Three new rulings on retiree health care cuts

A federal appeals court last week gave Sonoma County retirees another chance to show that an implied contract gave them vested rights to retiree health care, preventing the benefit from being cut to $500 a month.

The majority ruling in a 2-to-1 vote of a 9th Circuit panel said retirees have a “heavy burden” showing county intent to create a lifetime contract, which the dissenting justice said is not supported by dozens of labor agreements submitted to a lower court.

Another 9th Circuit federal panel unanimously ruled Feb. 13 that Orange County retirees do not have an implied contract preventing the county from separating their health care from a pool with active workers, sharply increasing premiums paid by retirees.

And a state Appellate panel published a unanimous ruling Jan. 23 that upheld a cap on San Diego retiree health care payments, rejecting an attempt to relitigate a federal court ruling that the city’s police retiree health care is not a contractual vested right.

“After five years of litigation with the POA (Police Officers Association), making the city expend time, energy, money and resources to defend the exact same case in this action is an example of precisely the type of vexatious litigation the doctrine of collateral estoppel was designed to prevent,” said the state Appellate panel.

Compared to the attention given public pension costs, retiree health care has been a sleeper issue. Most government employers did not calculate or report retiree health care debt until accounting rules changed a decade ago.

Most still do not pre-fund retiree health care like pensions, investing annual payments to get earnings that reduce long-term costs and debt passed to future generations.

An example of what can happen is a generous state worker retiree health care plan: It’s long-term debt is already much greater than pension debt, and in five years it may be taking more money from the state general fund than pensions.

Over the next 30 years, the state worker retiree health care unfunded liability is $63.8 billion, state Controller John Chiang reported last year. The state worker pension unfunded liability is $45.5 billion, a CalPERS actuarial valuation said last year.

A forecast from the nonpartisan Legislative Analyst’s Office last November projected that a $2.3 billion general fund pension payment to CalPERS (special funds boost the total payment to $3.8 billion) will grow to $2.8 billion in fiscal 2019-20.

State general fund spending on retiree health care for state workers, $1.8 billion this fiscal year, is projected to grow more than 10 percent a year during the same forecast period, nearly doubling to $3.3 billion.

How generous is the state worker retiree health care plan? When the typical state worker retires, they pay less for full health care coverage than they paid while working on the job.

State worker retiree health care pays 100 percent of the premium of the retiree (the average cost of several of the largest health plans) and 90 percent of the premium for dependents.

For the health care of active workers, the state usually pays 80 or 85 percent of the premium for the worker, depending on labor contract bargaining, and 80 percent of the premium for dependents.

State pension law seems settled. A widely held view is that a series of state court rulings, a key one in 1955, mean the pension offered at hire becomes a vested right, protected by contract law, that can only be cut if offset by a new comparable benefit.

Retiree health care law may still be evolving. And unlike the main pension rulings that are all in state courts, the legal battles over retiree health care are being fought in state and federal courts.

Some think state court judges have a conflict when they make rulings on pensions that can affect their own pensions. A nationally known lawyer, David Boies, wanted to move Rhode Island pension reform litigation from state to federal courts.

As Orange County unsuccessfully tried to overturn a large retroactive pension increase for deputy sheriffs, the attorney for the deputies, a retired Court of Appeal justice, told her former colleagues their ruling would affect every pension in the state.

“(I)t would affect yours, it would affect mine,” said Miriam Vogel, as quoted by Orange County Supervisor John Moorlach in the Orange County Register in 2011. He said it was Vogel’s only argument before she took a couple of questions and sat down.

As with pensions, state judges have a similar conflict when they rule on retiree health care. With 10 or more years of service, state judges are eligible for state retiree health care that pays 100 percent of the premium.

In San Diego, a federal district court ruling that a police retiree health care cut in 2005 did not violate vested rights was upheld on appeal. A state superior court denial of relitigation of the federal ruling was upheld by the state appellate ruling in January.

