Feb. 12, 2015 – A Milwaukee ordinance that prospectively eliminated Medicare Part B premium reimbursements in retirement for county attorneys and health care workers did not violate the workers’ vested contract rights, the Wisconsin Supreme Court has ruled.
The Wisconsin Federal of Nurses and Health Professionals and the Association of Milwaukee County Attorneys challenged a county ordinance that took effect in 2012.
The ordinance excluded those union members, and other specific unions, from a provision that lets retired members of the county’s retirement system get reimbursed for the cost of their Medicare Part B premiums, as well as premiums for family members. Medicare Part B covers surgeries, doctor visits, and lab tests, among other things.
The workers excluded by the new ordinance argued that they had a vested contract right in the Medicare Part B reimbursements during retirement, even though they weren’t yet retired, and the ordinance impaired that vested contract right.
The circuit court granted summary judgment to the unions, but a state appeals court reversed. In Wisconsin Federation of Nurses and Health Professionals v. Milwaukee County, 2015 WI 15 (Feb. 12, 2015), a Wisconsin Supreme Court majority (5-2) affirmed the appeals court and ordered the circuit court to dismiss the complaint.
The Retirement Scheme
More than 75 years ago, the Wisconsin Legislature required counties with populations of more than 500,000 to establish retirement systems for employees. Milwaukee created its retirement system in 1938, but it was controlled by the state.
Under the retirement system, each member had a vested right to benefits. Under state law, those rights could not be “diminished or impaired by subsequent legislation or by any other means without his consent.” Milwaukee first offered health benefits in 1955.
County ordinance determined the health benefit. In 1965, the state granted “home rule authority” to Milwaukee with respect to the county retirement system.
The county could make any necessary or desired changes for continued operation, but the changes still could not impair vested rights. In 1967, the county offered health insurance benefits to retired employees through changes to the county ordinances.
In 1989, Milwaukee changed the ordinances to limit the employees who qualified for health insurance benefits in retirement. Only persons who started working for the county before July 31, 1989, could receive such retirement benefits. In addition, only those who worked 15 years or more could receive the health insurance benefits in retirement.
In 2011, the county amended the ordinance that gave Medicare Part B reimbursements to eligible employees in retirement. Members of the county attorney union could not receive reimbursements if they retired after 2011. Members of the health care worker union could not receive Medicare reimbursements if the retired after 2012.
Workers who didn’t retire but had previously qualified for the Medicare reimbursements filed the lawsuit, arguing the change impaired their vested right to those benefits.
Majority Says No Vested Rights
The majority, in an opinion by Justice Patience Roggensack, said eligible county employees have vested rights in pension and death benefits, but not health benefits.
The majority noted that Milwaukee County obtained home rule authority to change the retirement system years before it began offering health benefits to retirees. Thus, state law forbidding impairment with vested rights did not apply to health benefits.
“[T]he State never controlled health insurance as it once controlled the pension and death benefits found in [Milwaukee ordinances],” Roggensack wrote. “[T]he home rule amendment had no effect on whether the County could alter the terms under which it would reimburse working employees for Medicare Part B premiums when they retire.”
The majority noted that health benefits to retirees, as separate from vested pension and death benefits, only vested when a person retired, under the county ordinance. And the plaintiffs had an opportunity to receive the benefit if they retired, but they didn’t.
“[P]laintiffs were eligible for the benefit they seek; however, they chose not to satisfy the necessary conditions to cause the opportunity Milwaukee County provided to ripen into a vested contract right during the period of time the opportunity was available,” explained Justice Roggensack, noting the conclusion was consistent with a prior ruling.
Justice David Prosser noted that “the result here seems to be unfair.” But he also concluded that a different result cannot be reached.
“It is not possible to conclude that county employees … have vested rights to Medicare Part B premium reimbursement before they retire … without gravely impairing a county government’s ability to manage its fiscal affairs,” Justice Prosser wrote.
Justice Prosser noted federal law (ERISA) that protects private employees who participate in pension plans, suggesting the legislature should look at the issue:
“Something similar may be necessary in Wisconsin so that we can step back from the immediacy of the fiscal crises faced by public employers and develop a strategy to protect public finances without betraying the trust owed to loyal public employees.”
Chief Justice Shirley Abrahamson, joined by Justice Ann Walsh Bradley, wrote a 31-page dissenting opinion. She says the plaintiffs’ health benefits vested at hiring.
“Try as it might, the majority opinion is not credible it its attempt at separating reimbursement of Medicare Part B premiums from the other benefits provided by MCERS or in its attempt at circumventing the text of the governing state session laws and Milwaukee County ordinances,” wrote Chief Justice Abrahamson.
The chief justice noted, pointing to Prosser’s concurrence, that Milwaukee County did not defend the 2011 amendments on the ground of public economic emergency.