Lake v. State Health Plan for Teachers

• Decision Date: 11 March 2022
• Docket Number: 436PA13-4
• Citation: 380 N.C. 502,869 S.E.2d 292
• Parties: I. Beverly LAKE, John B. Lewis, Jr., Everette M. Latta, Porter L. McAteer, Elizabeth S. McAteer, Robert C. Hanes, Blair J. Carpenter, Marilyn L. Futrelle, Franklin E. Davis, Estate of James D. Wilson, Estate of Benjamin E. Fountain, Jr., Faye Iris Y. Fisher, Steve Fred Blanton, Herbert W. Cooper, Robert C. Hayes, Jr., Stephen B. Jones, Marcellus Buchanan, David B. Barnes, Barbara J. Currie, Connie Savell, Robert B. Kaiser, Joan Atwell, Alice P. Nobles, Bruce B. Jarvis, Roxanna J. Evans, Jean C. Narron, and all others similarly situated v. STATE HEALTH PLAN FOR TEACHERS AND STATE EMPLOYEES, a corporation, formerly known as the North Carolina Teachers and State Employees’ Comprehensive Major Medical Plan, Teachers’ and State Employees’ Retirement System of North Carolina, a corporation, Board of Trustees of the Teachers’ and State Employees’ Retirement System of North Carolina, a body politic and corporate, Dale R. Folwell, in his official capacity as Treasurer of the State of North Carolina, and the State of North Carolina
• Court: North Carolina Supreme Court

380 N.C. 502

869 S.E.2d 292

I. Beverly LAKE, John B. Lewis, Jr., Everette M. Latta, Porter L. McAteer, Elizabeth S. McAteer, Robert C. Hanes, Blair J. Carpenter, Marilyn L. Futrelle, Franklin E. Davis, Estate of James D. Wilson, Estate of Benjamin E. Fountain, Jr., Faye Iris Y. Fisher, Steve Fred Blanton, Herbert W. Cooper, Robert C. Hayes, Jr., Stephen B. Jones, Marcellus Buchanan, David B. Barnes, Barbara J. Currie, Connie Savell, Robert B. Kaiser, Joan Atwell, Alice P. Nobles, Bruce B. Jarvis, Roxanna J. Evans, Jean C. Narron, and all others similarly situated

v.STATE HEALTH PLAN FOR TEACHERS AND STATE EMPLOYEES, a corporation, formerly known as the North Carolina Teachers and State Employees’ Comprehensive Major Medical Plan, Teachers’ and State Employees’ Retirement System of North Carolina, a corporation, Board of Trustees of the Teachers’ and State Employees’ Retirement System of North Carolina, a body politic and corporate, Dale R. Folwell, in his official capacity as Treasurer of the State of North Carolina, and the State of North Carolina

No. 436PA13-4

Supreme Court of North Carolina.

Filed March 11, 2022

Gray, Layton, Kersh, Solomon, Furr & Smith, P.A., by Michael L. Carpenter, Christopher M. Whelchel, Marcus R. Carpenter, Gastonia, and Marshall P. Walker ; Tin, Fulton, Walker & Owen, PLLC, Charlotte, by Sam McGee ; and The Law Office of James Scott Farrin, by Gary W. Jackson, Charlotte, and J. Bryan Boyd, for plaintiff-appellants.

Joshua H. Stein, Attorney General, by Ryan Y. Park, Solicitor General, and Marc Bernstein, Special Deputy Attorney General, for defendant-appellees.

The McGuinness Law Firm, Elizabethtown, by J. Michael McGuinness ; and North Carolina Association of Educators, by Verlyn Chesson Porte, for amicus curiae North Carolina Association of Educators.

The Sumwalt Group, Charlotte, by Vernon Sumwalt ; and AARP Foundation, by Ali Naini, for amicus curiae AARP and AARP Foundation.

EARLS, Justice.

¶ 1 In this case, a class of more than 220,000 former State employees (the Retirees) sued the State of North Carolina and various officials and agencies (the State) after the General Assembly enacted a statute that eliminated their option to remain enrolled in a premium-free preferred provider organization health insurance plan which allocated eighty percent of the costs of health care services to the insurer and twenty percent to the insured (the 80/20 PPO Plan). According to the Retirees, the State had undertaken a contractual—and thus constitutional—obligation to provide them with the option to remain enrolled in the 80/20 PPO Plan or one of equivalent value, on a noncontributory basis, for life. In response, the State argues that it never promised the Retirees the benefit of lifetime enrollment in any particular premium-free health insurance plan and that, even if it had done so, the noncontributory plan the State continues to offer provides the Retirees with a benefit of the same or greater value than the one available to them prior to 2011, when the statute eliminating the noncontributory 80/20 PPO Plan option was enacted (the 2011 Act).

¶ 2 The trial court agreed with the Retirees and entered partial summary judgement in their favor. A unanimous panel of the Court of Appeals reversed and remanded for entry of summary judgment in favor of the State. See Lake v. State Health Plan for Tchrs. & State Emps. , 264 N.C. App. 174, 189, 825 S.E.2d 645 (2019). On discretionary review before this Court, we must answer a threshold question that divided the lower tribunals and which the parties vigorously contest: Did the State assume a contractual obligation to provide the Retirees the benefit of lifetime enrollment in the premium-free 80/20 PPO Plan or its substantive equivalent, such that the Retirees possessed a constitutionally protected vested right?