“The constitutional issue of vested benefits is both state and federal, so a choice can be made,” said Jan Goldsmith, San Diego city attorney.

If the plaintiffs had been successful in the state courts, said Goldsmith, it could have affected a cut in benefits negotiated with unions in 2011 that is expected to save the city more than $700 million over 25 years.

“I was on the bench for 10 years, and I frankly don’t see it,” Goldsmith said of a state court conflict on public employee retirement rulings. “I’m a true believer.”

In Orange County, an agreement negotiated with unions in 2008 separated active and retired worker health care premiums, ending a pool begun in 1985 that raised county costs but cut payments by retirees because their age-related coverage costs more.

When the cut was upheld by a district court and appealed by retirees, the federal 9th circuit court asked the state Supreme Court: “Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees.”

In a benchmark ruling, the state Supreme Court said in 2011 that a contract with vested rights “can be implied under certain circumstances from a county ordinance or resolution” if an intent to do so can be shown by evidence.

A federal district court, following the new state guidelines, again ruled that Orange County can end the retiree health care pool. The federal 9th circuit panel upheld the ruling last month.

Last September, a superior court judge overturned a freeze on retiree health care for Los Angeles city attorneys, finding an implied contract. And a federal judge tossed a suit to overturn Sacramento County retiree health care cuts, finding no contract.

The split vote of a 9th circuit panel last week gives Sonoma County retirees a chance to return to federal district court and present evidence showing, under the new guidelines, the county intended to create a contract for lifetime retiree health care.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 3 Mar 14

14 Responses to “Three new rulings on retiree health care cuts”

  1. Tough Love Says:

    When (not it) the money to pay for such absurdly generous pensions and benefits runs out, these rulings will mean little.

  2. RSpringbok Says:

    “An example of what can happen is a generous state worker retiree health care plan: It’s long-term debt is already much greater than pension debt”

    There is no health care debt as far as I know. It’s just another expected annual budget expenditure, no different than other expected annual costs such as schools, prisons, roads, etc. Personally I don’t think the word “debt” should be used unless funds have been borrowed and there’s a debt instrument (e.g., a bond) associated with it.

  3. Tough Love Says:

    RSpringbook SAYS is correct…..

    Retiree healthcare is simply a promise, the result of collusion between the Public Sector Unions and our bought-off, self-interested Elected Official..

    Private Sector Taxpayers should not honor such agreements, at least not to the extent these promises grant better retiree benefits/subsidies than what THEY get from their employers ….and the last time I looked, Private Sector Taxpayers generally get NOTHING.

  4. John Moore Says:

    Mr. Mendel continually mis-states Ca. pension law when he says that “the pension offered at hire” becomes a vested right and the pension existing as of the date of hire is irrevocable. The true Ca. rule is, “if a statute (or Charter) granted an irrevocable pension right at the time of enactment, then (and only then) a govt. employee has a vested right in to a pension as of the date of hire that is irrevocable. Courts do not legislate, legislative bodies, like the people in adopting a charter, or a legislative body, like a city council or a bd. of supervisors legislate. In the line of cases, referenced by Mr. Mendel, the parties and the court assumed that there was a legislative basis for the “vested pension right.”: In the cases since the 2011 Ca. Supreme Ct decision in Retired Employees Assn. of Orange Co. v. County of Orange,(which recites the true Ca. Vested Rights rule as I have stated it) all courts have followed the dictate of that case, which is that there must be a legislative basis for a claim of a vested right of any kind, viewed at the time of the legislation, and in each of the three cases discussed, the retirees could not meet that burden. The San Jose judge made the same mistake: The City Charter in that case prohibited the enactment of a vested pension right(except by amending the charter, which did not happen). But the judge, assumed that the line of Supreme court cases(which all assumed a vested right) meant that the existence of a vested pension right could not even be contested. All of the scholars(Amy Monahan, Volhic(?) and most importantly John Beerman(A law professor) in a recent Wash. & Lee law review Article back my view with over whelming research authority about “The California Rule.” John M. Moore,Esq

  5. Bille Says:

    TL you make a great argument for raising taxes back to level of 1977. Actually, you also make a great argument repealing Prop 13 too.

