The U.S. Supreme Court has declined to review an appellate courtdecision that formed the basis for an Equal Employment OpportunityCommission rule allowing employers to reduce health care benefitswhen retirees become eligible for Medicare.

The decision last week was greeted positively by representativesof employers. Benefits lawyer said the conclusion of the benefitscontroversy that began in 2000 will likely mean health insurerswill seek to sell new products to their customers.

The decision upholds a June 2007 decision by a panel of the 3rdU.S. Circuit Court of Appeals in Philadelphia--as well as a finalrule issued by the agency last December providing guidance on theissue.

Reaction to the decision was mixed. The American BenefitsCouncil, which represents employers in Washington, D.C. on employeebenefit issues, said employers could "breathe a little easier" as aresult of the decision.

James Klein, ABC president, said, "The Third Circuit Courtdecision, now final, permits public and private employers tocontinue the long-standing practice of coordinating retiree healthprograms with Medicare without fear of running afoul of federallaw."

Without the ability to do so, Mr. Klein said, "employers would,for practical purposes, have been compelled to reduce retireehealth benefits for younger retirees not eligible forMedicare."

Stephen Bowers, a benefits lawyer with Cozen O'Connor inPhiladelphia, said the decision is a positive both for largeemployers and health insurers.

"I think that, because it provides certainty, a lot of thelarger employers that are affected by this have been hesitating tomake any change until it was finalized," Mr. Bowers said.

They acted in this way because the issue has been debated since2000, and "everyone was concerned about the ebb and flow [of thelitigation and regulation]," he said.

As to health insurers, it will let them sell more targetedproducts, he said. "It certainly will give them a marketingopportunity," Mr. Bowers said.

"I am sure that they have products ready to go and will use theSupreme Court decision not to review the 3rd Circuit decision tomarket new products to employers," he said.

The AARP, which sought Supreme Court review of the 3rd Circuitruling, said it was "deeply disappointed."

The AARP argued in its petition for Supreme Court review thatthe decision and the December 2008 final EEOC rule that followed itviolated the intent of Congress in enacting the ADEA.

David Certner, AARP legislative policy director, said, "Thecourt's action clears the way for employers to discriminate byreducing or terminating benefits for older retirees simply becausethey've turned 65 years old."

By denying certification and refusing to hear an appeal, theSupreme Court effectively upholds the EEOC rule, published lastDecember, implementing the court ruling that creates regulationsdealing with the effects of the Age Discrimination in EmploymentAct on retiree health benefits.

The Appeals Court ruling and the EEOC regulation are based onlanguage in the ADEA giving the agency the authority to providereasonable exceptions to any and all provisions of the law if itfinds it to be in the public interest.

In this case, the EEOC ruled that if it didn't establish atwo-tier system for employee benefits, employers had the authorityunder an earlier court ruling to simply reduce or eliminate retireehealth benefits altogether.

The Supreme Court decision denying a hearing of the case wasmade without comment.

Mr. Klein said the Supreme Court has closed a legal strugglethat began in 2001 with the case of Erie County RetireesAssociation vs. County of Erie.

In 2003, EEOC proposed a regulation to allow for a coordinationof employer-sponsored retiree health benefits when retirees becomeeligible for Medicare or a state-sponsored retiree health benefitsprogram.

AARP then filed suit to block the publication of the EEOC'sfinal regulation.

"Voluntary sponsorship of employer benefits--and retiree healthbenefits in particular--has become an ongoing challenge foremployers competing in a global economy," Mr. Klein said.

"By coordinating retiree health coverage with existinggovernment programs like Medicare or state employee health benefitprograms, employers can preserve retiree benefits that wouldotherwise be unsustainable," concluded Mr. Klein.