Employers can reduce or eliminate health coverage for retirees who are eligible for Medicare without violating the Age Discrimination in Employment Act.

The Equal Employment Opportunity Commission has come to that conclusion in a final rule that creates regulations dealing with the effects of the ADEA on retiree health benefits.

Federal law does not ordinarily require employers to provide health benefits for retirees either under or over 65, the usual Medicare eligibility age, EEOC officials write in a preamble to the new final rule, which appeared Wednesday in the Federal Register.

A federal appeals court ruling in 2000 and EEOC policy reflecting that ruling held that employers were guilty of ADEA violations if they reduced or eliminated retiree health benefits for Medicare-eligible retirees, unless the employers could show that the benefits for Medicare-eligible retirees were equivalent to the benefits provided for other retirees.

“Labor organizations, benefits experts, state and municipal governments, and employers informed us that our actions were further eroding employer-sponsored retiree health benefits by creating an additional incentive for employers to reduce, or eliminate altogether, health benefits for retirees,” EEOC officials said.

In 2003, the EEOC published a notice of proposed rulemaking suggesting that it would permit employers to coordinate their own retiree benefits with Medicare benefits after all.

“The final rule permits employers and labor organizations to offer retirees a wide range of health plan designs that incorporate Medicare or comparable state health benefit programs without violating the ADEA,” officials write.

Employers and unions can provide retiree health benefits designed specifically for retirees who are too young to qualify for Medicare, and they can supplement a Medicare-eligible retiree’s Medicare coverage without showing that the coverage is identical to non-Medicare eligible retirees’ coverage, officials write.

The final rule does not affect any non-ADEA obligation that employers may have to provide health benefits under Medicare or any other law, officials write.

Officials emphasized that they do not want the new final rule to encourage employers to drop any existing benefits.

James Klein, president of the American Benefits Council said the new regulation “clarifies” the long-standing practice of coordinating employer-provided retiree health coverage with eligibility for Medicare or a state-sponsored retiree health benefit program. He added that it is not age discriminatory and does not violate the Age Discrimination and Employment Act (ADEA).

“This practice has enjoyed strong support from the business and organized labor communities,” he said.

The business community wanted the new rule, Mr. Klein said, because it provides a safe harbor from a 2000 decision by a U.S. Appeals court decision that held that pre-Medicare coverage, provided to bridge the gap between retirement and Medicare eligibility violated the ADEA.

“The ABC has consistently urged the EEOC to finalize the proposed rule exempting from the ADEA the coordination of employer-sponsored retiree health benefits with Medicare,” Mr. Klein said.

“This issue has been critically important to retirees, particularly early or pre-Medicare eligible retirees who would likely face significant reductions in their early retiree health benefits if the commission did not act,” he added.

“This policy is a civil rights and economic fiasco,” said AARP Legislative Policy Director David Certner in a statement. “It is a wrong-headed move to legalize discrimination, allowing employers to back off their health care commitments based on nothing more than age.”

“It’s time to stop shifting costs and start controlling them,” he continued. “Our country needs real solutions to control the rising costs of health care. Political, business, union, and non-profit leaders, as well as individuals, all have roles to play in making sure that every American has access to affordable health care.”

A copy of the final rule is available here.

(Additional reporting contributed by Arthur D. Postal in Washington, D.C.)

(This story was updated at 3:30 p.m.)