River City Fraternal Order of Police Lodge 614, Inc. v. Ky. Ret. Sys.

• Decision Date: 08 June 2021
• Docket Number: Nos. 20-5773/5778,s. 20-5773/5778
• Citation: 999 F.3d 1003
• Parties: RIVER CITY FRATERNAL ORDER OF POLICE LODGE 614, INC.; John W. Arnold; James David Wood; Gary W. Simkins; James K. Larkin, Plaintiffs-Appellees/Cross-Appellants, William M. Kerrick, Intervenor-Appellee, v. KENTUCKY RETIREMENT SYSTEMS, BY AND THROUGH its BOARD OF TRUSTEES, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

999 F.3d 1003

RIVER CITY FRATERNAL ORDER OF POLICE LODGE 614, INC.; John W. Arnold; James David Wood; Gary W. Simkins; James K. Larkin, Plaintiffs-Appellees/Cross-Appellants,William M. Kerrick, Intervenor-Appellee,

v.KENTUCKY RETIREMENT SYSTEMS, BY AND THROUGH its BOARD OF TRUSTEES, Defendant-Appellant/Cross-Appellee.

Nos. 20-5773/5778

United States Court of Appeals, Sixth Circuit.

Argued: April 27, 2021

Decided and Filed: June 8, 2021

SUTTON, Chief Judge.

Kentucky guarantees free health insurance to public servants who meet the age and years-of-service requirements. When several police officers reached the requisite age under Kentucky law, they retired and began collecting a pension and obtaining free health insurance. Before long, they each came out of retirement, started working for a different state agency, began drawing a new salary, and kept their healthcare. Or so they thought. Kentucky cancelled their health insurance and required them to pay the premiums for the insurance plan offered by their new state employer. The officers sued, claiming that the Commonwealth violated its commitment to provide free healthcare and that this broken promise violated state law. Kentucky defended the lawsuit on a single ground: Federal Medicare law made the Commonwealth do it. The district court granted summary judgment to the officers. It ordered Kentucky to reinstate the officers’ insurance and to pay retroactive money damages. We affirm the order of reinstatement, affirm the damages awards premised on newly incurred insurance premiums, and vacate and remand for further consideration the awards premised on lost wages.

I.

Over the last three decades, police officers John Arnold, James Wood, Gary Simkins, James Larkin, and William Kerrick retired from the Louisville Metropolitan police department. Before and after their service, they belonged to the River City Fraternal Order of Police Lodge 614 union. Upon retirement, each of them received free health insurance through the Jefferson County Employees Retirement System, administered by Kentucky Retirement Systems. Kentucky initially paid all of their healthcare costs. After the officers turned 65, Medicare took over as the primary payer, leaving Kentucky to cover any secondary expenses.

One by one, the officers came out of retirement. They each joined county agencies different from the ones they served before retiring, and they each earned new salaries on top of their retirement pensions. They also became eligible for the healthcare benefits of these new positions.

In 2017 or so, Kentucky discovered that the officers had reentered the workforce. It sent the officers letters informing them that federal law "mandate[d]" that it "cannot offer coverage secondary to Medicare" for retirees "eligible to be on [their] employer's group health plan" as "active employees." R.21-4 at 1. Kentucky explained that it would have to end the officers’ retirement health insurance for the duration of their reemployment. What presumably saved money for the Commonwealth—the record does not say—became a loss for each retiree. Some of the officers decided to pay for insurance through their new employers, while others decided to keep their retirement insurance by quitting their new job or going part-time in it.

The officers sued the Kentucky Retirement Systems in state court. They brought a state law contract claim and a federal statutory claim under the Medicare Secondary Payer Act. Kentucky removed the case to federal district court. The district court granted summary judgment to the officers on their state law claim and to Kentucky on their federal law claim. It ordered Kentucky to reinstate their retirement health insurance, and it awarded the officers some, but not all, of the monetary damages requested. Kentucky appeals. The officers cross appeal the district court's partial denial of damages.

II.

This appeal raises two questions: Do the officers have a cognizable breach-of-contract claim against Kentucky under state law? If so, what remedy does state law allow?

Did the Kentucky Retirement Systems breach its contract with the police officers ? Yes. Under Kentucky law, the Kentucky Retirement Systems (Kentucky for short) formed an "inviolable contract" with the officers to provide free retirement health insurance and to refrain from reducing their insurance benefits. K.R.S. §§ 78.852(1), 78.545(35) (2017). By ending the officers’ retirement insurance, Kentucky breached that contract.

