Age Discrimination in Employment Act

The Age Discrimination in Employment Act (ADEA)Eliminated mandatory retirement on the basis of age by employers. was first passed in 1967 and is known primarily for eliminating mandatory retirement on the basis of age. That is, employees cannot be forced to retire at any age, with the exception of some executives who may be subject to compulsory retirement. Employee benefits are also affected by the ADEA because the law was amended to require that benefits must be continued for older workers. Most benefits can be reduced to the point where the cost of providing benefits for older workers is no greater than for younger workers except health care benefits. The act makes this an option; employers are not required to reduce benefits for older workers. Employers choosing to reduce some benefits for older workers generally do not reduce benefits except for workers over age sixty-five, even though reductions prior to age sixty-five may be legally allowed based on cost.

The employer may reduce benefits on a benefit-by-benefit basis based on the cost of coverage, or may reduce them across the board based on the overall cost of the package. For example, with the benefit-by-benefit approach, the amount of life insurance in force might be reduced at older ages to compensate for the extra cost of term coverage at advanced ages. Alternatively, several different benefits for an older worker might be reduced to make the total cost of the older worker’s package commensurate with the cost of younger workers’ packages.

Life and disability insurance may be reduced for older workers. Acceptable amounts of life insurance reductions are specified by law. For example, employees age sixty-five to sixty-nine may be eligible for life insurance benefit amounts equal to 65 percent of the amounts available to eligible employees under age sixty-five; employees age seventy to seventy-four may receive only 45 percent. Disability benefits provided through sick leave plans may not be reduced on the basis of age. Reductions in benefit amounts for short-term disability insured plans are allowed, but they are relatively uncommon in actual practice. Long-term disability benefits may be reduced for older workers through two methods. Benefit amounts may be reduced and the duration may remain the same, or benefit duration may be curtailed and amounts remain the same. This is justified on the basis of cost because the probability of disability and the average length of disability increase at older ages.

Medical benefits may not be reduced for older employees. Employers must offer older workers private group medical benefits that are equal to those offered to younger participants, even if active workers over age sixty-five are eligible for Medicare. Medicare is the secondary payer for active employees over age sixty-five, covering only those expenses not covered by the primary payer, the employee’s group medical insurance.

The Civil Rights Act

Traditionally, employee benefit plans have not been required to provide benefits for pregnancy and other related conditions. Including disability and medical benefits for pregnancy can significantly increase costs. However, in 1978 the Civil Rights ActRequires employers to provide the same benefits for pregnancy and related medical conditions as are provided for other medical conditions. was amended to require employers to provide the same benefits for pregnancy and related medical conditions as are provided for other medical conditions. If an employer provides sick leave, disability, or medical insurance, then the employer must provide these benefits in the event of employee pregnancy. Spouses of employees must also be treated equally with respect to pregnancy-related conditions. This federal regulation applies only to plans with more than fifteen employees, but some states impose similar requirements on employers with fewer employees.

Americans with Disabilities Act

As described in Chapter 13 "Multirisk Management Contracts: Homeowners", the 1990 Americans with Disabilities Act (ADA)Forbids employers with more than fifteen employees from discriminating against disabled persons in employment. forbids employers with more than fifteen employees from discriminating against disabled persons in employment. Disabled persons are those with physical or mental impairments limiting major life activities such as walking, seeing, or hearing. The ADA has important implications for employee benefits. The ADA is not supposed to disturb the current regulatory system or alter industry practices such as underwriting. Under ADA, therefore, disabled employees must have equal access to the same health benefits as other employees with the same allowances for coverage limitations. The guidelines allow blanket preexisting conditions, but they do not include disability-based provisions. For example, if the medical plan does not cover vision care, the employer does not have to offer vision care treatment to disabled employees. However, if vision care is provided by the plan, then vision care must also be offered to employees with disabilities. Recent Supreme Court cases clarified the intent of the ADA. Most important is the clarification that the ADA is concerned with a person’s ability to perform regular daily living activities and not his or her ability to perform a specific job.

