A state Supreme Court ruling last week could make it more difficult for state and local governments to cut spending on health care for their retired employees, one of the fastest-growing costs.
In a widely watched Orange County case, the court said when local elected officials approve a health care benefit for retirees, a lifetime right to the benefit can be created even if the ordinance or resolution does not specifically say so.
The court unanimously said the approval can create an “implied” vested right, fully protected by contract law, if it can be shown that was clearly the “intent” of the action by the elected officials.
The League of California Cities and the California State Association of Counties filed briefs in support of Orange County’s contention that a county and its employees cannot form an implied contract.
The court said the local government groups “raise legitimate concerns” that retiree health insurance benefits, unlike pensions, are usually not funded in advance during working years and that costs have “skyrocketed in recent years.”
But the court said it was dealing not with a policy issue but a legal question posed by a federal appeals 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.”
The decision written by Justice Marvin Baxter that “a vested right to health benefits for retired county employees can be implied under certain circumstances from a county ordinance or resolution” could have a broad impact.
A lawyer for Sonoma County retirees told the San Francisco Chronicle last week that the decision should revive a lawsuit over a five-year reduction in county contributions to retiree health care insurance premiums.
In a discussion of whether retired state workers could be required to pay part of the cost of their health care, the nonpartisan Legislative Analyst said in a 2008 budget analysis that some experts believe the payments are guaranteed by the constitution.
“To our knowledge, however, the ability of the state to reduce the percentage of premiums it pays for retirees has never been addressed by a court,” the analyst said.
The cost of providing retiree health care was a long-ignored government debt, often not even calculated. But in 2004 the Governmental Accounting Standards Board said the retiree health care “unfunded liability” should be reported.
Now some think keeping promises to pay retiree health care costs could be a long-term financial problem that ranks with soaring pension costs.
In 2007 state Controller John Chiang made the first estimate of the cost of providing retiree health care for current state workers and retirees — $50 billion over the next 30 years. He has since increased the estimate to $60 billion.
A 2008 report by a governor’s post-employment benefits commission estimated that the total state and local government debt for retiree health care was $118 billion over the next three decades.
A 2009 report by the U.S. Governmental Accountability Office on retiree health benefits predicted that state and local government budget problems in the decades ahead will “largely be driven” by total health care costs.
Unlike pensions, which are usually a fixed cost with some adjustment for inflation, retiree health care can be an open-ended promise to pay for services, whatever the cost.
Again unlike pensions, retiree health care is usually “pay as you go.“ Most government employers are not setting aside money to invest, presumably paying for much if not all of the retiree health care promised current workers in the future.
The California Public Employees Retirement System began offering local government employers a way to prefund retiree health care in 2007. By last June the program had 306 employers with $1.85 billion invested to cover 212,000 persons.
The state has chosen to let future generations pay for the retiree health care of current workers. Two decades ago legislation by former Assemblyman Dave Elder, D-Long Beach, created a retiree health fund for state workers, but it received no money.
Few employers in the private sector provide retiree health care. And some government employees, notably more than half of all teachers, do not receive retiree health care.
Retiree health plans often cover the worker and dependents. Many government employees can retire at age 50 or 55, usually taking a reduced pension if they are not police or firefighters.
When retirees become eligible for Medicare at age 65, the federal plan is expected to begin covering part of the cost. Some think state and local governments could do more to shift costs to Medicare, which also has major long-term funding problems.
A 12-point pension reform plan issued by Gov. Brown last month said: “Contrary to current practice, rules requiring all retirees to look to Medicare to the fullest extent possible when they become eligible will be fully enforced.”
Some retiree health plans are generous. The administration of former Gov. Arnold Schwarzenegger said active state workers pay 15 percent of their health care costs, while retired state workers can have the full cost of their health care paid by the state.
Brown’s reform plan would “change the anomaly of retirees paying less for health care premiums than current employees.” The state general fund is expected to pay $1.5 billion for retiree health care this year, up 60 percent in five years.
To cut costs, Orange County in 2007 ended a pooling of active and retired health premiums begun in 1985. The pooled rate had lowered the premium paid by retirees, who on average are older and more expensive to insure.
A retiree group filed a suit in federal court to block the split on behalf of 4,600 county retirees. Some said the county expected the average premium paid by retirees or their families to increase $3,000 a year, a figure disputed by the county’s lawyer.
The retirees said bargaining agreements approved by county supervisors did not specify the duration of the pool. They contended that long-standing practice and county statements in a booklet for employees created an “implied” contractual right.
The county said the annual motions and resolutions approved by the board of supervisors during the two decades of the pool only set health insurance premiums for a single year.
A federal district court agreed with the county and dismissed the retiree lawsuit, holding that a county cannot under state law be liable for something not explicitly authorized by a resolution approved by the supervisors.
After the retirees appealed, the U.S. 9th Circuit Court of Appeals asked the state Supreme Court for a ruling on whether, under California law, a county can form an implied contract that creates a vested right to retiree health care.
