Michigan ‘deduction’ for retiree health care rejected by court

Stateline Midwest Vol. 20, No. 9: September 2011

A Michigan law that reduced the pay of current state workers to offset the state’s retiree health care costs has been ruled unconstitutional. If the decision stands, lawmakers will have to find a way of making up for the annual loss of $75 million — the amount estimated to come from the 3 percent paycheck “deduction,” the Detroit Free Press reports. (A similar measure affecting teachers is also being challenged.)

The Michigan Appeals Court ruled that the Legislature had wrongly encroached on the constitutional authority of the state’s Civil Service Commission. Only a two-thirds vote of the Legislature can override a wage increase, as set by the commission via the collective bargaining agreement reached with state employees. The 3 percent deduction, or “contribution,” was passed by a simple legislative majority and amounted to a pay cut, the judges ruled, noting the money would go toward paying the health care costs of retired, rather than current, workers.

Three Midwestern states (Michigan, along with Illinois and Ohio) cover most or all of the health care premiums of retired state workers. The other eight states in the region require workers to take on much of this cost burden, though retirees in states such as Wisconsin and Iowa can “cash in” their unused sick leave to pay for their premiums.