You asked if a municipality could restructure its health insurance benefit plan to split retirees and active employees into two groups for risk and rating purposes.

You noted that the plan may be partially or fully self-insured. However, we do not need to know this to address your question since the federal law regarding self-insured health plans (ERISA) does not apply to government entities. Municipalities are “creatures of the state” and only have those powers granted to them pursuant to the state constitution, statute, or special act (Joslin Mfg. Co. v. City of Providence, 262 U.S. 668 (1927), Leydon v. Town of Greenwich, 57 Conn. App. 712 (2000)).  A municipality may not enlarge the grant of power from the legislature (Baker v. Norwalk, 152 Conn. 312, 318-19 (1965)).

The legislature enacted a law in 2006 that prohibits municipalities from diminishing or eliminating retiree's benefits in violation of a collective bargaining agreement (PA 06-123).  Because the law is so new, there are no case decisions that cite it.  Being untested in the courts, it is unclear whether a restructure of the plan for risk or rating purposes without a coverage change results in a diminished benefit such that the law would prohibit it.

The law does allow a municipality to change insurance carriers for the retiree's benefit plan as long as (1) the retiree benefit plan from that new carrier is at least equivalent to the previous plan benefits and (2) there is no provision in the collective bargaining agreement covering the retiree that says the retiree is entitled to the same health insurance benefits provided to active employees as a result of collective bargaining.  Again, it is unclear if the law considers premium cost to be part of the benefit plan, such that the premiums would have to be at least equivalent to those of the previous plan.

For your reference, the law follows below and the OLR Public Act Summary is enclosed:

Sec. 7-459c. Retiree group health insurance benefits. Restriction on diminishment or elimination. Notwithstanding any provision of the general statutes or special act 01-1, no municipality or subdivision of a municipality that provides group health insurance benefits to a retiree of the municipality or subdivision as of June 2, 2006, shall diminish or eliminate such retiree's benefits in violation of any collective bargaining agreement. Nothing in this section shall be construed to prohibit such municipality or subdivision from selecting an alternative insurance carrier to provide such retiree's benefits as long as the benefits provided by the alternative insurance carrier are at least equivalent to the benefits previously provided by such municipality or subdivision to such retiree, unless such retiree, as of the effective date of such employee's retirement, is covered by a collective bargaining agreement, negotiated in accordance with the provisions of sections 7-467 to 7-477, inclusive, with a provision specifying that such retiree is entitled to the same health insurance benefits provided to active employees of the municipality as a result of collective bargaining. (History: P.A. 06-123 effective June 2, 2006.)

JKL:ts