    If property taxes were too high, we should have had a surplus. If taxes were too high, we should have had a surplus. Instead, we cut taxes because we had a deficit, we cut taxes more because we had a bigger deficit and to shrink government, we cut taxes to pay for a war, we cut taxes to pay for tax cuts, we cut taxes because of 9-11, we cut taxes because of a recession. It seems the more we cut taxes the less we can afford. Russia would probably invade us if it would not cost them so much to bail us out after they take over.

    I just don’t understand why tax cuts have not solved all our problems. But you have never been one to be absurd.

  6. Dr. Mark H. Shapiro Says:

    What is left out of this article is the fact that almost all state workers who retire have been required for several years now to obtain their healthcare from Medicare once they reach the age of 65. CalPERS does provide supplement to Medicare coverage, but essentially all of the retirees hospital bills and 80% of the retirees doctor bills are covered by Medicare. The contribution from the supplement to Medicare policy covers the part B co-pay. CalPERS reimburses the retiree for the monthly Medicare premium, but this is small (currently $108 per month for most retirees.)

    The health care cost problem has two components. The first is that some non-state agencies opted out of Social Security, so their retirees aren’t eligible for Medicare. The second is the early retirement age of public safety workers who typically will have 10 to 15 years before they become eligible for Medicare. These are the areas that need attention.

  7. Tough Love Says:

    Billie, I’m neither an expert on CA revenue or overall expenses, but I am very well versed in Pension funding and design, and without doubt, a major part of the EXPENSE -side problem are the grossly excessive (by any reasonable metric) pensions and benefits grant all of CA’s Public Sector workers.

  8. Tough Love Says:

    Dr. Mark H. Shapiro Says: , Yes those areas indeed need attentions…….. by NOT allowing pensions to commence until age 65 at which time Medicare kicks in.

  9. spension Says:

    The root problem with health care is that in the US we pay the most and get performance ranked 37th out of 191 in the world…

    http://www.who.int/whr/2000/media_centre/press_release/en/

    Personally I don’t think the period of healthcare coverage between early retirement and medicare age should be a vested right, and should be subject to cuts.

    The only real reason the issue of healthcare debt arises is the grossly excessive costs in the US healthcare system, where high salaries are paid to executives (not to mention excessive pension and post-employment benefits to those same executives) who charge Medicare cost+ for their salaries and benefits, and quite a bit more to private insurance companies.

    Read the `Bitter Pill’ by Steven Brill…

    http://content.time.com/time/magazine/article/0,9171,2136864,00.html

    and note the list of recent executive compensation… topping $100 million/year in many cases for insurance concerns that provide the 37th-best healthcare system in the world:

    http://www.creators.com/opinion/daily-editorials/health-insurance-ceo-paid-106-million-feel-better.html

    Now if they were providing a system in the top 5 of the world maybe their salaries would be justified. Maybe all compensation in the US healthcare system should be tied to *performance* not fraud.

    Of course it is not just high executive compensation in the health care industry that makes US healthcare a loser. Wild markups for simple items and encouragement to get incredibly expensive machinery contribute.

    It does bother me to use the rotten US healthcare system as a vehicle for criticizing public employees though. That the US healthcare system is a loser is not really their fault, they just want decent healthcare. As do private sector retirees, who have been shellacked by the private sector’s avarice ( http://www.retirementheist.com ).

    It seems to me all the effort spent on lawsuits concerning healthcare costs and guarantees would be better spent focusing on the real problem, that healthcare in the US is wildly expensive and very poor quality.

  10. Mawinda Says:

    We are a grossly obese society. This alone will bankrupt the country.
    Even if health care was significantly more efficient, it could not provide the care a bloated population will require. Too many pigs, too many sows oinking in front of the tube gorging on junk food.

