Last week, the Eight Circuit held that where an employer terminated an employee over the age of 65, allegedly in an attempt to lower health care plan premiums, the employee could state a claim for violation of the Age Discrimination in Employment Act (“ADEA”). Tramp v. Associated Underwriters, Inc., No. 13-2546, 2014 WL 4977396 (8th Cir. 2014). The ruling reversed the grant of summary judgment in favor of the employer by the District Court for the District of Nebraska.
In 2008 Associated Underwriters—a company which had severe financial problems and was operating at a loss—experienced a significant increase in its group health care plan premiums. Instead of eliminating the company’s health insurance program, Associated Underwriters sought quotes from different companies in an attempt to lower its premiums. In order to obtain the quotes, Associated Underwriters had to provide demographic information of its employees. Based on the quotes it received, management at Associated Underwriters believed that its premiums were tied to the health and age of employees and that if it had fewer “older, sicker employees,” its premiums would decrease. One of the older employees was Marjorie Tramp. In 2009 Associated Underwriters underwent a reduction in force in which it laid off four employees, including Tramp. Associated Underwriters stated that it decided to lay her off because of her historically poor job performance. Subsequent to laying off Tramp and the other three employees, Associated Underwriters again sought to lower its premiums by informing insurers that “[s]ince last year we have lost our oldest and sickest employees.”
Tramp sued Associated Underwriters, arguing that she had been terminated based on her age, in violation of the ADEA. Specifically, Tramp contended that her employment was terminated because her age and health were affecting Associate Underwriters’ employee health care plan premiums. The District Court granted summary judgment in favor of Associated Underwriters, holding that Tramp was not terminated because of her age, but rather because Associated Underwriters wanted to lower its premiums. Relying on the Supreme Court’s ruling in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993)—a case in which the Supreme Court held that an employee who was terminated to prevent his pension from vesting could not state a claim under the ADEA because even though pension status is typically correlated with age, a decision based on pension status is not “age based”—the district court stated that “[a]lthough health care costs tend to be positively correlated with age, such costs are analytically distinct from age.”
Plaintiff appealed and the Eighth Circuit disagreed with the district court’s conclusion, stating that “Associated Underwriters’ perception of insurance premiums are not divorced from age in the same sense that pension benefits are divorced from age.” It reasoned that because Associated Underwriters believed that a rise in age would result in a rise in health care premiums, age and health care costs were not analytically distinct.
The Eight Circuit’s holding in this case diverges from decisions of several district courts. District courts have uniformly held that following Hazen Paper, an employer may base an employment decision upon health care costs without implicating age considerations or violating the ADEA. It is possible that the Eighth Circuit’s holding can be limited to its facts—the court suggested that Associated Underwriters’ comments about its “oldest and sickest employees” in attempting to lower its premiums could manifest a discriminatory animus against older workers. If an employer instead chose to terminate its employees with the highest insurance premiums without explicit consideration of their age, the case may come out differently.