U.S. Supreme Court declines to take up N.C. State Health Plan dispute

U.S. Supreme Court building surrounded by security fences. Source: Creative Commons.

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  • The U.S. Supreme Court will not consider a case involving a dispute over N.C. State Health Plan premiums for government retirees.
  • A state Supreme Court decision in the case will allow 220,000 retirees to continue their lawsuit in state courts. They object to premiums adopted after a 2011 change to state law.

The U.S. Supreme Court will not take up a case involving a dispute over premiums charged to government retirees on North Carolina’s State Health Plan. The court issued an order Monday denying the state’s request to hear the case.

High court justices offered no comment about the decision.

N.C. Attorney General Josh Stein filed paperwork on June 9 urging the U.S. Supreme Court to take up the case titled N.C. State Health Plan v. Lake.

The state had hoped the nation’s highest court would overturn a March 11 ruling from the N.C. Supreme Court. State justices ruled by a 4-2 vote that 220,000 state government retirees had a contractual right to premium-free health care benefits that had been promised to them.

The state Supreme Court decision sent the case back to a trial judge for further proceedings.

“This case asks whether States can provide statutory benefits to their citizens while preserving the flexibility to alter those benefits in the future,” according to Stein’s brief for the U.S. Supreme Court. “Specifically, this Court’s review is needed to clarify whether Contracts Clause rights can arise from mere ‘expectations,’ even in the face of an express statutory right-to-amend provision.”

A change in state law in 2011 blocked retirees from remaining enrolled in a premium-free preferred provider organization health insurance plan that allocated 80% of costs of health care services to the insurer and 20% to the insured. To remain on the plan, the revised law required retirees to pay a new premium.

That change prompted a lawsuit from a group of government retirees. Plaintiffs argued that the state had promised to provide premium-free retiree health benefits. The government responded that state law spelled out the General Assembly’s right to change the health benefit.

Stein’s plea to the U.S. Supreme Court notes a difference of opinion across the nation when courts have addressed similar disputes.

“Respondents do not dispute that there is genuine confusion among the lower courts on that important question,” according to the state’s brief. “Rather, they claim that the Contracts Clause should have a different scope in different States. In particular, Respondents claim that contract formation under the Contracts Clause turns on state law.”

“But this Court has made clear for more than a century that, under the Contracts Clause, the question whether a contract exists is a question of federal law,” the N.C. brief continued. “Given the federal nature of this dispute, the decision below erred by declining to apply this Court’s
longstanding precedent that a statutory right-to-amend provision forecloses the creation of rights under the Contracts Clause.”

“Moreover, there is a widespread and entrenched split of authority among the lower courts on the effect of a right-to-amend provision,” Stein added. “Although Respondents attempt to distinguish the cases on either side of the split, the fact remains that most lower courts hold
that a right-to-amend provision is a categorical bar to Contracts Clause claims — whereas the North Carolina Supreme Court, the Minnesota Supreme Court, and the First Circuit do not.”

The case started in 2012 with 26 initial plaintiffs, led by retired state Supreme Court Chief Justice Beverly Lake. Class-action certification in 2016 expanded the list of plaintiffs. Lake, the lead plaintiff, died in 2019.

Challengers object to a 2011 law allowing the State Health Plan to charge state workers and retirees a monthly premium for standard health care coverage, known as the Regular State Health Plan. Plaintiffs argue that the state had breached its contract to provide them with premium-free health insurance.

They want the state to resume premium-free coverage and reimburse them for premiums they have paid.

The retirees won an initial courtroom victory in May 2017, but the N.C. Court of Appeals reversed the trial judge and ruled against the retirees in 2019.

The case faced lengthy delays as the state Supreme Court tried to determine whether it would have enough justices to be able to hear the case.

A January 2021 court filing revealed that five of the seven sitting state Supreme Court justices had “members of their families who are within the third degree of kinship by blood or marriage and either are or may be members of the plaintiff class.”

The state Supreme Court agreed in August 2021 to proceed with the case, invoking a “Rule of Necessity.” Justices heard oral arguments last October.

The case could have limited impacts beyond the current plaintiffs. A 2017 state law ended retirement health benefits for any state workers hired now and in the future.

Still, a ruling in the retirees’ favor would add new costs to the State Health Plan. State Treasurer Dale Folwell’s office oversees the health plan. Folwell has warned about the plan facing underfunding of tens of billions of dollars.