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Constitutional — Contract – Labor & Employment – Public Employees – Health Insurance

Although the statutes enacting the State Health Plan did not themselves establish a contract requiring the state to provide a premium-free preferred provider organization health insurance plan which allocated 80 percent of the costs of health care services to the insurer and 20 percent to the insured (the 80/20 PPO Plan), the plaintiff-Retirees’ undisputed evidence establishes that the 80/20 PPO Plan an important part of state employees’ acceptance of and continuation in employment with the state. The Retirees’ undisputed evidence also shows their reasonable reliance on the state’s representations.

We reverse the Court of Appeals’ reversal of the trial court’s ruling that the Retirees possessed a vested right protected under the Contracts Clause of the U.S. Constitution. However, genuine issues of material fact make summary judgment inappropriate on the questions of whether the statute eliminating the noncontributory 80/20 PPO Plan option (the 2011 Act) worked a substantial impairment of the Retirees’ vested rights and whether any such impairment was reasonable and necessary.

If a statute provides benefits in the form of immediate compensation deferred until retirement, then the employee’s right to the benefit vests when the contract is formed. By contrast, if a statute provides benefits for which an employee only becomes eligible after certain conditions are met, then the employee’s right to the benefit vests when he or she satisfies the relevant eligibility criteria.

The undisputed evidence establishes that, as the trial court found, “the [State] offered [the Retirees] certain premium-free health insurance benefits in their retirement if they worked for the State … for a requisite period of time” and that the “promise” of this benefit was “part of the overall compensation package” state employees reasonably expected to receive in return for their services.

Undisputed evidence illustrates that all parties understood the state to have undertaken an obligation to provide continued premium-free health insurance coverage to retirees who had satisfied the statutory eligibility requirements. While this evidence does not prove that the General Assembly acted with an express intent to contract, it demonstrates the reasonableness of the Retirees’ belief that lifetime eligibility for enrollment in a premium-free health insurance plan was an inducement to employment and a part of their overall compensation package.

The legislative history, including the General Assembly’s frequent use of the terms “vested” and “obligation” in reference to its future payment of retirees’ health insurance premiums, is further support for the proposition that the Retirees have demonstrated that they and the state shared a common understanding of what this benefit represented.

In press releases, benefits booklets, and training materials, the state conveyed to its employees that, after completing the applicable service eligibility requirements, they would be entitled to health insurance coverage “for life.”

Once state employees met the applicable statutory eligibility requirements and became eligible to enroll in a noncontributory health insurance plan, their right vested to enroll in a plan offering equivalent or greater value to the one offered to them at the time the contract was formed. Accordingly, we overrule the Court of Appeals’ determination that the Retirees had failed to prove the existence of a vested right subject to protection by the Contracts Clause.

Substantial Impairment

Recognizing that the Retirees’ vested rights have a substantive component does not resolve whether those rights were substantially impaired. To answer that question, the Retirees needed to (1) demonstrate a method for objectively determining the value of a health insurance plan, one that accounted for the numerous variables influencing the “value” of a health insurance plan to a plan member; (2) establish the baseline value of the health insurance plan offered to each Retiree when his or her right to retirement health insurance benefits vested; and (3) show that the plans currently offered by the State are substantially less valuable than those baseline plans. Given the conflicts in the evidence, the trial court erred in resolving these issues on summary judgment.

If, on remand, the trial court determines that the 2011 Act substantially impaired the Retirees’ contractual rights, the final question is whether the impairment was “a reasonable and necessary means of serving a legitimate public purpose.”

As to this question, there are also genuine disputes about material facts which require further development at trial. In particular, there are the State’s asserted interest in avoiding an “estimated thirty-five billion dollars in unfunded future outlays” and the Retirees’ rejoinder that “there were a multitude of methods to stabilize the State Health Plan without impairing vested rights.”

Finally, on remand, the trial court must reassess the Retirees’ Law of the Land Clause claim in light of its resolution of the parties’ dispute regarding the value of the noncontributory plans offered by the state to Retirees at various times.

Affirmed in part, reversed in part and remanded.


(Barringer, J.): Because the evidence in the record, when viewed in the light most favorable to the state, creates a genuine issue of material fact as to whether any contractual obligation is present, we should also remand that issue to the trial court for resolution by the fact-finder.

Lake v. State Health Plan for Teachers & State Employees (Lawyers Weekly No. 010-027-22, 61 pp.) (Anita Earls, J.) (Tamara Barringer, J., joined by Philip Berger, J., concurring in part & dissenting in part) (Paul Newby, C.J., not participating) Appealed from Gaston County Superior Court (Edwin Wilson, J.) On discretionary review from the Court of Appeals. Michael Carpenter, Christopher Whelchel, Marcus Carpenter, Marshall Walker, Sam McGee, Gary Jackson and Bryan Boyd for plaintiffs; Ryan Park and Marc Bernstein for defendants; Michael McGuinness, Verlyn Chesson Porte, Vernon Sumwalt and Ali Naini for amici curiae. 2022-NCSC-22

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