By: Brittany Flaherty Theis
In March 2013, the Sangamon County Circuit Court addressed the 2012 amendments of the State Employee Group Insurance Act as they relate to health insurance benefits. The 2012 amendments allow the State to begin charging retired workers premiums for their health care. Numerous plaintiffs (including a retired judge)had filed suit against defendants that included the Governor and the Department of Central Management Services. In dismissing the suit, the court held that health insurance benefits are not guaranteed pension benefits protected by the Pension Protection Clause and plaintiffs did not have a vested contractual interest in free health insurance.
The consolidated cases centered on the State Employee Group Insurance Act of 1971 (“the Act”), which in 2012 was amended by Public Act 97-695. The law allows the Department of Central Management Services (“CMS”) to allocate the cost of health insurance premiums between the State and retired public employees. In 2012, Public Act 97-695 delegated to the Director of CMS the authority to determine, on an annual basis, the amount the State will contribute to the basic cost of group health insurance benefits on behalf of retirees. In calculating the amount the State will contribute, the Director may consider the actual cost of medical services adjusted for age, sex, geographic, or other demographic characteristics that affect the costs of such programs.
Other amendments have occurred over the past two decades. Originally, the Act paid the entire cost of each eligible employee’s group health insurance, but in 1991 the Act was amended to require each employee to contribute to the cost of health insurance premiums (subject to a defined limitation). In 1995, the cap on employee contributions was eliminated. Then, in 1997, the Act was amended to provide for a graduated premium based upon years of service. After 20 years of service, the State was responsible for the entire premium, but the CMS retained the authority to set contributions for current employees.
Multiple plaintiffs argued the amendments violated the Pension Protection Clause of the Illinois Constitution, which provides that membership in any government pension or retirement system is “an enforceable contract relationship, the benefits of which shall not be diminished or impaired.” For that reason, the court analyzed the similarities and differences between pension benefits and health insurance benefits. For example, pension benefits are defined by the Illinois Pension Code, payments are fixed sums, and payments are paid from protected funds. On the other hand, health insurance benefits change from year to year as defined by periodically negotiated contracts, premiums are not fixed at the time of retirement and premiums are paid from the General Revenue Fund. Health insurance benefits do not fall under the Illinois Pension Code.
The court held that any impact the amendments have on pensions is indirect or incidental. It explained that the Pension Code and the Act are “structurally separate and substantially different,” “separately administered and separately funded,” and also “provide benefits that are fundamentally different.” Following this analysis, the court determined that health insurance benefits are not guaranteed pension benefits protected by the Pension Protection Clause. The court also held that plaintiffs did not have a vested contractual interest, that the Act does not violate the Separation of Powers Clause, and that it does not impair a non-contractual equitable obligation or collective bargaining agreement.
Some legislators, including Senate President John Cullerton, see this ruling as fuel for pending legislation. In particular, Senator Cullerton supports legislation that would force employees to choose between their cost-of-living adjustments or access to a retiree health care plan. Others, some of whom agree that the decision lays more groundwork for that legislation, are concerned the pending legislation gives employees and retirees only a coercive choice – that it does not give them something valuable in exchange for benefit cuts. This ruling has been appealed.
For more information about the Sangamon County Circuit Court’s decision, please feel free to contact Whitt Law Attorney Brittany Flaherty Theis.
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