NORMAN W. JOHNSON; CHARLES V. ROBINSON; AND JOHN L. GUMM v. LEXINGTON-FAYETTE URBAN COUNTY GOVERNMENT
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RENDERED: MARCH 30, 2007; 2:00 P.M.
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Commonwealth of Kentucky
Court of Appeals
NO. 2006-CA-000124-MR
&
NO. 2006-CA-000191-MR
NORMAN W. JOHNSON;
CHARLES V. ROBINSON; AND
JOHN L. GUMM
v.
APPELLANTS/CROSSAPPELLEES
APPEAL AND CROSS-APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE MARY C. NOBLE, JUDGE
ACTION NO. 00-CI-03636
LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT
APPELLEE/CROSSAPPELLANT
OPINION
REVERSING AND REMANDING AS TO THE DIRECT APPEAL
AND
AFFIRMING AS TO THE CROSS-APPEAL
** ** ** ** **
BEFORE: ACREE, DIXON, AND KELLER, JUDGES.
KELLER, JUDGE: This matter is before the Court on the appeal of Norman Johnson,
Charles V. Robinson, and John L. Gumm (Appellants) from the Fayette Circuit Court's
ruling that Lexington-Fayette Urban County Government's1 (LFUCG) Ordinance 3661
We note that, during some of the time in question, there was no unified Lexington-Fayette
Urban County Government. However, the existence of the unified government is not an issue in
this matter. Therefore, we will refer to the governmental entity as LFUCG regardless of the time
2000 is constitutional and on the cross-appeal by LFUCG from the circuit court's ruling
that Ordinance No. 217-99 required LFUCG to provide health insurance benefits to
Appellants. We reverse and remand as to the direct appeal and affirm as to the crossappeal.
FACTS
The basic facts in this matter are not in dispute. LFUCG provided health
insurance to its employees through a group plan (the Plan). When an employee retired,
he or she was given the option of continuing to participate in the Plan. Prior to 1999, if a
retired employee continued to participate in the Plan, that employee was responsible for
paying 100% of the premium. A retired employee could opt out of the Plan; however, the
opt out provision was irrevocable and, once out, a retired employee could not re-join the
Plan.
Appellant, John Gumm, is 82 years of age. He worked for the LFUCG Fire
Department from 1950 until his retirement in 1980. Following his retirement, Gumm
continued his group health insurance with the Plan until 1988, when he qualified for
Medicare and opted out of the Plan.
Appellant, Charles Robinson, is 82 years of age. He worked for the
LFUCG Fire Department from 1953 until his retirement in 1991. When he retired,
Robinson declined to continue his group health insurance and opted out of the Plan.
Appellant, Norman Johnson, is 60 years of age. He worked for the LFUCG
Fire Department from 1969 until his retirement in 1983 following a heart attack. Johnson
frame.
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continued his group health insurance until 1988 when he opted out of the Plan. At some
point in the 1990s, Johnson sought to re-join the Plan and was advised that he could not
do so.
In 1998, LFUCG began to explore the possibility of paying the health
insurance premiums for retired employees. To that end, LFUCG formed an Ad Hoc
Committee (the Committee) to study possible options and to make recommendations
regarding the implementation of a plan to pay said premiums. The Committee held a
number of meetings and ultimately recommended that LFUCG undertake payment of
health insurance premiums for retirees who had continued in the Plan (the continuous
retirees). However, the Committee recommended that LFUCG exclude retirees who had
opted out of the Plan (the opt out retirees).
After obtaining the Committee's report, LFUCG adopted Ordinance No.