  11. Bille Says:

    Great post “spension”. You have to wonder why we spend twice what the industrial world spends on health care and have third an fourth world infant mortality rates etc.

    TL. You are an oxymoron. You are expert at knowing the glass is half-empty but you have no idea about how it gets filled or what might fill it. You just know how to measure the glass as just being half-empty? We don’t need you. We have employees who can measure half-empty and half-full. Perhaps you need a new tape measure or a more well rounded education. Perhaps some lessons in Economics and Finance?

    Please cite the numerous articles about how pensions brought about the 9/29/2008 stock market crash? How about the recession that began in December 2007? You do know that broken records have been replaced by CDs and MP3s for decades now? Time to learn something new.

    LOL.

  12. Captain Says:

    Bille Says: “Great post “spension”. You have to wonder why we spend twice what the industrial world spends on health care and have third an fourth world infant mortality rates etc.”

    Good point Bille. But you also have to wonder why we are paying excessive compensation to public employee union members, along with excessive paid leave, excessive healthcare benefits, and are now paying, in many cases, 50k-100K per year toward their CalPERS retirement plans – and it still isn’t enough.

    So I wonder why we pay twice the compensation of most other states yet have reduced services, deteriorating roads, and increasing taxes. I guess that’s just the cost of a bloated system that rewards the public employee unions in CA at the expense of everything, and everyone else.

    In case you’re oblivious, Bille, social programs are getting wiped out (local & county level for sure) to cover the cost of unsustainable contracts, bloated pensions, and unfunded health care costs. So maybe your agenda plays an increasing role in those infant mortality rates, and mental health services.

  13. Bille Says:

    Well, I think first you have to define excessive? What is your threshold? What are you comparing too? You and TL are fond of saying things like “excessive” and calling public employees names.

    So, what is the model you would want to see implemented? What is the government you want? Mexico? Juarez? China?

    This country had the highest union membership and the most people in DB plans during the 1950s and 1960s. We had small deficits, wealthy people, stay at home moms, and then something changed.

    But what was it? Pensions? Unions? Yes, they did, fewer DBs exist today, union membership is at a historic low, yet demonized for all that is wrong. How can it be that a handful of people and pensions are the cause of all problems as you and TL suggest?

    Perhaps you can explain this. If you can’t, then I have to question your sanity for all the insults and nonsense I have seen you both post here. Please enlighten us all. I will post a rebuttal afterward.

  14. Bille Says:

    TL and CaptainSays – Two weeks have gone by and I notice you have avoided my challenge like everyone else who holds your ridiculous views. I am not surprised. There really is no answer to support your views. Like a good attorney, I knew the answer before I asked the question.

    A history lesson for the delusional, misguided lemmings…

    David Stockman — “I mean, Kemp-Roth [Reagan's 1981 tax cut] was always a Trojan horse to bring down the top rate…. It’s kind of hard to sell ‘trickle down.’ So the supply-side formula was the only way to get a tax policy that was really ‘trickle down.’ Supply-side is ‘trickle-down’ theory.”[7] Of the budget process during his first year on the job, Stockman was quoted as saying: “None of us really understands what’s going on with all these numbers,” which was used as the subtitle of the article.[7]

    After Stockman’s first year at OMB and after “being taken to the woodshed by the president” due to his candor with Atlantic Monthly’s William Greider, Stockman became inspired with the projected trend of increasingly large federal deficits and the rapidly expanding national debt. On 1 August 1985, he resigned OMB and later wrote a memoir of his experience in the Reagan Administration titled The Triumph of Politics: Why the Reagan Revolution Failed (ISBN 0060155604), in which he specifically criticized the failure of congressional Republicans to endorse a reduction of government spending as necessary offsets to the large tax decreases, in order to avoid the creation of large deficits and an increasing national debt.

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