Mayor Adams’s administration suffered another setback Tuesday in its bid to transfer retired city workers to a privatized Medicare plan as a Manhattan appeals court upheld a ruling that found a key part of the plan unlawful.

For nearly a year, the Adams administration tried to enroll the city’s approximately 250,000 retired employees in the Medicare Advantage Plan, which would save as much as $600 million each year in the city’s budget through federal subsidies and a partnership with a private health insurance provider.

The savings – which Adams described as a critical hedge against the city’s looming budget deficits – are contingent on the administration being able to impose a $192 monthly penalty on any retiree who chooses to stay on traditional Medicare coverage rather than accept the Advantage plan.

But Manhattan Supreme Court Justice Lyle Frank ruled last March that the financial penalty violated a local law called 12-126, which requires the city to provide retirees with free lifetime health insurance. The Adams administration appealed the ruling, saying it was legal as long as it offered the Advantage plan for free.

On Tuesday morning, a panel of judges in the Supreme Court’s appellate bench rejected the arguments of Adams’ team and ruled that Frank’s decision should be upheld.

“Nothing in the statutory text or history supports the (administration’s) interpretation,” the two-page ruling states.

The decision marks a victory for the NYC Organization of Public Service Retirees, a grassroots group of retired paramedics, firefighters, cops and other city workers who argued that the Advantage plan would undermine their health insurance. They pointed to federal research showing that Advantage plans can lock in beneficiaries of “medically necessary care” while pressing the argument that traditional Medicare is more reliable.

The retirees’ organization filed a lawsuit that prompted Frank’s first decision in March, and Marianne Pizzitola, a former FDNY paramedic who serves as president of the group, praised the appeals court for ensuring that “justice prevailed in the true story of David vs. Goliath.”

“This att*ck on our most vulnerable population must stop,” Pizzitola told Daily News. “9/11 seniors and first responders are not for sale.”

Adams’ appeals failure may not be the end of the Medicare Advantage saga, as his administration previously said it could implement the austerity plan despite the unfavorable ruling.

The first contingency that Adams’ team might decide on would be to convince the City Council to change 12-126 in such a way that Frank’s ruling would be considered moot, thereby igniting a monthly cancellation fee of $192 for the Advantage plan.

Adams spokesman Jonah Allon said the appeal ruling should encourage Council members to act on such an amendment.

“We continue to maintain that the City’s position is firmly entrenched in law, but today’s decision further underscores the urgent need for the City Council to act and approve the administrative code change required to preserve choice for retirees,” Allon said. “The city faces major financial challenges and we need the Council’s partnership to provide this sensible path to contain skyrocketing health care costs.”

United Federation of Teachers President Michael Mulgrew, who is vice-chairman of the City’s Labor Committee, which supports the Adams’ Advantage Initiative, echoed Allon’s sentiment. “The City Council must amend the City’s Administrative Code,” Mulgrew said in a statement.

However, a senior council source said that as of this week, no member of the body had even expressed an interest in bringing forward a bill on the matter. Meanwhile, pensioners opposed to Advantage have been flooding Council members’ inboxes for months with e-mails urging them not to act on the administration’s request to upgrade 12-126.

In a letter to the City Labor Committee last month, Renee Campion, Adams’ labor relations commissioner, acknowledged that the administration had not received any support from the Council on Proposition 12-126.

Campion also wrote that barring a sudden change of momentum within the Council, the Adams administration would likely move forward with a second option: instructing an independent arbitrator overseeing the health care dispute to implement Medicare Advantage as the only plan available to city retirees. It’s not clear how the appeal ruling might affect this proposal.

In her letter, Campion stressed that the administration would try “in every possible way” to implement the Advantage, arguing that it was a key austerity tool as the city looks to cut its projected $6 billion budget deficit by 2026.

Pizzitola said she expects the battle to continue.

“The fight continues as we are confident that the city and the City Labor Committee will try every tactic to further take away our benefits,” she said.

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