217-99, which reads as follows:
AN ORDINANCE CREATING SECTIONS 6-69.6 AND 2336.5 OF THE CODE OF ORDINANCES TO PROVIDE
FOR THE PAYMENT OF PREMIUMS FOR GROUP
HEALTH INSURANCE SINGLE PLAN COVERAGE FOR
MEMBERS OF THE CITY EMPLOYEES [sic] PENSION
FUND AND THE POLICEMEN’S AND FIREFIGHTERS’
RETIREMENT FUND OF THE LEXINGTON-FAYETTE
URBAN COUNTY GOVERNMENT WHO RETIRED
PRIOR TO JULY 1, 1999, AT THE RATE OF FIFTY
PERCENT (50%) FOR THE PERIOD FROM JULY 1, 1999
TO JUNE 30, 2000 AND UP TO ONE HUNDRED
PERCENT (100%) FOR THE PERIOD FROM JULY 1,
2000 TO JUNE 30, 2001 AND THEREAFTER, AND TO
MAKE SUCH COVERAGE AVAILABLE TO THE
SPOUSE, DEPENDENTS, AND DISABLED CHILDREN
OF A QUALIFIED PARTICIPATING RETIREE IF THE
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PREMIUM FOR SUCH COVERAGE IS PAID BY THE
RETIREE.
BE IT ORDAINED BY THE COUNCIL OF THE
LEXINGTON-FAYETTE URBAN COUNTY
GOVERNMENT:
Section 1 - That Section 6-69.6 of the Code of Ordinances be
and hereby is created to read as follows:
(a) All members of the City Employees
Pension Fund who retired prior to July 1, 1999,
shall be eligible to participate in a group health
insurance plan (providing hospital and medical
or health maintenance organization health care
coverage) approved by the urban county council
for such retirees (the "plan").
(b) The urban county government shall
provide, on behalf of all members of the City
Employees [sic] Pension Fund who retired prior
to July 1, 1999 and who were participants in the
group health insurance plan coverage provided
to urban county government employees and
retirees prior to July 1, 1999, the following
benefits: (1) for the period from July 1, 1999
through June 30, 2000, a sum equal to fifty
percent (50%) of the urban county
government’s contribution to the health
insurance component of the benefit pool for
current urban county government employees
(the "contribution"); and (2) for the period from
July 1, 2000 through June 30, 2001 and
thereafter, a sum equal to the single premium
for the plan coverage selected by the retiree, but
not more than one hundred percent (100%) of
the contribution.
(c) No benefits shall be available under this
section to retired members of the City
Employees [sic] Pension Fund who were not,
prior to July 1, 1999, participants in the group
health insurance plan coverage provided to
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urban county government employees and
retirees.
(d) All payments shall be made to the approved
provider of the group health insurance plan, not
to the retiree, and the retiree shall not be entitled
to receive any portion of the government
contribution remaining after payment is made to
the approved provider.
(e) Group rates under the group health
insurance plan approved by the urban county
council under subsection (a) shall be made
available to the spouse, dependents, and
disabled children, regardless of the disabled
child’s age, of a qualified and participating
retiree, if the premium for the spouse,
dependent, or disabled child is paid by payroll
deduction or similar method.
Section 2 - That section 23-36.5 of the Code of Ordinances be
and hereby is created to read as follows:
(a) All members of the Policemen’s and
Firefighters’ Retirement Fund of the LexingtonFayette Urban County Government, operated
pursuant to KRS 67A.360, et seq., who retired
prior to July 1, 1999, shall be eligible to
participate in a group health insurance plan
(providing hospital and medical or health
maintenance organization health care coverage)
approved by the urban county council for such
retirees (the "plan").
(b) The urban county government shall
provide, on behalf of all members of the
Policemen’s and Firefighters' Retirement Fund
who retired prior to July 1, 1999 and who were
participants in the group health insurance plan
coverage provided to urban county government
employees and retirees prior to July 1, 1999, the
following benefits: (1) for the period from July
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1, 1999 through June 30, 2000, a sum equal to
fifty percent (50%) of the urban county
government’s contribution to the health
insurance component of the benefit pool for
current urban county government employees
(the "contribution"); and (2) for the period from
July 1, 2000 through June 30, 2001 and
thereafter, a sum equal to the single premium
for the plan coverage selected by the retiree, but
not more than one hundred percent (100%) of
the contribution.