In ruling that an implied contract can be formed, the Supreme Court said that a court should “proceed cautiously” when deciding whether a contract has been implied by the actions of officials.
“The requirement of a ‘clear showing’ that legislation was intended to create the asserted contractual obligation (ruling cited) should ensure that neither the governing body nor the public will be blindsided by unexpected obligations,” the court said.
The Orange County case goes back to the federal appeals court, which some lawyers reportedly think may ask a trial court to decide whether the circumstances created an implied contract.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 28 Nov 11
Calpensions 
November 28, 2011 at 2:45 pm
This was a fairly obvious call given the case law and basic contracts principles involved.
November 28, 2011 at 4:09 pm
This is a response to a federal court’s question of law, it is therefore not settled, so it should be appealed to the SCOTUS who may or may not take it.
f they do take it I predict it will be overturned, who wants some of that action 😛
November 28, 2011 at 4:11 pm
In ruling that an implied contract can be formed, the Supreme Court said that a court should “proceed cautiously” when deciding whether a contract has been implied by the actions of officials.
Exactly, and that wil be an impossible burden for most of these gov retiree healthcare scams to meet.
November 28, 2011 at 5:02 pm
Ah, Mr. Steele has morphed again …
From doctor to nurse, and now a CPA & Pension Actuary.
When was the last time you checked in with your Psychiatrist ?
November 28, 2011 at 5:24 pm
LOL—- ah little fellas—– you guys hate the law— this is a very basic notion of contracts construction—- end of story—–zzzzzzzzzzzzzz—— I hope you gutys are not too frustrated with this ruling…….it’ll be ok.
November 28, 2011 at 5:41 pm
Teddy is your basic gov troll, but he is amusing and that is why we love him-and his 100+ sockpuppet accounts he used on the Orange County Register-where is accused REX of being an OCR employee b/c Rex could always spot his gimmick accounts 😛
November 28, 2011 at 5:43 pm
There is no good reason to raise taxes and fees when wage and pensions and benefits concessions are available. CA public employees wages must reflect California’s ability to pay, not what other munis are paying.
November 28, 2011 at 6:30 pm
My out-of-pocket costs for medical insurance premiums are far more, than the capped stipend I get, from my former employer.
November 28, 2011 at 6:33 pm
Hey Poodle– sounds like you need your side to get to the col. barganing table and do some work!
November 29, 2011 at 4:32 am
Two Words Teddy Steals;
CENTRAL FALLS!
BOOM!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
November 29, 2011 at 5:07 am
Rex The Wonder Dog–I feel as though Cent. Falls is not a good analogue to the large pension systems and the scale issues involved, the different legal issues, the cash positive status deltas and etc etc etc…..
November 29, 2011 at 5:47 am
Hey Teddy-CalTURDS just LOST 8.4%!!!! (Central Falls BABY!)
The California Public Employees’ Retirement System, the largest U.S. public pension fund, lost 8.4 percent through Sept. 26.
http://www.businessweek.com/news/2011-11-23/new-york-pension-fund-lost-7-48-in-last-quarter-dinapoli-says.html
November 29, 2011 at 6:07 am
I’d be worried if I were you, Rex. If you get the continuing losses you so seem to want, it will be your income and sales taxes taking a big hike to pay the difference.
I’m okay with that.
November 29, 2011 at 7:24 am
Rex, I go on CalPERS every day, to look at the bottom line. I feel good if it has gained, and disappointed if it is down. You go on, and hope for it to be down–if it is, you jump with glee. Has anyone, close to you, suggested that you are you are severly, clinically depressed? You need a mental health assessment, Rex. Think about it.
November 29, 2011 at 7:35 am
If you get the continuing losses you so seem to want, it will be your income and sales taxes taking a big hike to pay the difference.
Ask San Diego how that Prop D Sales/pension tax went last year!
Ask Jerry Clown how that tax extension/increase he was aiming for last year went!
Ask what the polls results are for YES on pension reform! (hint 71%)
Taxes on sales and income are not going to happen, and I am not worried about them in the least. I say bring it on. It will be just like Prop D in San Diego, 3-1 loss……..4-1 if you take out public employees.
November 29, 2011 at 5:48 pm
folks 1937 act counties at issue;as a younger employees for 36 years & 25 we paid larger premiums to cover retiree pool of older retirees. I awas glad to do it it is a fair compact!
November 29, 2011 at 9:27 pm
Silvia, your money did NOT pay for older retirees, taxpayer money did, get with the program junior 😛
🙂
😉
November 29, 2011 at 9:44 pm
Silvia—- Just ignore the comments of rex the wonder dog– we all do- He is a sad sick person.
November 30, 2011 at 12:54 am
Teddy, you made me cry 🙂
November 30, 2011 at 2:53 am
Has anyone, close to you, suggested that you are you are severly, clinically depressed? You need a mental health assessment, Rex. Think about it.
Seesaw, has anyone close to you, like yuour hubby (if he can even take your nagging!) suggested you are mentally deranged? Out of touch with reality> You need some phsycological evaluations, I’m serious, the sooner you get help the sooner you can be cured 🙂
November 30, 2011 at 7:19 am
Rex, you evidently don’t know that Silvia, is a taxpayer. What does a dog know anyway. Just go lay down in your basket.
