North Carolina state retiree health insurance case left unsettled by state Supreme Court

Published 8:32 am Monday, March 14, 2022

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By Gary D. Robertson, Associated Press

A decadelong legal fight over whether retired government workers were wronged when North Carolina stopped offering them a more generous level of premium-free health insurance remained unsettled after Friday’s ruling by the state Supreme Court.

A majority of justices did agree that the former state employees and teachers had a “constitutionally protected vested right” to remain in a government insurance plan in which the retirees paid 20% of their coinsurance while paying no premium — or a plan that was equivalent. That “80/20” premium-free option was no longer offered in September 2011, as state lawmakers and plan leaders looked to close spending shortfalls.

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“These retirees reasonably relied on the promise of this benefit in choosing to accept employment with the state. They are entitled to the benefit of their bargain,” Associate Justice Anita Earls wrote in the majority opinion.

But Earls said it’s unclear whether that right has been impaired to the point that monetary damages are necessary for the former workers. And that could be counterbalanced by whether any harms served a “legitimate public purpose,” such as the legislature or State Health Plan seeking to rein in growing health care costs paid for with taxpayer dollars, she wrote.

The case will now be returned to a trial judge who had initially sided with a retiree legal class of 220,000 former state employees and teachers, but who the justices said went too far.

Earls acknowledged that the legal parties may now have to present complicated and competing health care and monetary calculations to the judge, who will collect facts to decide whether retirees were truly harmed and should receive compensation. That could include evaluating whether the options provided to retirees after 2011 were substantially more or less valuable than what the retirees could get when they qualified for health benefits and, if so, by how much. The State Health Plan could win the case by proving plans offered now are more valuable.

Although retirees today must pay relatively small monthly premiums for individual coverage under the “80/20” plan, premium-free benefits remain under 30% coinsurance and Medicare Advantage plans. State Treasurer Dale Folwell, whose office oversees the State Health Plan, said in 2017 that that premium refunds of more than $100 million were possible if courts sided with the retirees.

The dispute “raises issues of profound importance to the hundreds of thousands of dedicated public employees who devoted their lives to serving their fellow North Carolinians, often for less immediate remuneration than would have been available to them in the private sector,” Earls wrote.

Three other justices sided with Earls in overturning parts of a 2019 ruling by a state Court of Appeals panel that found no contractual obligation existed to offer that level of premium-free benefits. The judges had contrasted them with public pension benefits, which courts have ruled are contractual. Although participation in the pension system is mandatory, the health insurance program is voluntary.

But rulings in other cases show that the treatment of an employee benefit as a contractual right doesn’t depend on how closely it resembles a pension, Earls wrote. The General Assembly first authorized premium-free benefits in 1981. Evidence from the retirees, including plan booklets for workers, led them to believe they could rely on health insurance coverage in retirement for life, according to the majority opinion.

Associate Justice Tamara Barringer, writing a separate opinion also agreed to by Associate Justice Phil Berger Jr., said a trial judge also should have been directed to decide whether any contractual obligation to the retirees is present.

“There is still work to be done in the trial court to conclude the case, but this is a major victory for the constitutional and contractual rights of state retirees,” Michael Carpenter and Sam McGee, attorneys for the plaintiffs, said in a statement. Attorney General Josh Stein’s office, whose lawyers represent the state and state agencies in the case, had no response Friday on the ruling, a spokesperson said.

Retired employees led by retired Chief Justice Beverly Lake Jr. sued the State Health Plan and retirement plans in 2012. Lake died about six months after the Court of Appeals ruling.

Chief Justice Paul Newby participated in neither Friday’s ruling nor oral arguments in October. No reason was given for why he was recused. But he was one of five justices listed in a January 2021 order as having living or deceased family members who were once state workers or teachers, leading to conflict of interest questions that were resolved months later.