April 5, 2017
from the United States District Court for the Northern
District of Indiana, Hammond Division. No. 2:14-CV-117-PRC -
Paul R. Cherry, Magistrate Judge.
Wood, Chief Judge, and Flaum and Hamilton, Circuit Judges.
Hamilton, Circuit Judge.
the recession of the late 2000s, Lake County, Indiana,
experienced an emergency cash shortage. The County's
positive cash flow declined from $51 million in 2007 to $9.9
million in 2008. By 2009, the County was operating at a
deficit, and by 2013 its general fund was more than $1
million in the red. During that same period, the County's
self-insurance fund, which it used to cover employee
healthcare costs, foundered. The fund had a balance of over
$10 million in 2007; that balance was wiped out by 2013.
had to be done. In an attempt to stanch its financial
bleeding, the County offered retirement incentives to
employees age 65 or older. With one incentive package,
retirees were entitled to five years of supplemental health
insurance (secondary to Medicare coverage) through Aetna.
Retirees who selected this package were also permitted to
return to work on a part-time basis, though their employment
incentive package was attractive, and a number of employees
took advantage of it. But the County had miscalculated. In
2013, Aetna informed the County that current employees were
ineligible for the supplemental insurance coverage. If
retirees who had been rehired as part-time employees remained
on the plan, the plan would no longer qualify for special
exemptions under federal law. In that case, the County's
insurance costs would skyrocket. The County was in no
position to absorb those added costs. It therefore notified
all rehired retirees who were covered by both Medicare and
the Aetna supplement that their employment would end
effective October 1, 2013.
of rehired retirees who were fired in October 2013 filed this
suit 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), 29 U.S.C.
§§ 621 et seq., and the Fourteenth
Amendment's Equal Protection Clause. The district court
granted summary judgment to the County.
affirm. 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 a
legitimate state interest: preserving supplemental insurance
coverage for its retirees while avoiding further financial
Factual and Procedural Background
Lake County's Supplemental Insurance Debacle
plaintiffs' claims arise under the ADEA and the Equal
Protection Clause, those claims (and the County's actions
that precipitated the claims) cannot be analyzed properly
without understanding some basics of health insurance law.
Federal law requires group health insurance plans such as
those sponsored by employers to comply with a host of terms
governing portability coverage, rating, renewability, and
non-discrimination. Many of these requirements were put in
place as part of the Patient Protection and Affordable Care
Act, Pub. L. No. 111-148, 124 Stat. 119 (2010). Others were
imposed earlier under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Pub. L. No. 104-191, 110
Stat. 1936, or prior legislation.
law also carves out exemptions for special types of health
insurance, including so-called "retiree-only"
plans. These plans pay benefits secondary to Medicare and are
exempt from many of the requirements of HIPAA and the
Affordable Care Act that apply to primary policies.
Retiree-only plans help Medicare recipients manage their
out-of-pocket costs, including co-insurance and deductibles.
For retirees, especially those living on modest or fixed
incomes, supplemental coverage helps ensure access to
and 2010, Lake County offered early retirement incentives to
all Medicare-eligible employees who had at least five years
of continuous service and who were age 65 or older. These
employees could select either a lump-sum payment or five
years of supplemental health insurance at the same relatively
low premium that full-time County employees paid for their
health insurance. Retirees who selected the insurance package
had a further choice: they could return to work on a
part-time basis or receive a small monthly stipend.
record on appeal does not show how many County employees
chose each option, but some of the plaintiffs in this case
selected the insurance and part-time re-employment package.
Other plaintiffs, apparently, selected the lump-sum package
or retired through the normal retirement process but were
later rehired on a part-time basis. The salient point is that
each plaintiff at the time of termination was employed
part-time and was covered by both Medicare and Aetna
to Thomas Dabertin, the County's human resources
consultant, in 2013 Aetna informed the County that current
employees (including rehired retirees) could not participate
in the supplemental insurance plan. At the time, the County
believed this prohibition was a consequence of the Af-
fordable Care Act. However, the statutory language that
authorizes retiree-only plans actually predates the
Affordable Care Act. As best we can tell, the County's
arrangement of providing its rehired retirees with
supplemental insurance (secondary to Medicare) that did not
conform to group health plan requirements under federal law
was impermissible even before the Affordable Care Act took
effect. See 26 U.S.C. § 9831(a) ("The requirements
of this chapter shall not apply to ... (2) any group health
plan for any plan year if, on the first day of such plan
year, such plan has less than 2 participants who are
current employees.") (emphasis added); 29 U.S.C.
§ 1191a(a) ("The requirements of this part ...
shall not apply to any group health plan ... for any plan
year if, on the first day of such plan year, such plan has
less than 2 participants who are current
employees.") (emphasis added).
of the prior legality of the County's insurance
arrangement, one thing was clear when Aetna raised the issue
in 2013: if the County did not act quickly, it risked either
forfeiting its supplemental insurance coverage altogether or
incurring substantial costs to bring the plan into compliance
with federal rules and regulations governing group health
insurance. Neither scenario was acceptable for a local
government still struggling to regain its financial footing.
after receiving the bad news from Aetna, the County retained
Larry Grudzien, an attorney specializing in employee
benefits. Grudzien confirmed Aetna's position, writing
that a "retiree who is rehired as an employee ... should
be treated as a current employee that counts against retiree
only plan status and should be covered under the ERISA plan
maintained for purposes of current (i.e., active) employees
immediately upon rehire." Grudzien advised the County
"not to rehire any retirees/' or, alternatively, to
rehire them full-time and offer them regular benefits.
light of Aetna's warning and Grudzien's
recommendation, the County decided to terminate its rehired
retirees. In letters dated August 21 and September 12, 2013,
the County informed a group of twenty-eight employees that
their employment would end effective October 1, 2013. As the
County explained in its letters, these employees were
selected because they met each of four criteria: (1) they had
retired from County service and were later rehired part-time;
(2) they were ...