Employers are able to reduce health care benefits when retirees become Medicare-eligible. That’s the message sent from the U.S. Supreme Court March 24, when the high court declined to review a related federal appeals court ruling.

In a unanimous ruling in June 2007, the Third U.S. Circuit Court of Appeals held that the Equal Employment Opportunity Commission had the authority to implement a rule exempting retiree health plans from the Age Discrimination in Employment Act (ADEA) when those plans reduce benefits for retired workers after they become eligible for Medicare.

The then-proposed rule was made final in December 2007.

Advocates for older Americans should expect more discussion about the rule’s implications as the dust settles following the Supreme Court’s consideration of the case, experts say.

Some agree with the EEOC that allowing employers and unions to offer less coverage to retirees eligible for Medicare reduces their health care costs, so that fewer of them will drop their retiree health coverage completely, notes Vicki Gottlich of the Center for Medicare Advocacy in Washington, DC. But, she adds, others believe that the policy discriminates against older retirees in violation of the ADEA.

Important distinction: The ADEA exemption applies only to retiree health benefits and not to benefits offered to current employees who are Medicare eligible, notes Gottlich.

How is the rule likely to affect seniors? The Center for Medicare Advocacy makes the following observations and predictions:

• The ADEA exemption applies to existing and newly created retiree health plans, meaning that some current Medicare-eligible retirees might find their benefits reduced or even terminated while benefits are continued for other company retirees.

• The rule could leave some retirees in an uninsured or under-insured position, at least temporarily. Why? The EEOC allows employers to change retiree coverage for Medicare-eligible health plan participants ‘whether or not the participant enrolls in the other benefit program,’ notes Gottlich. That could spell trouble for retirees who are eligible for Medicare but never enrolled in the Medicare program or a part of the program.

For example: Such an individual may have Part A Medicare, but he may have thought he did not need Part B because he had retiree coverage. Individuals who erroneously declined Part B do not have a special enrollment period (SEP) in which to enroll in Part B if their retiree coverage is reduced or terminated. Instead, they would have to wait to enroll until the general Medicare enrollment period. which runs from January through March of each year, with coverage becoming effective on July 1 of the same year.

‘Depending on when their employer health coverage is reduced or terminated, they might find themselves without health insurance coverage for doctors’ visits for over a year,’ says Gottlich.

And, in all cases, they would be subject to a late enrollment penalty for delayed enrollment.

• The rule creates the potential for a conflict with the coordination of benefit rules for people who are entitled to Medicare based on ESRD, says Gottlich. That’s because the EEOC rule does not distinguish among the different avenues to Medicare eligibility (based on age, receipt of Social Security disability benefits, or end-state renal disease). This means that an employer can reduce, alter or eliminate retiree health benefits for a retiree health plan participant who becomes eligible for Medicare, regardless of the reason, without violating the ADEA.

But under Medicare rules, employer-sponsored health insurance is primary to Medicare for a period of time, regardless of the size of the employer and regardless of the employment status of the beneficiary with ESRD.

An employer who relies on the EEOC rule to reduce or alter retiree health coverage for someone with ESRD may still violate the Medicare regulations.