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NC high court weighs insurance premium case that could impact thousands of state retirees

N.C. Supreme Court
North Carolina Judicial Branch

North Carolina's highest court weighed Monday whether the legislature's decision 10 years ago to begin charging some retired state government workers and teachers a premium for health insurance violated an agreement the state made with these workers.

The courts didn't immediately rule following oral arguments in the case, which could affect hundreds of thousands of retirees and cost the state over $100 million in premium refunds, as well as expenses to cover additional retiree benefits.

Retired employees sued the State Health Plan in 2012, saying the state was contractually obligated to offer them premium-free benefits through a plan in which they paid 20% of their co-insurance. The plaintiffs included retired Chief Justice Beverly Lake Jr., who died in September 2019.

The legislature and ultimately the State Health Plan initiated the premium requirement in 2011 for workers and retirees with the most generous plans to close spending shortfalls.

A trial court judge in 2017 sided with the retirees who sued, saying the plan and the state “substantially impaired” contracts with more than 220,000 retirees or their estates within the class that could benefit financially. But the state Court of Appeals overturned the trial court decision in March 2019, saying no such obligation exists.

Attorneys for the retirees said in a Supreme Court brief that several legal rulings involving other public employee or retiree benefits in North Carolina have found them to be contractual in nature. The retirees were promised a level of premium-free core health benefits for working, lawyer Sam McGee told the court Monday, and those benefits already have been earned.

“Everybody knows that what these people were told was that if you meet these vesting requirements, you will get the regular state health (insurance) plan premium-free throughout your retirement,” McGee told the court. “This is what was actually sold to the (retiree) class.”

But lawyers for the state wrote it was clear that the health benefits differ from pension benefits. While courts have previously ruled public pensions are contractual — all employees must send a set portion of their income to the retirement system — participating in health insurance is voluntary.

State law and State Health Plan documents have made clear the benefits could be changed at any time to respond to rein in costs, state Solicitor General Ryan Park said. The three-judge panel noted that the legislature or health plan had changed coverage hundreds of times since the General Assembly first authorized premium-free benefits in 1981.

“We think this case is about democratic governance,” Park told the justices. “It’s about who has the authority to decide how to spend these massive amounts of money that hamper the state’s fiscal planning going forward.”

The legal class impacted by the case would include almost all retirees eligible for health coverage as of September 2016.

Today, current workers and retirees can still both receive premium-free individual benefits in “70/30” health care plans. Retirees can also participate in a premium-free Medicare Advantage plan. Otherwise, retirees pay this year either $73 or $110 per month for more generous plans. Over 750,000 current and retired government workers and their dependents are now covered under the State Health Plan.

A final ruling could come months from now. The Supreme Court almost didn't hear this case — it wrote in January that five of the seven justices had living or deceased family members who were once state workers or teachers, raising recusal questions that could have left too few justices to rule.

But the court decided in August to hear arguments after all because of the case's significance to citizens, the potential impact to the state's fiscal condition and the court's place as a “last resort" venue to resolve legal matters.

Still, Chief Justice Paul Newby did not participate in deliberations leading to that decision or in Monday's arguments. No reason was given Monday about why he is recused. The court's order from January said Newby's mother is a retired public school and community college teacher.

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