Opinion ID: 3066141
Heading Depth: 2
Heading Rank: 1

Heading: history of the county’s pooled benefits

Text: This suit arises from the County’s decision to stop pooling retired and active employee health insurance premiums. The County first began providing group medical insurance for its retired employees in 1966. The County subsequently decided to cover retiree health insurance premium costs through a monthly grant. Over a decade later, the County’s Board of Retirement (“Retirement Board”) voted, due to budgetary concerns, to stop providing monthly grants for prospective retirees but to continue the grants for employees retiring before June 28, 1979. Orange Cnty. Emps. Ass’n v. Cnty. of Orange, 234 Cal. App. 3d 833, 839 (1991). This decision provoked the first round of benefits litigation, which took six years to wind its way through the California courts. Id. at 837, 845. The Orange County Employees Association (“OCEA”) and other unions asked the County Board of Supervisors (“Board”) to override the Retirement Board’s decision on statutory grounds, but the Board refused.1 Orange Cnty. Emps. Ass’n, 234 Cal. App. 3d at 837–41. The California Court of Appeal ruled that “the statutory scheme permits local agencies to consider the differences between retired and 1 The County requires the Board to approve organized employee and personnel compensation by resolution. Orange County, Cal., Code of Ordinances tit. 1, div. 3, art. 1, § 1-3-2; see also Cal. Gov’t Code § 25300 (2013). The Board approves retiree compensation through collective bargaining agreements with labor representatives known as Memoranda of Understanding (“MOUs”). See Harris v. Cnty. of Orange, 682 F.3d 1126, 1129 (9th Cir. 2012). Upon adoption by the Board, these MOUs become binding. REAOC V. COUNTY OF ORANGE 5 active employees in providing health benefits.” Id. at 843. The court of appeal also upheld the County’s decision, stating that the relevant statute “does not mandate equal treatment of active and retired employees.” Id. at 841. Apart from the dispute over responsibility for payment of premiums, another cost dispute began to brew over premium rates. From 1966 through 1984, on an annual basis, the County approved one premium rate for active employees and another rate for retired employees. Under this separate premium rate structure, the Board intended for each group’s premiums to cover that group’s claims and administrative costs. Then, starting in 1985 and continuing through 2007, the County decided to pool health insurance premium rates for retired and active employees. The Board approved the pooled premium to “equaliz[e] active and retiree rates” and to resolve a $900,000 budget shortfall for retiree healthcare costs that resulted from a large number of retiree insurance claims mistakenly being reported as active employee claims. Pooling retiree premium rates with those of active employees immediately increased retiree rates by 72% on average, a less drastic measure than the alternative considered of increasing only retiree premium rates by 112% on average. Over time, however, the pooled premium substantially subsidized retiree premium rates. According to expert testimony, the pooled premium remained an important issue in negotiations between the Board and the unions. The Board approved these pooled health plan rates on a yearly basis. The County continued to face mounting budgetary concerns, caused in part by high health insurance premium costs. In 2004, the County conducted a review of its retiree 6 REAOC V. COUNTY OF ORANGE health insurance program. After further negotiations between the County and various labor unions, the parties reached an agreement, effective January 1, 2008, to reform the County’s health care program. In relevant part, the agreement split the insurance rate pool. This pool splitting meant that active employee health benefit premiums would be calculated separately from those of retired employees. Although REAOC did not directly participate in these negotiations, it did take part in related discussions with other labor unions and the County.