Judge dismisses suits over new state retiree health insurance law

By Bethany Krajelis | Mar 19, 2013

A Sangamon County judge on Tuesday dismissed a consolidated lawsuit challenging a new law requiring state retirees to start paying premiums for their health insurance.

In his seven-page order, Associate Judge Steven Nardulli sided with the state to reject the plaintiffs’ argument that the law is unconstitutional because it violates the Illinois Constitution’s Pension and Benefits Protection Clause.

“Health insurance benefits are not guaranteed pension benefits protected by the Pension Protection Clause,” Nardulli wrote in his order. “Plaintiffs do not have a vested contractual interest in free health insurance.”

Nardulli's order granted the state's motion to dismiss for failure to state a claim and lack of jurisdiction.

The Illinois Attorney General Lisa Madigan's office, which represented the state officials named as defendants in the matter, said in a statement, “We’re pleased with the court’s decision in that it clarifies that health care benefits are not pension benefits protected by the state Constitution.”

Don Craven, a Springfield attorney who represents the plaintiffs in one of four suits that were consolidated in September in Sangamon County, said his clients will appeal Nardulli’s ruling. He represents the plaintiffs in one of the two Sangamon County suits.

On behalf of the plaintiffs in the Madison County suit, Indianapolis attorney Rodney Taylor said while he appreciated that Nardulli gave all of the plaintiffs’ attorneys the opportunity to present arguments at a February hearing over the state’s motion to dismiss, “We disagree with the judge very strongly.”

Taylor said he expects his clients will appeal the judge’s order and that there will be some element of cooperation between the plaintiffs’ attorneys and some direction from the court in order to prevent duplicative appeals.

The issue over the new law, Public Act 97-695, came to Nardulli in September, after the Illinois Supreme Court consolidated four separate suits brought this past summer in Madison, Sangamon and Randolph counties.

Gordon Maag, a former Fifth District Appellate Court justice, brought the first suit over the new law in June in Sangamon County. His son, Wood River attorney Tom Maag, represented him.

The law, which took effect July 1, requires retired state employees, as well as former judges, lawmakers and university workers, to pay premiums for their health insurance, something the state previously paid for after four to 20 years of service depending on position.

In the February hearing before Nardulli, attorneys for the plaintiffs focused their arguments on the Pension Protection Clause, which refers to membership in the state’s pension and retirement systems as an “enforceable, contractual relationship, the benefits of which shall not be diminished or impaired.”

On behalf of the state defendants, Assistant Attorney General Richard Huszagh told Nardulli at the hearing that the plaintiffs “fundamentally misinterpreted the Pension Protection Clause of the Constitution” by asserting that health insurance benefits are the same as pension benefits.

While the Clause protects pension benefits, Huszagh argued that it “does not prevent the government from raising the cost of other employment benefits, including health insurance.”

Attorneys for the plaintiffs urged Nardulli to look at rulings from Alaska and Hawaii courts for guidance while the attorney general’s office pointed to a New York decision.

The Alaska and Hawaii cases, according to Nardulli’s order, “address the assertion that medical benefits are not actuarially predictable and conclude that the fact that such benefits cannot be predicted does not does not prevent them from being included as a vested retirement benefit.”

Rejecting the findings from those state courts, Nardulli wrote that he agrees with the reasoning of the New York court, which held that pensions and benefits to a retired employee are separate from each other.

“If one were to accept the premise that health insurance benefits are vested rights that accrue upon retirement, one must accept the premise that those benefits cannot be reduced, regardless of changing medical technology or the willingness of insurance providers to make a particular policy of health insurance available,” he explained.

Nardulli added, “The fact that medical technology and contracts offered by insurance companies change, as opposed to the actuarial certainty of a pension payment, lead this court to the conclusion that health insurance benefits are not the same as a pension protected by the Pension Protection Clause.”

Although all of the plaintiffs claimed the new law was unconstitutional under the Pension Protection Clause, some brought additional arguments over the State Employee Group Insurance Act (SEGIA), contracts, collective bargaining agreements and promissory estoppel.

Nardulli concluded in his order that he didn’t need to determine if the SEGIA violated the Contract Impairment Clause because “no contract existed.”

He also found that the SEGIA “does not violate the Separation of Powers Clause" and “does not impair a non-contractual equitable obligation or collective bargaining agreement.”

In addition, Nardulli held that the “breach of contract claims and claims seeking money damages” made by some of the plaintiffs “must be brought in the Court of Claims.”

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