Feb. 23—RALEIGH — More than 200,000 retired state workers might soon receive hundreds or even thousands of dollars, if a class action lawsuit goes in their favor at the North Carolina Supreme Court.
The case boils down to health care benefits for retired state workers, and who should pay for them.
“In retirees’ minds, it’s all about honoring a contract with the state they had when they retired,” said Richard Rogers, who leads the Retired Governmental Employees’ Association and has been following the case for years.
But the cost to cover the damages they’re claiming could add up to hundreds of millions of dollars, if the retirees win.
Those costs would fall on the State Health Plan, which also provides health care for current state workers.
“The charges would come back against the State Health Plan, which is already insolvent,” said State Treasurer Dale Folwell, a Republican whose office oversees the health plan. “It’s not like we have these big reserves.”
Folwell said that when he came into office, the state health plan was underfunded by $33 billion but a recent report put it at $28 billion. The state health plan has recently been able to freeze premium costs for family plans, Folwell said, and with its improving fiscal health he hoped to pursue lowering those premiums. But losing hundreds of millions of dollars in this lawsuit would put a damper on that.
“Obviously it would be impactful,” he said.
Folwell is among the state officials fighting the lawsuit, which he inherited from his predecessor, Democrat Janet Cowell, when he took office in 2017.
Also potentially standing in the way of the retirees and the money they say they’re owed is a state Supreme Court that has suddenly started questioning if it should even hear the case at all.
That about-face began in January, just after new justices were sworn in following the 2020 elections. Republicans swept Democrats in all three seats up for grabs. Since five of the seven justices now on the court are related to living or dead people who either are or were state retirees, they wrote in January, there might be too many conflicts of interest for them to ethically hear the case.
Earlier this month they asked both sides to weigh in on that.
The state agreed with ending the case and said plenty of lawsuits never make it to the Supreme Court. Lawyers for the retirees, however, said the fact that nearly the entire Supreme Court is related to a retiree shows how important their case is.
“Because of the number of North Carolinians involved (nearly 5% of the entire state population), it’s no surprise that almost every member of this Court has a relative who could be impacted,” they wrote in a brief earlier this month, urging the court to still hear their arguments. “Given the widespread effect of this case, it’s likely that every North Carolinian has some relative or close acquaintance who will be impacted by a ruling in this matter.”
Regardless of what happens, the end appears near for this lawsuit, which has been trudging its way through the court system for nearly a decade.
And in part because of everything surrounding this case, future state government retirees won’t get health care benefits at all, due to a 2017 law that applies to state workers who start their careers this year or later.
Cost savings, or a broken promise?
Rogers said state government will never be able to compete with the private sector on salaries for many types of jobs, so that’s why the state offers good benefits like a pension and low-cost health care.
“That’s what brings good quality folks to state government,” he said.
One of those benefits, until this year, was a promise that after people retire they can stay on the State Health Plan. When people turn 65 they qualify for Medicare. But since so many workers can retire from state government a decade or two before then, it allowed them to keep their health insurance in the meantime.
The crux of the lawsuit is that their monthly premiums used to be paid for by the state, but now they’re not.
There is still a basic plan that remains free. But the more comprehensive plan that many prefer, called the 80/20 plan, now charges retirees a premium of $50 per month, or $110 for smokers.
It might not seem like much at first glance, especially compared to other insurance plans. But at $600 or $1,320 a year, the costs can add up for retirees — and especially for the state, which would have to multiply that by thousands of people, over the course of the last decade.
Folwell said his office doesn’t even know exactly how much it would cost, because it’s so complicated to calculate, but that it could easily reach into the hundreds of millions of dollars.
Rogers said the cost to the state doesn’t change the fact that thousands of people are now being forced to pay a minimum of $50 a month to keep a health plan they were told would be free when they signed up for their jobs.
“That’s $600 a year so it does add up, the premium costs for retirees,” he said. “And being on a fixed income, it makes that more difficult. And, add in the fact that retirees aren’t getting their cost-of-living adjustments.”
The legislature has approved a few cost-of-living adjustments to the state’s pension plan in recent years, but not enough to keep pace with inflation.
Rogers said the average state pensioner today would need an extra $2,300 per year just to have as much purchasing power as someone in 2008, not even counting the money they’ve lost in health coverage.
History of how we got here
The fight started in 2011, when Republican legislators took control of the North Carolina General Assembly and quickly passed a law introducing the premiums, plus other changes. The new retiree premiums started at around $22 a month and have more than doubled since then.
The governor at the time, Democrat Bev Perdue, vetoed the bill at first. But after lawmakers compromised by not also eliminating a no-premium option for current state workers, The News & Observer reported, she allowed the changes to become law.
With the financial pain of the Great Recession still in full force, the state was facing a $515 million funding gap for the State Health Plan, The N&O reported at the time. Supporters called it the fiscally responsible choice — an argument the state has continued making in court.
“State employees and retirees had been enjoying coverage at the 80/20 level or better without paying any monthly premium for thirty years,” the state wrote in a brief to the Court of Appeals, where its arguments ultimately won. “But in 2011, the state was in the midst of the national financial crisis and an era of soaring health care costs.”
Yet the state can’t just break its promises, a group of retirees argued in this lawsuit, filed in 2012. They recruited several well-known supporters, including former state senator and Supreme Court Chief Justice I. Beverly Lake Jr., a Republican, who lent his name to the lawsuit. Lake died in 2019.
It’s unclear when the Supreme Court justices will decide on recusing themselves, now that the two sides have had their chance to weigh in. If all five justices do, or even four, the rest would not be allowed to hear the case on their own. A majority of the court, at least four justices, is required to be able to hear a case.
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