The U.S. Court of Appeals for the 7th Circuit affirmed the dismissal of a suit accusing Indiana’s Lake County of violating the Age Discrimination in Employment Act by firing workers over the age of 65 whose insurance premiums threatened to destroy its budget. The court determined the age of the workers was incidental to their firing. The unanimous 7th Circuit panel held that the retirement-age participation in the Medicare supplemental insurance program the county had offered for free to current workers was the true reason for their termination.
The Carson v. Lake County, Indiana Decision
During the recession in the mid-2000s, Lake County, Indiana, went from having positive cash flow of 51 million in 2007 to a decline in 9.9 million in 2008. By 2009, it was operating in a deficit and by 2013 was more than $1 million in the red. During the same period, its self-insurance fund, which it used to cover employee health care costs, foundered. The fund balance of $10 million in 2007 was wiped out by 2013, and Lake County was in a financial crisis.
To alleviate the financial crises, the county offered retirement incentives to employees age 65 and older, including an incentive package where retirees were entitled to five years of supplemental health insurance (secondary to Medicare coverage) through Aetna. Retirees who selected this package were permitted to return to work as at-will employees on a part-time basis. Unfortunately, the county had miscalculated.
In 2013, Aetna informed the county that current employees were ineligible for the supplemental insurance coverage and if those rehired part-time employees remained on the plan, the plan would no longer qualify for special exemptions under federal law and premiums would skyrocket. Those rehired part-time employees were terminated.
The terminated employees sued alleging that the county had discriminated against them on the basis of their age in violation of the Age Discrimination in Employment act of 1967 (ADEA) and the Fourteenth Amendment's Equal Protection Clause. The district court granted summary judgment to the county and the 7thCircuit affirmed.
The 7th Circuit ruled that age was not the impetus for the county's decision. The court noted the plaintiffs shared the following four characteristics:
- They were all 65 years of age or older;
- They all enrolled in Medicare for their primary health insurance coverage;
- They were rehired retirees; and, most important,
- They were all enrolled in the Aetna supplemental policy.
The court explained that the county did not terminate them because of their ages. Rather, it terminated them because they were enrolled in a retiree-only insurance plan in which current employees could not participate. According to the court:
"We see no evidence that the County engaged in unlawful age discrimination. Age was a necessary but insufficient factor in the County's decision-making process. The key criterion that distinguished the terminated employees from all other County employees was not their age but rather their participation in the Aetna plan. The equal protection claim fails because the undisputed facts show that the county's action was rationally related to legitimate state interest: Preserving supplemental insurance coverage for its retirees while avoiding further financial hardship."
The facts demonstrate the court's recognition of the realities of the high cost of insuring versus the protection of senior rights.
The Supplemental Insurance Debacle
The 7th Circuit refers to the facts as "Lake County's Supplemental Insurance Debacle." While the financial crisis was the impetus for the employment decisions, the misunderstanding of federal insurance laws led to the problem of the uninsurable rehired retirees. This case highlights the need for an understanding of basic health insurance law as it currently stands.
Federal law requires group health insurance plans such as those sponsored by employers to comply with an array of complicated terms governing portability, coverage, rating, renewability and non-discrimination. Many of those requirements came with the Patient Protection and Affordable Care Act of 2010 and others were imposed with the earlier Health Insurance Portability and Accountability Act of 1996, and undoubtedly this current presidential term will see attempts to change these terms.
Federal law also carves out exemptions for special types of health insurance, including "retiree-only" plans. These plans pay benefits secondary to Medicare and are exempt from many of the requirements of HIPPAA and the Affordable Care Act that apply to primary policies. Retiree-only plans help Medicare recipients manage their own out of pocket costs.
Under the prior health care acts, employees who had retired and been rehired part time and who were receiving the supplemental coverage either would not be able to remain employed or would have to give up the health insurance supplement. The supplemental insurance was available only to retirees.
Getting advice on age discrimination issues
The decision by the 7th Circuit highlights the important role of employment litigation legal counsel when issues relative to age discrimination arise in the workplace. For more information on this topic, contact Kristin Tauras at McKenna Storer.
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