Family Medical Leave Act

Under the Family Medical Leave Act (FMLA)Requires an employer with fifty or more employees to grant an eligible employee (one who has been employed by the employer for at least twelve months) up to a total of twelve weeks of unpaid leave during any twelve-month period for one or more of the following reasons: the birth and care of the employee’s newborn child, for placement with the employee of a child for adoption or foster care, to care for an immediate family member (spouse, child, or parent) with a serious health condition, to take medical leave when the employee is unable to work because of a serious health condition. of 1993, an employer with fifty or more employees must grant an eligible employee (one who has been employed by the employer for at least twelve months) up to a total of twelve work weeks of unpaid leave during any twelve-month period for one or more of the following reasons:

• For the birth and care of the employee’s newborn child
• For placement with the employee of a child for adoption or foster care
• To care for an immediate family member (spouse, child, or parent) with a serious health condition
• To take medical leave when the employee is unable to work because of a serious health condition

This law may sometimes create conflicting interpretations, especially in relationship to workers’ compensation and disability leaves. Employee benefits administrators are advised to track the leave taken by employees under different programs and ensure compliance with the law.Rebecca Auerbach, “Your Message to Employers: Manage FMLA with Other Benefit Programs,” National Underwriter, Life & Health/Financial Services Edition, April 22, 2002. Compliance issues require clarifications; a recent Supreme Court decision clarified that only material denial of the FMLA statute should trigger penalties.This case, Ragsdale v. Wolverine worldwide, No. 00-6029 (U.S. March 19, 2002), hinged on the extent that employers are obligated to inform employees of their rights when they begin a leave of absence. Wolverine had given Tracy Ragsdale time off for cancer treatment, but when she was unable to return to work after thirty weeks, Wolverine ended her employment. Ragsdale filed suit, citing a FMLA regulation that a leave of absence counts against the employee’s FMLA allowance only if the employer specifically designated it as FMLA leave. She claimed she was still entitled to her twelve weeks of FMLA leave. The Court disagreed and declared that regulation invalid. One of the Court’s reasonings was that Ragsdale had not been harmed—she would not have been better off if Wolverine had designated her original leave as FMLA. See Steven Brostoff, “U.S. High Court Ruling Helps RMs,” National Underwriter Online News Service, March 20, 2002.

Continuity: COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRADirects that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage.) of 1986 directs that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage. COBRA’s continuation provisions require that former employees, their spouses, divorced spouses, and dependent children be allowed to continue coverage at the individual’s own expense upon the occurrence of a qualifying event (one that otherwise would have resulted in the loss of medical insurance). The qualifying events are listed in Table 20.3 "COBRA Qualifying Events for Continuation of Health Insurance". Most terminations of employment, except for gross misconduct, activate a thirty-one-day right to convert the health insurance that the employee or dependent had before the qualifying event (vision and dental benefits need not be offered). The employer can charge for the cost of conversion coverage, but the charge cannot exceed 102 percent of the cost of coverage for employees, generally (including the portion the employer paid). Some events require coverage continuation for eighteen months, and others require thirty-six months of coverage.

The employee has a valuable right with COBRA because continuation of insurance is provided without evidence of insurability. In addition, the group rate may be lower than individual rates in the marketplace. However, COBRA subjects employers to adverse selection costs and administrative costs beyond the additional 2 percent of premium collected. Many terminated healthy employees and dependents will immediately have access to satisfactory insurance with another employer, but many unhealthy employees may not. This is because of the preexisting condition clauses that many group insurance plans have (though this is less of a concern since the passage of HIPAA, as you will see below). After September 11, Congress worked on creating subsidies for the payment of COBRA premiums to laid-off employees. This law was part of the 2002 trade legislation. As of 2003, the law provides subsidies of 65 percent of the premiums to people who lose their jobs because of foreign competition.Jerry Geisel, “COBRA Subsidy Could Increase Beneficiaries: Survey,” Business Insurance, August 30, 2002. The American Recovery and Reinvestment Act (ARRA) of 2009—intended as a stimulus against the economic recession—contains significant provisions regarding COBRA benefits (similar to the 2002 trade legislation) for involuntarily terminated workers. This and other features of ARRA are discussed in the box “Laws Affecting Health Care.” The application of COBRA for military reservists called to active duty is explained in the box “Individual Coverage Rights When Called to Military Duty.”

