Tuesday, 05 March 2019 16:56

Appeals Court rules legislature can change terms of health plan for retirees

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RALEIGH — State taxpayers would save hundreds of millions of dollars in health insurance costs, thanks to a unanimous ruling Tuesday from the N.C. Court of Appeals.


The decision said government retirees don’t have a contractual right to get health insurance coverage from the state, premium-free, for life. The court said enrollment in the State Health Plan is optional, and the legislature can change the terms of coverage at any time.

State Treasurer Dale Folwell praised the Appeals Court panel for a careful reading of the law.

The opinion, by Judge John Tyson, reversed Rockingham County Superior Court Judge Edwin Wilson’s May 2017 order in a Gaston County case. Wilson determined state retirees had a contract under the State Health Plan, and requiring them to pay premiums for coverage was unconstitutional.

“An objective reading of the State Health Plan statute, and the extensive statutory amendments since 1981, indicates retired state employees are promised nothing more than equal access to health care benefits on an equal basis with active state employees,” Tyson wrote. “Active state employees have no premium-free health care options.”

Judges Wanda Bryant and Robert Hunter concurred.

“In addition to all the other unfunded liabilities, this lawsuit, until it runs its full course, has and has had the potential of being one of the largest settlements in the history of North Carolina … to the tune of hundreds, and hundreds, and hundreds of millions of dollars,” Folwell told Carolina Journal during his monthly “Ask Me Anything” teleconference with reporters on Tuesday. “We’re very pleased with this verdict.”

The state’s motive in defending against the lawsuit was to make sure the plan remains fiscally sustainable, he said.

When Wilson issued his ruling, Folwell said it would torpedo efforts to rescue the State Health Plan from tens of billions of dollars in unfunded liabilities. He said the ruling would add billions to future unfunded liabilities in addition to reimbursing retired employees for premiums they had paid.

The class action lawsuit involves 220,000 state retirees whose lawyers contend the state broke a contract in 2011 by amending the State Health Plan. The revision required active and retired employees to pay premiums to receive benefits under an 80-20 insurance plan. Under that plan, the state pays for 80 percent of an employee’s medical costs, and the employee picks up 20 percent.

The lawyers cited provisions in the state and federal constitutions involving breach and impairment of contract and deprivation of property without due process and equal protection.

Plaintiffs’ lawyers argued previous N.C. Supreme Court decisions concluded pension benefits and disability pension benefits were contractual vested rights, and health care is no different. All should be considered deferred compensation.

The Appeals Court panel ruled nothing in state laws or the constitution defines State Health Plan coverage as a contract. Unlike pensions, which include a mandatory 6 percent deduction from employees’ salaries, participation in the State Health Plan is voluntary.

The order cited North Carolina and U.S. Supreme Court precedents that state statutes don’t create private contractual or vested rights unless they state contract terms. Without those terms, statutes are policies subject to revision and repeal, and misconstruing them as a contract would drastically limit a legislative body’s essential powers.

The State Health Plan statute reserves the right to alter, amend, or repeal the plan.

About 200 changes have been made without challenge since 1983, the order said. Among them were changes adding and reducing coverage, raising deductibles and co-payments, and increasing out-of-pocket maximum costs.

The Appeals Court panel also noted mandating premium-free health insurance could prevent lawmakers from funding other state programs.

Because the Appeals Court opinion was unanimous, the N.C. Supreme Court does not have to hear an appeal if one is made.