Supreme Court allows retiree benefit cuts
Employers may coordinate with Medicare on healthcare
provisions for seniors. An AARP legal challenge is turned away.
By David G.
Savage
Los Angeles Times Staff Writer
March 25, 2008
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.
"This
is good news because it clears up the lingering doubts about the law," said Rae
Vann, general counsel for the 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."
Bill Raabe, director of collective bargaining for the National
Education Assn., agreed that employers needed the freedom to adjust benefits for
retirees who qualify for Medicare. "The practical effect of any law that
requires employers to provide identical benefits for pre- and
post-Medicare-eligible retirees would be the erosion of post-retirement
healthcare benefits for all," he said.
AARP, which claims 39 million
members, said it was "deeply disappointed" by the court's rejection of its
appeal. It predicted the decision will encourage more cutbacks by employers. The
court's action "clears the way for employers to discriminate by reducing or
terminating benefits for older retirees simply because they've turned 65 years
old," AARP said in a statement.
David Sloane, AARP's senior vice
president, said the court battle shows a need for Congress to take up healthcare
reform. "We have an entirely voluntary system" where employers provide
healthcare if they choose to, he said. "This is the fundamental problem we are
dealing with. One way to solve the problem would be for Congress to pass
comprehensive healthcare legislation."
Monday's one-line order from the
high court ends a legal battle that stretched over eight years. It began when
retired county workers in Erie, Pa., won a ruling in 2000 that barred officials
from reducing their health benefits when they reached 65. The U.S. appeals court
in Philadelphia said this amounted to illegal age discrimination.
That
ruling set off alarms among employers. Many had devised benefit policies that
provided "bridge" coverage until their workers reached 65 and qualified for
Medicare.
This nearly became a national rule when the Equal Employment
Opportunity Commission moved to adopt it as federal policy. However, after
studying the issue, the agency reversed course in 2003 and concluded that this
all-or-nothing benefits rule would create an incentive to cut benefits for
retirees, not raise them.
The law permits the EEOC to adopt "reasonable
exemptions" to the federal anti-discrimination laws if doing so will promote the
"public interest." The agency proposed a "narrow" exception to the anti-age-bias
law to permit employers to coordinate their health benefits with
Medicare.
In 2005, AARP sued to strike down the exemption adopted by the
EEOC. The senior citizens lobby was opposed by a broad coalition of groups,
including the U.S. Chamber of Commerce and major unions that represented
teachers, autoworkers, firefighters and government employees.
Last June,
the U.S. court of appeals in Philadelphia, also reversing course, upheld the
EEOC's new policy as legal and reasonable. "Over time, it will likely benefit
all retirees," the three-judge panel said.
AARP appealed to the Supreme
Court, arguing that 10 million retirees 65 and older could be threatened with
lower benefits since they are eligible for Medicare.
On Monday, the
justices dismissed the appeal in AARP vs. EEOC without comment.
david.savage@latimes.com
Times
staff writer Molly Selvin in Los Angeles contributed to this
report.
Copyright 2008 Los Angeles Times