November 30, 2011 at 7:27 am
What did Rex do to be abused by a cranky seesaw 🙂
November 30, 2011 at 4:03 pm
Teddy, protect me from seesaw, she is being abusive towards me once again 😛
November 30, 2011 at 6:51 pm
“What did Rex do to be abused by a cranky seesaw”
I think it has something to do with you telling people the truth! SeeSaw doesn’t like that
November 30, 2011 at 7:52 pm
Yes, the truth can be painful to seesaw and Teddy. I hope they place blame where it belongs when their house of cards falls apart, and it will, very soon.
December 1, 2011 at 1:01 am
I don’t know why you come up with such insulting remarks, toward, someone you don’t even know, Capt.,but you you manage. Just because I belong to CalPERS, I don’t like the truth? I’ve been a member of the Plan for 36 years. I suppose that means, I know nothing about it.
By the way, Rex, you have never made one prediction yet, that has come true, for you. I don’t know what it is, that you think is going to fall apart, on me. I just got my check voucher, today. I will continue to get my monthly check, until they tell me differently. If and when that happens, you can have your chocolate sundae–If I were you, I wouldn’t waste any time panting, until it happens.
December 1, 2011 at 1:37 am
SeeSaw Says:
December 1, 2011 at 1:01 am
I don’t know why you come up with such insulting remarks, toward, someone you don’t even know, Capt.,but you you manage.
Ms Kettle, meet the pot;
SeeSaw Says:
November 29, 2011 at 7:24 am
Rex, ……. Has anyone, close to you, suggested that you are you are severly, clinically depressed? You need a mental health assessment, Rex.
Seesaw, there is an old saying that goes soemthing like this- “don’t trhow rocks when you live in a glass house”.
Your insults towards others you don’t know are far worse.
December 1, 2011 at 1:43 am
You are a perfectly mangy, sick dog.
December 1, 2011 at 2:19 am
Poodle– seriously, I think you do need to speak with someone— there is no shame in that. You do seem disturbed.No offense. Your anger and projection are pretty easy for all of us to see. I suppose you’ll respond in such a way to me now?
December 1, 2011 at 6:29 am
You two have crushed me tonight, I can’t go on, I am going to go cry myself to sleep.
See ya in the morning 😛
December 1, 2011 at 8:55 am
“I don’t know why you come up with such insulting remarks, toward, someone you don’t even know, Capt”
SeeSaw, I’ve been reading your self serving posts for two years. I believe you believe what you’re saying is believable. I just don’t happen to believe the BS you’ve been fed. Sorry.
December 1, 2011 at 3:46 pm
Self serving? Oh my! I am a retired public worker. I have been a member of CalPERS for 36 years. I receive newsletters, keeping me up to date, every three months. I can go on my own CalPERS account, and ask them any question, I want. What is the BS you think I am being fed? (I’m sure that, whatever financial plan you have personally, you just throw it right back in their face, if they provide you with information–don’t you.) Is there anything you would like to know about CalPERS, that doesn’t come from the BS, the media has fed you? In the meantime, what official source do you use, to get your, non-self-serving information, on CalPERS?
December 1, 2011 at 4:39 pm
Seesaw, all of your comments are self serving talking points parroted from the public union talking points, sorry of the truth hurts you 😛
December 1, 2011 at 4:52 pm
Wow— I disagree poodle— Seesaw has been probably the most civil, clearest and most accurate poster on this issue anywhere in Calif in my view. I have never seen anything he has said refuted. Especially by you little buddy. You approach this always in a negative, angry spiteful way and whats more, All of your predictions have been proven wrong time and again. It appears you have either a strange moral compass or frankly have some mental health issues. Honestly.
December 1, 2011 at 7:06 pm
Teddy, this is an A – B conversation with seesaw, so you can C your way out of it 😛
December 1, 2011 at 7:13 pm
Teddy, are you hitting the crack pipe again 🙂
Seriously, ,you need to stop, you have already lost way more brain cells than you could afford to, better to clean up. Honestly, I only want to help you.
December 1, 2011 at 7:53 pm
I am a female.
December 1, 2011 at 7:57 pm
No kidding 🙂
December 1, 2011 at 7:58 pm
Rex, I do not belong to a union. My talking points are based on 40 years experience, working in the public sector, and information provided to me by CalPERS, which happens to be my bread and butter. Where do you get your talking points, Rex?
December 1, 2011 at 11:24 pm
wow, once again Poodle– nothing of substance and all negative from you……….pathetic.
December 2, 2011 at 4:19 pm
Teddy, lay off the crack pipe little buddy you need what little brain cells you have left 😛
December 3, 2011 at 12:10 am
Rex– I think Mr. Steele is correct about you– negative to the max!
December 3, 2011 at 4:22 am
Hi Teddy! Nice sock puppet, goes with the other ones you post under 😉
December 29, 2011 at 7:59 am
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