9th Circuit Punts Retiree Case to California Justices

(CN) - The 9th Circuit has asked the state Supreme Court to weigh in on a lawsuit challenging Orange County's practice of requiring retirees, but not active employees, to pay the bulk of their health insurance premiums.

The Retired Employees Association of Orange County sued the county on behalf of 4,600 employees, challenging the structure of the county's health benefits.

The retirees object to the county's practice of splitting the pool of active and retired employees for the purpose of setting premiums. They say the practice effectively subsidizes retiree health benefits by lowering retiree premiums below actual expenses while raising active employee premiums above actual expenses.

Retired employees, as a group, are more expensive to insure than active employees and normally would pay higher premiums. Although retired employees pay the majority of their own premiums, the county pays a large portion of the premiums for active employees. Before the split, the county paid the majority of this subsidy for retirees. The rest of the subsidy was paid for by active employees through their raised premiums.

The splitting practice was put into effect in 2008 due to budgetary concerns. Before the resolution, the county negotiated changes to health benefits with labor unions but did not negotiate with retirees.

The retirees claimed the county's decision to split the pool created an implied contract.

A federal judge dismissed the case, concluding that the county cannot be held responsible absent an explicit legislative or statutory mandate to provide health care benefits.

On appeal, the retirees argued that the county's system violates both the state and federal constitutions.

A three-judge panel ruled that the question of whether an implied contract exists between the county and its employees is one for the state high court.

"In light of the great practical importance of the question, we do not think that it is appropriate to substitute our judgment on this issue of state law for the judgment of the California Supreme Court," the court wrote.

It asked the high court to decide "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."

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