Retiree Eligibility for Group Medical Benefits

Most active, permanent, full-time employees are eligible for group coverage. Employers that offer group medical insurance are required to offer it to active workers over age sixty-five, under the Age Discrimination in Employment Act (ADEA) discussed above. For these employees, Medicare becomes a secondary payer. Some employers choose to offer continuation of group medical benefits to employees who have retired. This coverage is like Medigap insurance (discussed in Chapter 22 "Employment and Individual Health Risk Management"), where Medicare is the primary payer and the group plan is secondary. Typically, the retiree plan is less generous than the plan for active workers because it is designed simply to fill in the gaps left by Medicare.

Historically, employers have paid medical premiums or benefits for retirees out of current revenues, recognizing the expense in the period that it was paid out. However, in 1993 the Financial Accounting Standards Board (FASB 106) began phasing in a requirement that employers recognize the present value of future retiree medical expense benefits on the balance sheet during the employees’ active working years rather than the old pay-as-you-go system. The negative effect of these new rules on corporate earnings has been significant. Consequently, most employers have been cutting back on health benefits promised to retirees, and only about a third of the companies that had retiree health care in 1990 still had them a decade later.

Portability: HIPAA

Title I of the Health Insurance Portability and Accountability Act (HIPPAProtects employees who change jobs from having to start a new waiting period before a preexisting condition is covered.) of 1996 protects employees who change jobs from having to start a new waiting period before a preexisting condition is covered. For example, before HIPAA, a person with diabetes might not want to change jobs, even for a much better position, because it would mean going for a time without coverage for daily insulin shots and possible complications of the illness. Many employees were trapped in such situations before HIPAA. After the enactment of HIPAA, a person with diabetes could change jobs, and health insurance providers, without fear of losing coverage on that specific condition.

HIPAA provides protection for both group and individual health insurance. In essence, it provides portabilityCarrying forward the qualification for preexisting conditions. of coverage: when an employee leaves one job and starts a new job, the coverage of health insurance under the new employer’s program cannot exclude benefits for preexisting condition, as long as the break in health coverage is no longer than sixty-three days. Portability does not mean carrying the actual coverage of the old employer to the new one, but rather carrying forward the qualification for preexisting conditions. For example, Joe was employed by Company A for ten years and had health coverage under that employer. He accepted a job offer from Company B. One month before changing his job, he broke his leg in a skiing accident. Under HIPAA, the new company cannot limit coverage for the injured leg. If Joe needs surgery on this leg in three months, the health coverage under Company B will pay for the surgery. Before HIPAA, Joe would have had to stay covered under his old employer, paying the full amount himself through COBRA, until the preexisting condition period of the new employer was met. That could have been six months, a year, or even longer.

Under HIPAA, an employer can impose only up to twelve months preexisting conditions exclusions for regular enrollment and up to eighteen months for late enrollment. During an exclusion period, the health plan has to pay for all other conditions except the preexisting condition. Prior group health coverage applies to these limits. Thus, if an employee’s only previous group health coverage was for six months with Company A, the preexisting conditions exclusion from new Company B would last for just six additional months rather than the full twelve. Under HIPAA, a preexisting condition is defined as a condition for which the employee received any treatment within the six-month period before enrolling with the new employer.

The details of HIPAA are complex, but the gist is that an employee without a break in health coverage will never have to meet a preexisting condition period more than once in a lifetime, if at all. When an employee leaves a job, the employer is required to provide a certificate of health coverage. This certificate is then taken to the next employer to ensure that no preexisting conditions are imposed on the employee. Employers who neglect to give the certificate are subject to penalties of $100 per day. More on HIPAA and other recent health care-related laws is featured in the box “Laws Affecting Health Care.” Further, the application of HIPAA for military reservists called to active duty is detailed in the box “Individual Coverage Rights When Called to Military Duty.”