health, was it really Congress’s intention to get into a distinction between levels of coverage between the pre-65 as well as the 

post-65? Would they be in the protected class. 

Senator BREAUX. I imagine some companies, Ms. Neuman perhaps knows or anybody, would provide health care coverage for 

97

their retirees only until they get to be 65 and contribute nothing 

after that. 

Mr. KLEIN. Well, the other—— Senator BREAUX. Let me ask Ms. Neuman if that is correct. 

Dr. NEUMAN. Some do, but most of the firms in our survey provided both the pre-65 and a 65-plus. 

Senator BREAUX. But it is about almost up to 20 percent, I think, 

that provide it only to pre-65. 

Mr. KLEIN. Senator, I think your analysis is absolutely correct 

there, but the way that employers are going to rectify the situation 

is by what you mentioned earlier. They are going to then just 

spend only $2 on the pre-age 65 folks. 

Senator BREAUX. I think that everyone has had a chance to really spell out your views on the thing. It is indeed a complicated situation. This is not easy, but neither is anything else dealing with 

health care. It is very, very complicated and is the real challenge, 

I think, that we as a nation have. 

We are debating health care coverage for people who have health 

care coverage. We still have 41 or 43 million Americans now who 

have none at all, zip, zero. We arguably are the richest nation in 

the history of the world and we have 43 million Americans who 

have no coverage at all for their health care, which is absolutely—

it should be unacceptable in this country. 

I would suggest that before we all meet in the Federal courthouse on this issue that the groups like yours that are here try to 

get together and see if there is some recommendation that could be 

jointly made to Congress about how we can legislatively address 

this. The other alternative is everybody go to the courthouse and 

litigate. I am not sure there are enough clear laws on the books to 

really bring about the best result. 

Anti-discrimination laws are what we are litigating under, but I 

am not sure they quite fit the health situation that we are trying 

to figure out. I think we are all trying to make sure people who 

are retired get the best health coverage they possibly can get. That 

is the goal. I am not sure the anti-discrimination laws are designed 

to produce that result in these unusual circumstances, so it may 

mean that we need something else. 

I would just encourage all of you to become involved in a serious 

effort in the private sector to come up with recommendations that 

we might consider, because everybody has a major interest in this. 

This is not something I think can be handled in the courthouse. It 

should be handled in the Congress, and hopefully we can use your 

recommendations to look for a solution. Boy, if we could get some 

kind of a generic recommendation from all sides, it would be very, 

very helpful to the people you represent as well as to the people 

that we represent. 

With that, this committee hearing will be adjourned. Thank you 

very much. 

[Whereupon, at 3:23 p.m., the committee was adjourned.] 

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