The Supreme Court last week declined to review an appellate court decision that formed the basis for an Equal Employment Opportunity Commission rule that allows employers to reduce health care benefits when retirees become eligible for Medicare.

The decision was greeted positively by representatives of employers, and a benefits lawyer said it will likely mean that health insurers will use the fact that there is certainty to a controversy that has been underway since 2000 to seek to sell new products to their customers.

The decision upholds a June 2007 decision by a panel of the 3rd U.S. Circuit Court of Appeals, based in Philadelphia–as well as a final rule issued by the agency last December providing guidance on the issue.

Reaction to the decision was mixed. The American Benefits Council, which represents employers in Washington, D.C. on employee benefit issues, said employers could “breathe a little easier” as a result of the decision.

ABC president James Klein said, “The Third Circuit Court decision, now final, permits public and private employers to continue the long-standing practice of coordinating retiree health programs with Medicare without fear of running afoul of federal law.”

Without the ability to do so, Klein said, “employers would–for practical purposes–have been compelled to reduce retiree health benefits for younger retirees not eligible for Medicare.”

Stephen Bowers, a benefits lawyer with Cozen O’Connor in Philadelphia, said the decision is a positive both for large employers and health insurers. “I think that because it provides certainty, a lot of the larger employers that are affected by this have been hesitating to make any change until it was finalized.”

They acted in this way because the issue has been debated since 2000, and “everyone was concerned about the ebb and flow [of the litigation and regulation],” Bowers said.

As to health insurers, it will let them sell more targeted products, he said. “It certainly will give them a marketing opportunity.”

“I am sure that they have products ready to go and will use the Supreme Court decision not to review the 3rd Circuit decision to market new products to employers,” Bowers said.

The AARP, which sought Supreme Court review of the 3rd Circuit ruling, said it was “deeply disappointed.” The AARP argued in its petition for Supreme Court review that the decision and the December 2007 final EEOC rule that followed it violated the intent of Congress in enacting the ADEA.

AARP Legislative Policy Director David Certner said, “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.”

By denying cert, the Supreme Court effectively upholds the EEOC rule, implementing the court ruling that creates regulations dealing with the effects of the Age Discrimination in Employment Act on retiree health benefits.

The Appeals Court ruling and the EEOC regulation are based on language in the ADEA giving the agency the authority to provide reasonable exceptions to any and all provisions of the law if it finds it to be in the public interest.

In this case, the EEOC ruled that if it didn’t establish a two-tier system for employee benefits, employers had the authority under an earlier court ruling to simply reduce or eliminate retiree health benefits altogether “in a manner that treated pre-Medicare-eligible and Medicare-eligible retirees equally,” as stated in a brief opposing certiorari submitted by the U.S. Solicitor General.

The Supreme Court decision was made without comment.

Klein said the Supreme Court decision to deny cert “closes the chapter” on a long legal struggle beginning in 2001 with the case of Erie County Retirees Association v. County of Erie. In 2003, EEOC proposed a regulation to allow for a coordination of employer-sponsored retiree health benefits when retirees become eligible for Medicare or a state-sponsored retiree health benefits program.

AARP then filed suit to block the publication of the EEOC’s final regulation.

“Voluntary sponsorship of employer benefits–and retiree health benefits in particular–has become an ongoing challenge for employers competing in a global economy,” Klein said. “By coordinating retiree health coverage with existing government programs like Medicare or state employee health benefit programs, employers can preserve retiree benefits that would otherwise be unsustainable.”