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Health insurance costs could be proxy for age; employer laid off “oldest and sickest”

By Lorene D. Park, J.D.

Evidence that an employer asked its health insurer for lower rates because it laid off its “oldest and sickest” employees, that it disciplined an employee for poor performance after she refused to choose Medicare rather than the company health plan, and that she was the only one to have been issued a reprimand and put on probation could suggest that age was the but-for cause of her termination and that her purported performance issues were merely pretext, ruled an Eighth Circuit panel, reversing summary judgment for the employer on her ADEA discrimination and retaliation claims. Distinguishing the Supreme Court’s analysis in Hazen Paper, the appeals court found that “[c]ertain considerations, such as health care costs, could be a proxy for age in the sense that if the employer supposes a correlation between the two factors and acts accordingly, it engages in age discrimination.” Summary judgment on the employee’s ADA discrimination claim was affirmed (Tramp v Associated Underwriters, Inc, October 7, 2014, Beam, C).

Due to economic problems, the employer sought cost-cutting measures and had a reduction in force in 2007. Although the employee stayed on, one of the company owners had concerns about her performance. In mid-2008, the owners discussed other ways to save money and considered eliminating the health insurance program, but decided against it. They soon had a significant increase in health plan premiums and sought alternative proposals from insurers. After providing employee demographic information, the employer obtained several quotes, one of which was much lower. The employer learned that the lowest quote came from an insurer that did not include the employee and another worker, both of whom were over the age of 65. An insurance rep explained that people over 65 “usually don’t get quoted” since they are Medicare eligible. The employer asked that the employees be included and received a much higher quote.

Meanwhile, one of the owners exchanged emails with the insurer to discuss rates as they related to age and health. He noted that the company had lost older workers and asked for a new quote. He made it clear that the company was looking for other insurance bids and reiterated “[w]e have lost several of the older, sicker employees and should have some consideration on this.”

In July 2008, the company president met with the employee and the other older worker and suggested they use Medicare instead of the company plan, but they declined. He claimed to have offered to cover 100 percent of a Medicare supplement, which he thought would provide better coverage while cutting company costs, but the employee denied that he made such an offer.

Termination. The next October, the employee was reprimanded for poor performance and put on probation. In February 2009, the company laid her off, along with three others, aged 72, 38, and 39. The termination came the day before she was scheduled to undergo knee surgery. The co-owner who managed the office claimed the decision was based on performance, not her age or refusal to take alternative insurance. However, in July 2009, he emailed the insurer concerning rates, complained about a 25 percent increase, and noted that “[s]ince last year we have lost our oldest and sickest employees,” and wrote that the company was “expecting a rate decrease from the group becoming younger and healthier not an increase.”

Lawsuit. Filing suit, the employee claimed she was harassed, retaliated against, and terminated because of her age and disability. Granting summary judgment for the employer, the district court relied on the Supreme Court’s analysis in Hazen Paper Co. v. Biggins and held that age and health care costs were analytically distinct and thus the termination was motivated by factors other than age. It further reasoned that, because insurance premiums were not reduced after her discharge, factors other than age necessarily affected the cost and age could not have been the “but-for” cause of the termination. As to the ADA claim, the court held that even assuming there was a question as to whether the employee was disabled she did not show causation because her evidence suggested she was terminated to save health care costs. The employee appealed.

ADEA claims. Reversing summary judgment on the ADEA discrimination and retaliation claims, the Eighth Circuit noted it was undisputed that the employee was over 40 years old, met the job qualifications, and suffered an adverse action. However, the parties disputed whether she could show that age was the but-for cause of her termination. The employee argued that the co-owner’s correspondence with the health insurer months before and months after her termination provided evidence from which a fact-finder could deduce a direct correlation between her age and discharge. She asserted that the employer’s expected reduction in premiums showed that the but-for cause of her discharge was age, not performance. Finding issues of fact, the appeals court noted that after it became apparent to the owners that health care premiums were affected by employee demographics, one sought lower premiums because the company “lost our oldest and sickest employees.”

Insurance cost as proxy for age. The appeals court also distinguished Hazen Paper, in which the Supreme Court found that because pension plans typically provide that benefits vest upon completing a certain number of years of service to the employer, that is often correlated with age but that “an employee’s age is analytically distinct from his years of service.” Indeed, an employee younger than 40 may have worked for the employer his entire career while an older worker may have been newly hired. Thus, the Court found that it was “incorrect to say that a decision based on years of services is necessarily ‘age based’ in violation of the ADEA.”

The same analysis is not true for age and health care costs, said the court here, because the employer’s perception of insurance premiums were not divorced from age in the same sense that pension benefits are divorced from age. In this case, there was at least a question of fact as to the employer’s motivations for terminating the employee. “Age and health care costs are not so analytically distinct if [the employer] presumed the rise in one necessitated a rise in the other,” wrote the court. “Certain considerations, such as health care costs, could be a proxy for age in the sense that if the employer supposes a correlation between the two factors and acts accordingly, it engages in age discrimination.” And to the court, the emails with the insurer regarding the loss of the “oldest and sickest employees” and the expectation of a rate decrease “from the group becoming younger and healthier,” could show discriminatory intent in the process used to get rid of older employees.

The court rejected the employer’s argument that the six-month “gap” between the employee’s refusal of Medicare in lieu of the company plan and her termination was too long as a matter of law to establish causation. The “gap may not be so big,” said the court, when considered along with the intervening emails with the insurer, the formal reprimand, and probationary period. Significantly, the employee provided evidence that the company had not previously provided any reprimands to any employee and that the owners could not remember any other employee being placed on probation. For all these reasons, the employee raised questions of fact on causation and as to whether her termination for poor performance was pretextual. Consequently, summary judgment was reversed on her ADEA discrimination and retaliation claims.

ADA claim. On the other hand, the appeals court affirmed summary judgment on the employee’s ADA discrimination claim. It agreed with the lower court that, even assuming a fact issue remained on whether the employee had a disability, she failed to establish that her termination was motivated by her disability. She offered no evidence other than her own testimony that others were “generally aware” of her scheduled surgery, that anyone else knew about the surgery or, more importantly, that such knowledge affected decisions regarding her employment or that they regarded her as impaired. Even awareness of the scheduled surgery, without more, was not enough to maintain her ADA claim and the temporal proximity was not enough to carry the day, concluded the court.