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Court News Ohio

Reemployed Retirees Can Pursue Legal Claim for Health Insurance Subsidies

The Ohio Supreme Court today allowed a group of public employees to continue their legal challenge to the way the state’s largest public employee retirement system helps pay for the cost of healthcare insurance.

A Supreme Court majority ruled that a class-action lawsuit should return to a Franklin County trial court for further proceedings. Writing for the Court majority, Chief Justice Maureen O’Connor stated the plaintiffs sufficiently alleged that the Ohio Public Employees Retirement System (OPERS) has not provided a rational reason for providing retirees who become reemployed with public employers in the OPERS system with a lower healthcare insurance subsidy than other retirees.

The Court affirmed a Tenth District Court of Appeals’ decision, which found the Franklin County Common Pleas Court improperly dismissed the case before the parties conducted discovery and presented their fuller cases to the court.

Justices Judith L. French, Michael P. Donnelly and Melody J. Stewart joined the opinion. Justice Patrick F. Fischer joined in judgment only, urging the Court to review how it analyzes claims alleging a violation of the equal protection clause in Article I, Section 2 of the Ohio Constitution.

In a dissenting opinion, Justice R. Patrick DeWine stated that when a person’s fundamental rights are not at risk, the government’s policy need only be rational. He wrote that the OPERS policy seemed “eminently reasonable” and might be reasonably thought to advance the goals of conserving OPERS funds and discouraging retired employees from “double dipping.” Justice Sharon L. Kennedy joined Justice DeWine’s opinion.

Retiree Objects to Subsidy Cut
Jeffrey P. Sherman retired from the Ohio Department of Taxation in 2009. As an OPERS member, he earned retirement benefits, which also included eligibility for health insurance. In May 2010, Sherman took a part-time position with the Regional Income Tax Agency (RITA), which is also a public employer within the OPERS network.

Upon becoming reemployed with RITA, Sherman began to earn a salary from RITA while he also received his OPERS pension. Sherman did not earn additional pension benefits through his reemployment with RITA, but both he and RITA had to make retirement contributions to OPERS on his behalf. Those payments would be returned to him at a later time.

Sherman also received a subsidy from OPERS designed to offset the costs of purchasing health insurance through OPERS. But OPERS reduced the subsidy for individuals who, like Sherman, become reemployed with an employer within the OPERS network.  Based on this, Sherman filed a class-action lawsuit against OPERS in 2017. Retirees who took jobs with government agencies covered by one of Ohio’s other four retirement systems or with a non-government employer did not have their subsidies reduced, and Sherman claimed the reduction of his subsidy violated the equal protection clause of the Ohio Constitution.

Trial Court Rejects Class-Action Claim   
OPERS asked the trial court to dismiss the case, arguing that Sherman failed to sufficiently allege that retirees who become reemployed with OPERS employers were similarly situated to other retirees, to whom OPERS provided the full subsidy. The court agreed with OPERS that retirees receiving both a public pension and a taxpayer-supported salary are not similarly situated to retirees in jobs not covered by OPERS and who are not receiving both benefits. It dismissed the case.  Sherman appealed to the Tenth District, which reversed the trial court. OPERS appealed to the Supreme Court, which agreed to hear the case.

Court Analyzes Equal Protection Rights
Article I, Section 2 of the Ohio Constitution states: “All political power is inherent in the people. Government is instituted for their equal protection and benefits, and they have the right to alter, reform, or abolish the same, whenever they may deem it necessary; and no special privileges or immunities shall even be granted, that may not be altered, revoked, or repealed by the General Assembly.”

Chief Justice O’Connor explained that, generally speaking, the provision requires that the government treat all similarly situated persons alike. In cases, like this, that do not involve a fundamental right or a class of people who have faced historic discrimination, the equal protection clause only requires the government to have a rational basis for any law or policy that treats people differently, the opinion explained. The Court stated that a law is tested under this standard by first determining if the government has a “valid state interest” for imposing the policy and then determining whether the means through which the state chooses to advance the interest are rational.

Court Assessed Retirement System’s Reasoning
OPERS argued it had a valid interest in responsibly managing OPERS funds and that reducing the subsidy to retirees in OPERS-covered positions was a valid way to achieve that goal.

The system maintained it can assume reemployed retirees do not need the subsidy as much as those who are not reemployed. OPERS also argued it would incur additional costs and administrative burdens if it had to identify the employment status of all retirees. It stated it had an easy way to identify retirees reemployed in OPERS-covered positions because OPERS-covered employers must report to the system when they employ an OPERS-pension recipient. Private employers and those covered by the other state retirement systems, by contrast, do not have to report to OPERS that they are employing an OPERS retiree.

Sherman countered that OPERS arbitrarily assumes reemployed retirees have less need for the subsidy without considering their actual income. He also maintained OPERS could easily identify those who become reemployed outside the OPERS network because the system regularly asks retirees to provide information. For example, he noted the system regularly asks retirees to select insurance coverage and provide their Medicare ID number, and it would not be a burden to ask retirees at that time whether they are reemployed.

The Court majority determined that Sherman presented enough of an argument concerning its allegations to negate OPERS’s reasons for reducing the subsidy. The Court said it expressed no opinion on what further information might be produced when the parties complete discovery or what conclusion should be reached based on the results of the discovery. The opinion stated that it will be up to the trial court to first address the merits of the case.

Court Should Revisit Equal Protection Test, Concurrence Stated
In his concurrence, Justice Fischer noted the wording of Ohio’s equal protection clause differs significantly from the Fourteenth Amendment, which states that “[n]o State shall… deny to any person within its jurisdiction the equal protection of the laws.”

Justice Fischer stated that in prior decisions he has questioned the Court’s analysis of the state equal protection clause using decisions regarding the federal equal protection clause. He noted this case was not appropriate to consider how to interpret the Ohio provision because the parties did not address the matter in their arguments before the Court. Yet, he wrote that the Court has a duty to interpret this clause of the Ohio Constitution and should avoid blindly applying federal law to this clause.

OPERS Empowered to Limit Subsidy, Dissent Maintained
Justice DeWine explained that even if a particular government policy leads to outcomes that seem unfair, it does not mean there is an equal-protection violation. He stated that “when the government allocates benefits, there will almost always be a strong argument that some group of individuals got too little and another got too much.”  But just because the government draws imperfect lines does not mean that the classification violates the constitution, the dissent stated.

The dissent noted that under established precedent , judicial restraint was the modus operandi when it comes to reviewing economic regulations like those at issue here.  Only when a classification has been found to be “wholly arbitrary” will it be ruled unconstitutional, the dissent stated.  OPERS advanced a plausible rationale for the rule, conserving taxpayer dollars, the dissent maintained, and further, discouraging retired employees from double dipping is a reasonable policy goal.

“After all, it is a practice that rankles many citizens,” Justice DeWine noted.

2019-0373. Sherman v. Ohio Pub. Emps. Retirement Sys., Slip Opinion No. 2020-Ohio-4960.

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