WASHINGTON — The Supreme Court gave employers a green light Monday 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 that the lower benefits for older retirees violated the federal law against age discrimination.
The court's action upholds 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 disagreed with AARP and applauded the outcome. They said this compromise rule would encourage employers to maintain health coverage for their retirees. Otherwise, employers might drop all benefits for former employees, they said.
They said it would prove especially helpful to younger retirees who were offered continued health care when they left full-time work.
In 2004, a survey cited by AARP found that 49 percent of people who were retired and between the ages of 55 and 64 had health insurance coverage from a former employer. Benefits experts for private employers say the number is lower. A survey in 2005 found only 13 percent of those who retired from private companies were promised continued health care.
The legal dispute highlights what some people 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 offered earlier.
Over the past decade, many employers have pulled back from providing these continued benefits to 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.
"This is good news because it clears up the lingering doubts about the law," said Rae Vann, general counsel for Equal Employment Advisory Council, which represents large companies. "From a practical point of view, it is also good for retiree health benefits. It means more employers will continue to provide these benefits."
AARP, which claims 39-million members, said it was "deeply disappointed" by the court's rejection and predicted it would encourage more cutbacks by employers.