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Manhattan Institute

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Inviolable — or Not: The Legal Status of Retiree Medical Benefits for State and Local Employees

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Inviolable — or Not: The Legal Status of Retiree Medical Benefits for State and Local Employees

March 31, 2016
Urban PolicyPublic Sector ReformTax & Budget
Public SectorOther

Abstract

When U.S. state and local governments eliminate or reduce retiree medical benefits—one of the most important contributors to these governments’ long-term fiscal imbalances—such actions typically face legal challenges. This paper examines the legal framework and protections that apply to state and local government retiree medical benefits to help stakeholders better understand the extent of legal rights to such benefits.

Key Findings

  • The protection of retiree medical benefits varies significantly by state and circumstance: employees who are covered by a collective bargaining agreement that grants retiree medical benefits typically have greater legal protection against benefit changes, compared with employees who must establish legal protection through nontraditional contract forms, such as those arising from legislation or employee handbooks.
  • Of the ten states reviewed herein, three—Illinois, New York, and Pennsylvania—provide significant protection for retiree medical benefits, either through explicit statutory provisions or through case law suggesting that retiree benefits vest for life in the absence of explicit language to the contrary; five states—California, Connecticut, Michigan, New Jersey, and Texas—provide a moderate level of protection, with the specifics varying significantly from case to case; and two states—Alabama and Ohio—lack sufficient legal precedent to make any generalizations regarding the legal approach typically used.
  • More precise contract language could prevent many retiree medical legal disputes: collective bargaining agreements providing for retiree medical benefits should specifically state the duration of such benefits, the substance of the coverage to be provided, and the ability, if any, of the employer to make changes to the cost-sharing provisions of such coverage; outside the collective bargaining context, employers should clearly communicate whether the benefits should be considered contractual.

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