Posted: March 31, 2008
Unions applaud decision, say it will encourage
employers to maintain coverage for retirees
Editor’s note: This story by David Savage appeared March 25 in the Los Angeles Times.
WASHINGTON —
The Supreme Court on Monday (March 24) 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.