Group: Erie County Litigation Could Cost Employers $114B for Retiree Coverage

May 19, 2005 ( - A Washington, DC-based research group has estimated that employers will have to come up with another $114 billion for their retiree health-care benefits because of litigation over possible age discrimination problems.

The Employment Policy Foundation (EPF) calculated that the much-discussed Erie County decision (See UpFront: Erie Go Again ) would considerably increase the current $650 billion employer retiree health liabilities bill. The group made the assertion in a research report released Thursday.

According to an EPF news release, the court rulings about whether employers discriminated on the basis of age in how they paid retiree health benefits will force employers to either spend an average of $1,500 more for each of the 8 million Medicare-eligible retirees or cut spending on benefits for those retirees under age 65.

The EPF said current accounting rules require firms to account for both current and future retiree health liabilities on their balance sheet, making the total balance sheet impact of increasing spending for Medicare-eligible retirees $79 billion to $114 billion. The lower estimate reflects the assumption that employers will cap future premium contributions for both pre- and post-65 retirees, which nearly 50% of employers have already done, the EPF said.

The Erie County court ruled that the problem came about because most employers spend more for their younger retirees to provide “bridge” benefits and that once a retiree reaches age 65, the employer only provides health coverage to supplement Medicare. The court ruled that these unequal benefits discriminated against retirees who were old enough to qualify for the government-run health program.

In a controversial move, the Equal Employment Opportunity Commission (EEOC) issued rules after the ruling clarifying that the Age Discrimination in Employment Act (ADEA) did not block employers who offer retiree health benefits from providing enhanced bridge benefits to non-Medicare-eligible retirees (See EEOC Approves ‘Erie County’ Exemption ). However, a Philadelphia federal judge blocked the rule from going into effect in March after it was challenged by the AARP (See Federal Judge Tosses EEOC Retiree Health Benefit Exemption ).

“The high cost of equalizing benefits may cause some firms to eliminate retiree health coverage for future retirees, which will substantially increase their future out-of-pocket costs,” said Janemarie Mulvey, the Foundation’s president and chief economist.