¶ 3 This Court has stated and reaffirmed that "[a] public employee has a right to expect that the retirement rights bargained for in exchange for his loyalty and continued services, and continually promised him over many years, will not be removed or diminished." Bailey v. State , 348 N.C. 130, 141, 500 S.E.2d 54 (1998) (quoting Simpson v. N.C. Local Gov't Emps.’ Ret. Sys. , 88 N.C. App. 218, 224, 363 S.E.2d 90 (1987), aff'd per curiam , 323 N.C. 362, 372 S.E.2d 559 (1988) ). We have recognized that this right protects state employees’ pensions and also encompasses other forms of benefits. See, e.g. , N.C. Ass'n of Educators v. State , 368 N.C. 777, 786 S.E.2d 255 (2016) ( NCAE ) (holding that teachers possessed a protected right in their status as "career teachers"). It is understandable that the Retirees—who, before 2011, were eligible to remain enrolled in the 80/20 PPO Plan without paying a premium—would perceive being required to pay a premium to remain enrolled in the 80/20 PPO Plan as diminishing their bargained-for rights. For the reasons explained below, we agree with the trial court that the Retirees enjoyed a constitutionally protected vested right in remaining enrolled in the 80/20 PPO Plan or its substantive equivalent on a noncontributory basis.

¶ 4 Nonetheless, the Retirees are entitled to receive only the benefit of the bargain they struck with the State and nothing more. To prevail on their claims arising under Article I, Section 10 of the United States Constitution (the Contracts Clause), the Retirees must also demonstrate that the General Assembly "substantially impaired" their contractual rights when it eliminated the option of enrolling in the premium-free 80/20 PPO Plan. Bailey , 348 N.C. at 151, 500 S.E.2d 54. And even if the Retirees meet this burden, the State must be afforded the opportunity to show that the impairment was "reasonable and necessary to serve an important public purpose" and was thus not in violation of the Contracts Clause. Id. at 141, 500 S.E.2d 54 (citing U.S. Tr. Co. of N.Y. v. New Jersey (U.S. Trust ), 431 U.S. 1, 97 S.Ct. 1505, 52 L.Ed.2d 92 (1977) ).

¶ 5 These latter two questions—whether a contract has been "substantially impaired" and whether any such impairment is "reasonable and necessary"—are particularly fact-intensive. Answering them requires a careful examination of the plans made available to the Retirees when their respective rights to health insurance coverage vested and a comparison of those plans to the ones the State currently offers. Although the 2011 Act plainly requires the Retirees to pay a premium to remain enrolled in a plan previously offered on a noncontributory basis, many variables besides a premium—such as the size of a plan member's deductibles and co-pays, and the scope of coverage the plan affords—affect the value of a health insurance plan. Furthermore, in a rapidly changing world of dramatic medical advances and evolutions in how health care is financed, including changes to the State's overall health insurance offerings that provide new options for retired state employees, it would be unreasonable to expect that the State would maintain the precise terms of the plans it offered in an entirely different era.

¶ 6 Accordingly, we hold that the trial court correctly determined there were no genuine issues of material fact relating to whether the Retirees possessed a vested right protected under the Contracts Clause. The trial court correctly concluded that the Retirees had obtained such a right. Therefore, the Court of Appeals erred in concluding that the Retirees possessed no vested rights within the meaning of the Contracts Clause. But numerous genuine issues of material fact needed to be resolved in order to answer the latter two questions—whether the 2011 Act worked a substantial impairment of the Retirees’ vested rights and whether any such impairment was reasonable and necessary. Thus, the trial court erred in summarily concluding as a matter of law on the record before it that the General Assembly violated the Retirees’ state or federal constitutional rights. Accordingly, we affirm the Court of Appeals’ decision to reverse the trial court's grant of partial summary judgment in favor of the Retirees, reverse the Court of Appeals’ decision to remand this case for entry of summary judgment in favor of the State, and remand this matter to the trial court for further proceedings not inconsistent with this opinion, including our holding that the Retirees possess a vested right.

I. Background

A. Health insurance benefits for retired state employees.

¶ 7 In 1972, the State of North Carolina began offering all state employees and retirees the opportunity to enroll in a health insurance plan. Act of July 20, 1971, ch. 1009, 1971 N.C. Sess. Laws 1588. Initially, the State provided coverage via group insurance contracts it purchased on its employees’ behalf. Id. § 1 at 1588. In 1982 the General Assembly altered this approach when it established a "Comprehensive Major Medical Plan" offered directly by the State. Act of June 23, 1982, ch. 1398, § 6, 1981 N.C. Sess. Laws (Reg. Sess. 1982) 288, 289-311 (Establishing Act). The Establishing Act codified the Major Medical Plan's terms of coverage and provided that members would be "eligible for coverage under the Plan[ ] on a noncontributory basis." Id. at 295. The plan was to be overseen by a Board of Trustees housed within the Office of State Budget and Management, id. at 298 (enacting N.C.G.S. § 135-39 (1982) ), who were directed to contract with and supervise an outside entity selected by the State Budget Officer to serve as the Plan Administrator, id. at 290-91 (enacting N.C.G.S. §§ 135-39.4 to -39.5A (1982)). A few years later, the General Assembly enacted another statute providing that, going forward, retired employees would need to have been employed by the State for at least five years before becoming eligible to receive benefits under the Major Medical Plan. Act of Aug. 14, 1987, ch. 857, § 9, 1987 N.C. Sess. Laws 2098, 2101.

¶ 8 In 2005 the General Assembly enacted a law providing state employees and retirees with the option of...