Public Employers May Reduce Prospective Retiree Health Insurance Benefits

February 16, 2015
By:  Alan M. Levy and Oyvind Wistrom

On February 12, 2015 the Wisconsin Supreme Court held that Milwaukee County could eliminate its payment of Medicare Part B premiums for otherwise eligible employees who retired more than three months after its adoption of ordinance amendment to that effect. Wisconsin Federation of Nurses and Health Professionals, Local 5001, AFT, AFL-CIO, et al. v. Milwaukee County, 2015 WI 12. This decision comes after the decision in Stoker et al. v. Milwaukee County et al., 2014 WI 130, argued the same day, which allowed prospective reduction of a pension multiplier.

The retiree health benefit required 15 years of credited service, a minimum retirement age and (originally) a date of hire prior to July 31, 1989. In 2010 the ordinance was amended to provide that the benefit would no longer be paid to otherwise qualified employees who retired on or after April 1, 2011, with extensions of the date for existing union contracts which would expire later. The WFN sued (after its contract expired) on the basis of ordinances and session laws which allegedly treated retiree health benefits as vested like pensions and prohibited the diminishment of any pension benefit by subsequent amendment.

The Court’s 5-2 majority emphasized that pensions and health insurance are two different kinds of benefits, and that “by their nature, health insurance benefits have always been fluid opportunities available for a limited period of time . . . .” The County had argued that health benefits are never frozen at the time of retirement because retirees expect to receive the improvements in medicines and treatments which occur later, and premium costs change to pay for those changes. Therefore, benefits and premiums can be changed prospectively.

This opinion takes the same position as Loth v. City of Milwaukee, 2008 WI 129, 315 Wis. 2d 35, 758 N.W.2d 766, which allowed a prospective reduction in retiree health benefits, and it declined to apply pension and disability decisions which had contrary results. ( Stoker has allowed the County to reduce the pension multiplier applicable to future years of service.) Most important, the distinction between pensions and health benefits allows the employer to adapt its benefits and costs to the reality of modern circumstances, and its own ability to pay inherent in a public entity’s relationships with its employees (a topic discussed in Justice Prosser’s concurrence).

The magnitude of the authority sustained here depends on the number of employees on retirement in future years who were originally subject to the premium subsidy. If this change were to affect as few as 1000 retiring employees and their spouses, the savings to taxpayers will be approximately $2,500,000.00 per year. Other public employers which offer retiree health care benefits will be able to rely on this analysis to achieve similar savings if the language of their benefit plans and ordinances allows a similar approach to claims of unchangeable vested benefits.

Alan Levy of Lindner & Marsack, S.C. represented Milwaukee County throughout this litigation, as well as the City in Loth and the County in Stoker. If you have any questions about this, please contact him at alevy@lindner-marsack.com.

 

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