At one level, Kentucky admits as much. It acknowledges that the officers became eligible for this benefit through their years of service. It acknowledges that the contract vested upon the officers’ retirement with the appropriate years of service. It does not deny that the officers may obtain new employment without undoing the existing retirement contract. And it does not deny that Kentucky waived its sovereign immunity for breach-of-contract claims like this one. K.R.S. § 45A.245 ; Commonwealth v. Ky. Ret. Sys. , 396 S.W.3d 833, 837 (Ky. 2013).

But Kentucky claims that it may avoid the implications of these confessions on one overriding ground: Federal law made it do it. As the Commonwealth sees it, the Medicare Secondary Payer Act of 1980 bars it from providing Medicare-eligible police officers with state retirement insurance after they reenter the workforce and become eligible again for employer-based insurance coverage. See 42 U.S.C. § 1395y. One premise of this argument is correct. The Supremacy Clause bars Kentucky from violating federal law. U.S. Const. art. VI, cl. 2. But the conclusion is not.

The Secondary Payer Act does not bar Kentucky from providing these reemployed police officers with this retirement insurance. Nothing in the Act or Medicare itself directs a state to remove a retiree's contract-based insurance plan. Federal law, it is true, permits the retiree to make Medicare the primary insurer, and the state plan the secondary insurer, at age 65. But it does not require the State to remove someone from their free insurance plan and force them to pay new premiums on the ground that they have come out of retirement.

The key provision invoked by Kentucky imposes no such mandate. It says that a "group health plan" (like Kentucky's retirement insurance plan) may not "take into account that an individual" is eligible for Medicare if the individual "is covered under the plan by virtue of the individual's current employment status." 42 U.S.C. § 1395y(b)(1)(A)(i)(I). The point of the provision is to prohibit insurance plans from discriminating against Medicare-eligible individuals by, say, ending their coverage or reducing their benefits once they become eligible for Medicare. See Bio-Medical Applications of Tenn., Inc. v. Cent. States Se. & Sw. Areas Health & Welfare Fund , 656 F.3d 277, 282 (6th Cir. 2011). Consistent with a key goal of the Secondary Payer Act—to lower financial burdens on Medicare—the "take into account" provision reduces government expenses by requiring private insurers to foot the bill even if the covered individual is eligible for Medicare. See Osborne v. Metro. Gov't of Nashville & Davidson Cnty. , 935 F.3d 521, 523 (6th Cir. 2019).

But this provision does not justify Kentucky's actions because it does not apply to these retired police officers. They are not "covered under" the Kentucky plan "by virtue" of their "current employment status with an employer." 42 U.S.C. § 1395y(b)(1)(A)(i)(I). To have "current employment status," an individual must be "an employee" or be "associated with the employer in a business relationship." Id. § 1395y(b)(1)(E)(ii). That does not describe the officers in the retirement plan. They are not covered by virtue of being "employee[s]" or "associated" with an employer "in a business relationship." Truth be told, Kentucky's retirement plan covers them by virtue of their non- employment. The "take into account" provision prohibits a plan from considering a person's eligibility for Medicare, not his or her eligibility for other plans.

It makes no difference that Kentucky "take[s] into account" Medicare eligibility in one sense. Once retirees become Medicare eligible, Kentucky stops providing primary insurance and instead covers only what Medicare does not. But that is permissible because Kentucky's retirement insurance plan does not cover anyone "by virtue of the individual's current employment status with an employer." Id. § 1395y(b)(1)(A)(i)(I). Nor does any of this change when retirees reenter the workforce. While reemployed retirees may have "current employment status" once again, they do not receive their retirement insurance "by virtue" of that status. They receive retirement insurance by virtue of being retired.

Precedent follows the lead of the text. In Baptist Memorial Hospital v. Pan American Life Insurance Co. , a retired postal worker held insurance both through a federal retirement plan and through his wife's employer. 45 F.3d 992, 993 (6th Cir. 1995). Under his retirement insurance, Medicare was the primary payer. Id. at 996. When the retiree was hospitalized, his two insurance providers disputed who should foot the bill. Id. at 993. The insurance contracts made the retirement insurance liable. Id. at 995–96. The Secondary Payer Act, we held, did not affect the arrangement. Id. at 996–98. Because the retirement insurance plan did "not cover [the retiree] by reason of his current employment," the plan could "make its coverage secondary to Medicare's." Id. at 996. Yes, the retiree had access to insurance under which Medicare was not the primary insurer (through his wife's employment). Id. But that did not mean that his retirement plan, under which Medicare paid primary coverage, could escape its contractual obligation to pay for his healthcare. Id. That is essentially this case.

Other circuits are like-minded. The Eleventh Circuit holds that, when an insurer covers an individual "as an inactive former employee and not as a result of her current...