Employment: Despite What You May Think, Employers Generally Cannot Move Employees Turning 65 Off Company-Provided Insurance
We're all getting older. On January 1, 2011, the first Baby Boomer turned 65. This year, and for the next 18 years, about 10,000 people will cross that threshold every day. In addition to flocking to the early bird special and trying on Velcro shoes, these Boomers will become eligible for Medicare. If you think this eligibility will give your employee health plan a break, think again.
Many employers assume that when a current employee becomes eligible for Medicare, the employer may terminate eligibility for employer sponsored group health insurance. But, because workers become eligible for Medicare at age 65, eliminating group health eligibility for current employees when they become Medicare-eligible is an age-based action and likely a violation of the Age Discrimination in Employment Act. Although the regulations under the ADEA provide an exemption for employers to coordinate retiree healthcare benefits with Medicare eligibility, the exemption does not apply to the healthcare benefits of current employees.
The regulations, however, do permit "adjustments" to benefits offered to Medicare eligible employees under very narrow circumstances. It is called the "equal benefit/equal cost" defense to an ADEA claim. Under the equal benefit prong of the defense, it is not necessary for an employer to provide benefits which are otherwise provided by Medicare. But, employer-provided benefits and Medicare benefits together may not result in a lesser benefit of any type to the employee. This suggests that an employer-provided Medicare supplement policy to fill the gaps in healthcare not covered by Medicare might be the answer. But, it rarely is. Under the vast majority of employer-sponsored plans, employees may include their spouses and/or dependents in the plan, a benefit not provided by Medicare. And that is considered a benefit to the employee even when the employee must pay the entire amount of the additional premium.
If an employer cannot satisfy the equal benefit test (and very few can), you may still avoid ADEA liability by satisfying the equal cost prong of the defense. Equal cost may be calculated on either a "benefit-by-benefit" basis or a "benefit package" basis. Under the benefit-by-benefit approach, the employer must be able to demonstrate that it spends an equal amount on health insurance for both younger employees and those employees eligible for Medicare. Since the employer spends nothing on the Medicare benefits, it is virtually impossible to satisfy this test. The benefit package test is similarly difficult to meet. Although an employer might increase benefits other than health insurance for Medicare-eligible employees, a reduction in health insurance benefits may not be greater than what would be justified under the benefit-by-benefit approach.
So, the bad news is that, absent some unusual circumstances, you may not make employees reaching the age of 65 ineligible for your group health insurance plan. The good news is that some employees reaching the age of 65 will voluntarily leave your plan if they are not depending on your plan for coverage of spouses or dependents. The cost of Medicare premiums plus supplemental coverage is usually less than the premiums under an employer's plan.
By Rebecca M. Fowler, email@example.com