The justices declined to hear a legal challenge from the 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 the federal regulators that says the "coordination of retiree health benefits with Medicare" is exempt from age discrimination law.
Advocates for companies and labor unions openly disagreed with the 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 health care when they left full-time work.
In 2004, a survey cited by AARP found 49 percent of those who were retired and between the ages of 55 and 64 had health insurance coverage from a former employer. Benefits experts for private employers say the number is lower. A survey in 2005 found only 13 percent of those who retired from private companies were promised continued health care.
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 offered earlier.
Over the past decade, many employers have pulled back from providing these continued benefits to their retirees because of the high cost. But until yesterday, 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 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 Association, 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 health care benefits for all," he said.
The 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 refusal to hear the appeal "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 the need for Congress to take up health care reform. "We have an entirely voluntary system" where employers provide health care if they choose to do so, he said. "This is the fundamental problem we are dealing with. One way to solve the problem would be for Congress to pass comprehensive health care legislation."
Yesterday'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 age 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 age 65 and qualified for Medicare.
This nearly became a national rule when the U.S. Equal Employment Opportunity Commission moved to adopt it as an official federal policy. However, after studying the issue, the agency reversed course in 2003 and concluded this all-or-nothing benefits rule would create a perverse incentive to cut benefits for retirees, not raise them.
The law permits the EEOC to adopt "reasonable exemptions" to the federal age discrimination law if doing so will promote the "public interest." The agency proposed a "narrow" exception to the age discrimination law to permit employers to coordinate their health benefits with Medicare.
In 2005, the 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, auto workers, firefighters and government employees.
In 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.
The AARP appealed to the Supreme Court, arguing that 10 million retirees over age 65 could be threatened with lower benefits because they are eligible for Medicare.
The Supreme Court dismissed the appeal without comment.
David G. Savage writes for the Los Angeles Times.