On February 13, 2014, the Ninth Circuit issued an opinion in Retired Employees Association of Orange County, Inc. v. County of Orange (2/13/2014) 9th Cir. 12-56706. The Retired Employees Association of Orange County (“REAOC”) filed a lawsuit against the County of Orange when the County decided to stop pooling retired and active employee health insurance premiums.
From 1985 to 2007, the County pooled health insurance premium rates for retired and active employees. Pooling the premiums balanced active and retiree rates and helped lower premium costs for retirees. But on January 1, 2008, the County and various labor unions reached an agreement to reform the County’s health care program. The agreement split the insurance rate pool so active employee health benefit premiums were separate from those of retired employees. REAOC sued, arguing the County’s longstanding practice of pooling premiums, and the County’s representations to employees regarding that practice, created an implied contract right for employees who retired prior to January 1, 2008.
California law states where a County intended to create a contractual obligation by resolution or ordinance, the contract may include implied terms derived from experience and practice. The California Supreme Court stated vested health benefits can be implied under certain circumstances from a county ordinance or resolution.
REAOC contended the County established a vested right for retirees to have their health benefit premiums pooled in the future by adopting the pooling scheme year after year.
However, the Ninth Circuit held the resolutions supported enrollment in County health plans at a specific rate for a given year, but did not create a vested right to have benefit premiums pooled in the future. In other words, the Board’s approval of health premium pooling in years prior, by itself, did not create an ongoing contractual right.