Studier v. MPSERB, Docket No. 125765

• Court: Supreme Court of Michigan
• Writing for the Court: TAYLOR, C.J.
• Citation: 698 N.W.2d 350,472 Mich. 642
• Parties: Alberta STUDIER, Patricia M. Sanocki, Mary A. Nichols, Laviva M. Cabay, Mary L. Woodring, and Mildred E. Wedell, Plaintiffs-Appellants, v. MICHIGAN PUBLIC SCHOOL EMPLOYEES' RETIREMENT BOARD, Michigan Public School Employees' Retirement System, Department of Management and Budget, and Treasurer of Michigan, Defendants-Appellees, Alberta Studier, Patricia M. Sanocki, Mary A. Nichols, Laviva M. Cabay, Mary L. Woodring, and Mildred E. Wedell, Plaintiffs-Appellees, v. Michigan Public School Emloyees' Retirement Board, Michigan Public School Employees' Retirement System, Department of Management and Budget, and Treasurer of Michigan, Defendants-Appellants.
• Decision Date: 28 June 2005
• Docket Number: Docket No. 125766. COA. No. 2.,Docket No. 125765

698 N.W.2d 350
472 Mich. 642

Alberta STUDIER, Patricia M. Sanocki, Mary A. Nichols, Laviva M. Cabay, Mary L. Woodring, and Mildred E. Wedell, Plaintiffs-Appellants,
v.
MICHIGAN PUBLIC SCHOOL EMPLOYEES' RETIREMENT BOARD, Michigan Public School Employees' Retirement System, Department of Management and Budget, and Treasurer of Michigan, Defendants-Appellees,
Alberta Studier, Patricia M. Sanocki, Mary A. Nichols, Laviva M. Cabay, Mary L. Woodring, and Mildred E. Wedell, Plaintiffs-Appellees,
v.
Michigan Public School Emloyees' Retirement Board, Michigan Public School Employees' Retirement System, Department of Management and Budget, and Treasurer of Michigan, Defendants-Appellants

Docket Nos. 125765, 125766. COA. No. 2.

Supreme Court of Michigan.

June 28, 2005.

698 N.W.2d 353

White, Schneider, Young & Chiodini, P.C. (by Karen Bush Schneider, James A. White, and J. Matthew Serra), Okemos, MI, for the plaintiffs

Michael A. Cox, Attorney General, Thomas L. Casey, Solicitor General, and Larry F. Brya, Tonatzin M. Alfaro Maiz, and Suzanne R. Dillman, Assistant Attorneys General, Lansing, MI, for the defendants.

Keller Thoma, P.C. (by Dennis B. DuBay, Richard W. Fanning, Jr., and Barbara A. Rohrer), Detroit, MI, for amici curiae the Michigan Municipal League and the Michigan Townships Association.

Miller, Canfield, Paddock and Stone, PLC (by Orin D. Brustad and Larry J. Saylor), and Butzel Long (by Robert G. Buydens and John H. Dudley, Jr.), Detroit, MI, for amici curiae the Board of Governors of Eastern Michigan University, Central Michigan University, Lake Superior State University, Western Michigan University, Northern Michigan University, Ferris State University, and Michigan Technological University.

Fletcher Clark Tomlinson Fealko & Monaghan, P.C. (by Gary A. Fletcher and William L. Fealko), Port Huron, MI, for amici curiae County of St. Clair.

Thrun Law Firm, P.C. (by C. George Johnson and Roy H. Henley), Lansing, MI, for amici curiae Michigan Association of School Boards, Michigan School Business Officials, and Michigan Association of School Administrators.

TAYLOR, C.J.

We granted leave in this case to consider two issues. The first is whether health care benefits paid to public school retirees constitute "accrued financial benefits" subject to protection from diminishment or impairment by Const. 1963, art. 9, § 24. We hold that they do not and, accordingly, affirm the Court of Appeals determination on this issue.¹ The second issue is whether the statute establishing the health care benefits, MCL 38.1391(1), created a contract with the public school retirees that could not be changed by a later legislature because to do so would unconstitutionally impair an existing contractual obligation in violation of U.S. Const., art. I, § 10 and Const. 1963, art. 1, § 10. The Court of Appeals determined that MCL 38.1391(1) established a contract, but that the Legislature's subsequent changes were insubstantial and, thus, there was no constitutionally impermissible impairment of contract. The Court of Appeals erred on this issue because MCL 38.1391(1) did not create a contract. However, because the Court of Appeals reached the correct result, we affirm its determination that the circuit court properly entered summary disposition in defendants' favor.

