WASHINGTON — The Supreme Court on Monday gave employers a green light to reduce health benefits for millions of retirees who turn 65 and become eligible for Medicare. The justices turned away a legal challenge from AARP, the nation's leading senior citizens lobby, which had contended these lower benefits for older retirees violated the federal law against age discrimination.
The court's action upholds, in effect, a rule adopted last year by federal regulators that says the "coordination of retiree health benefits with Medicare" is exempt from the anti-age-bias law.
Advocates for companies and labor unions openly disagreed with AARP and applauded the outcome. They said this compromise rule will encourage employers to maintain health coverage for their retirees. Otherwise, employers might drop all benefits for their former employees, they said.
They said it will prove especially helpful to those younger retirees who were offered continued healthcare when they left full-time work.
In 2004, a survey cited by AARP found 49% of retirees age 55 to 64 had health insurance coverage from a former employer. Benefits experts for private employers say the proportion is lower. A survey in 2005 found only 13% of those who retired from private companies were promised continued healthcare.
Employers in California, large and small, say benefits for retirees already have become a casualty of soaring medical costs.
"In some cases, it's become a millstone around their necks," said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. "Corporations aren't all heartless, but in many cases, you're competing with multinational corporations that don't have quite the obligations that domestic firms have."
A survey completed this month by the Employers Group found that 10% of California firms with 300 to 600 employees offered health coverage to retirees, and 5% of firms with 100 to 300 employees.
The legal dispute highlights what some say is a gap in the law. Employers are not required by law to pay for health benefits for their employees or their retirees. And in most instances, they are free to change their benefit policies or to drop coverage they had previously offered.
Over the last decade, many employers have pulled back from providing these continued benefits to their retirees because of the high cost. But until Monday it had been unclear whether it was illegal to use a worker's age -- in this instance, 65 -- to trigger a reduction in benefits.