I. FACTUAL HISTORY AND PROCEDURAL POSTURE

The Michigan Public School Employees' Retirement Board (board) began providing a health care plan for public school retirees in 1975 pursuant to amendments made by 1974 PA 244 to the former Public School Employees Retirement Act, 1945 PA 136, which was the predecessor of the current Public School Employees Retirement Act, 1980 PA 300, MCL 38.1301 et

698 N.W.2d 354

seq. Since that time, participants in the plan have been required to pay deductibles and copays for prescription drugs, and the amounts of the deductibles and copays have gradually increased throughout the years because of numerous amendments the board has made to the plan to reflect the rising costs of health care and advances in medical technology. The present case arises from the two most recent amendments made to the plan by the board. The first amendment became effective on January 1, 2000, and increased the amount of the deductibles that retirees are required to pay. The second amendment occurred on January 21, 2000, and increased the copays and out-of-pocket maximums that retirees are required to pay for prescription drugs. The Court of Appeals succinctly summarized those amendments as follows

The amendments modified the plan's prescription drug copayment structure and out-of-pocket maximum for prescription drugs effective April 1, 2000, and also implemented a formulary effective January 1, 2001. A formulary is a preferred list of drugs approved by the federal Food and Drug Administration that is designed to give preference to those competing drugs that offer the greatest therapeutic benefit at the most favorable cost. Existing maintenance prescriptions outside the formulary were grandfathered in and subject only to the standard copayment of twenty percent of the drug's cost, with a $ 4 minimum and a $20 maximum.

The prescription drug copayment was changed to a twenty percent copay, with a $4 minimum and $20 maximum for up to a one-month supply. The copay maximum for mail-order prescription copayment was set at $50 for a three-month supply. A $750 maximum out-of-pocket copay for each calendar year was also established. [The plan did not previously contain an annual out-of-pocket maximum.] Under the formulary, eligible persons pay an additional twenty percent of a new nonformulary drug's approved cost only when use of the nonformulary drug is not preapproved by the drug plan administrator.

The board also adopted a resolution to increase health insurance deductibles from $145 for an individual to $165, and from $290 to $330 for a family, effective January 1, 2000. The deductibles do not apply to prescription drugs.²

Plaintiffs, six public school retirees, filed suit for declaratory and injunctive relief against the board, the Michigan Public School Employees' Retirement System (MPSERS), the Michigan Department of Management and Budget, and the Treasurer of the state of Michigan. Although plaintiffs' complaint contained three counts, only counts I and II remain for our consideration. Count I alleged that the copay and deductible increases violate Const. 1963, art. 9, § 24, which prohibits the state or a political subdivision from diminishing or impairing the "accrued financial benefits" of any pension plan or retirement system it offers. Count II alleged that the copay and deductible increases violate Const. 1963, art. 1, § 10 and U.S. Const., art. I, § 10, both of which prohibit the enactment of a law that impairs an existing contractual obligation.

Both sides moved for summary disposition on these counts and the trial court granted defendants' motion pursuant to MCR 2.116(C)(10). With respect to count I, the trial court rejected plaintiffs' claim that health care benefits are "accrued financial benefits" under Const. 1963, art. 9, § 24, holding that the Court of Appeals

698 N.W.2d 355

and this Court "`have been squarely faced with the opportunity to rule on this question and have declined to do so ....'" 260 Mich.App. at 462, 679 N.W.2d 88. With respect to count II, the trial court, after noting the similarity between the MPSERS health care plan and those offered by other states, concluded that MCL 38.1391(1) does establish a contract with the plaintiffs but that, because the proportions of the total costs for deductibles and copays borne by the plaintiffs were essentially unchanged, the impairment was too insubstantial to create an impairment the law would recognize

Plaintiffs appealed to the Court of Appeals, which affirmed the trial court's ruling entirely. Thus, the panel held that health care benefits are not "accrued financial benefits" subject to protection by Const. 1963, art. 9, § 24, and that the Legislature's enactment of MCL 38.1391(1) created a contract, but the impairment was too de minimis to be recognized.

Plaintiffs applied for leave to appeal to this Court, seeking to challenge the Court of Appeals determinations that health care benefits are not "accrued financial benefits" protected by Const. 1963, art. 9, § 24 and that the deductible and copay increases implemented by the health care plan amendments are not a substantial impairment of plaintiffs' contractual right to receive health care benefits. Defendants filed an application for leave to appeal, seeking to challenge the Court of Appeals conclusion that MCL 38.1391(1) vests plaintiffs with a contractual right. We granted both applications and ordered that they be submitted together.³

II. STANDARD OF REVIEW

This Court reviews de novo a trial court's decision regarding a motion for summary disposition. Taxpayers of Michigan Against Casinos v. Michigan, 471 Mich. 306, 317, 685 N.W.2d 221 (2004). This case also involves constitutional issues, as well as issues of statutory construction. These issues are reviewed de novo by this Court. Wayne Co. v. Hathcock, 471 Mich. 445, 455, 684 N.W.2d 765 (2004).

III. ANALYSIS OF CONST. 1963, ART. 9, § 24

Const. 1963, art. 9, § 24 provides:

The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.

Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.

These two clauses unambiguously prohibit the state and its political subdivisions from diminishing or impairing "accrued financial benefits," and require them to fund "accrued financial benefits" during the fiscal year for which corresponding services are rendered. To apply this, we are called upon to...