(c) No benefits shall be available under this
section to retired members of the Policemen’s
and Firefighters' Retirement Fund who were
not, prior to July 1, 1999, participants in the
group health insurance plan coverage provided
to urban county government employees and
retirees.
(d) All payments shall be made to the approved
provider of the group health insurance plan, not
to the retiree, and the retiree shall not be entitled
to receive any portion of the government
contribution remaining after payment is made to
the approved provider.
(e) Group rates under the group health
insurance plan approved by the urban county
council under subsection (a) shall be made
available to the spouse, dependents, and
disabled children, regardless of the disabled
child’s age, of a qualified and participating
retiree, if the premium for the spouse,
dependent, or disabled child is paid by payroll
deduction or similar method.
Section 3 - That this ordinance shall be effective on July 1,
1999.
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Sometime after the adoption of Ordinance 217-99, the Appellants contacted
personnel at LFUCG and sought to re-join the Plan. Personnel at LFUCG advised the
Appellants that they could not re-join the Plan because they had opted out. The
Appellants then filed suit on October 6, 2000, seeking injunctive and declaratory relief.
On December 5, 2000, LFUCG enacted Ordinance No. 366-2000, which
reads, in pertinent part, as follows:
AN ORDINANCE CLARIFYING AND AMENDING
SECTIONS 6-69.6 AND 23-36.5 OF THE CODE OF
ORDINANCES TO PROVIDE FOR THE PAYMENT OF
PREMIUMS FOR GROUP HEALTH INSURANCE
SINGLE PLAN COVERAGE FOR MEMBERS OF THE
CITY EMPLOYEES [sic] PENSION FUND AND THE
POLICEMEN’S AND FIREFIGHTERS’ RETIREMENT
FUND OF THE LEXINGTON-FAYETTE URBAN
COUNTY GOVERNMENT WHO RETIRED PRIOR TO
JULY 1, 1999, AND WHO DID NOT TERMINATE THEIR
PARTICIPATION IN THE GROUP HEALTH INSURANCE
PLAN PROVIDED BY THE URBAN COUNTY
GOVERNMENT BEFORE THAT DATE, AT THE RATE
OF FIFTY PERCENT (50%) FOR THE PERIOD FROM
JULY 1, 1999 TO JUNE 30, 2000 AND UP TO ONE
HUNDRED PERCENT (100%) FOR THE PERIOD FROM
JULY 1, 2000 TO JUNE 30, 2001 AND THEREAFTER,
AND TO MAKE SUCH COVERAGE AVAILABLE TO
THE SPOUSE, DEPENDENTS, AND DISABLED
CHILDREN OF A QUALIFIED PARTICIPATING
RETIREE IF THE PREMIUM FOR SUCH COVERAGE IS
PAID BY THE RETIREE, EFFECTIVE JULY 1, 1999.
WHEREAS, the purpose of this ordinance is to clarify
the intent of the Council in passing Ordinance 217-99 and is
not intended to change in any way the manner in which the
ordinance has been interpreted and applied; and
WHEREAS, the intent of the Council in passing
Ordnance No. 217-99 was that health care insurance plan
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premium benefits be made available only to those members of
the City Employees [sic] Pension Fund and the Policemen’s
and Firefighters’ Retirement Fund who retired prior to July 1,
1999 and who maintained their participation in the group
health insurance plan at their own expense up to date; and
WHEREAS, the purposes of establishing, clarifying,
and maintaining that distinction are (1) to avoid creating an
incentive and opportunity for persons to terminate their health
care coverage during times of good health, and reinstate their
health care coverage during times of high risk or poor health,
to the detriment of other participants; (2) to maintain the
underwriting risk undertaken by the health care insurance
plan at a more constant and predictable level by limiting the
availability of coverage to those persons who have
maintained it consistently since their retirement; and, (3) to
maintain the ability to provide an appropriate level of benefits
for those persons who have maintained their participation at
their own expense.
...
Section 1 - That section 6-69.6 of the Code of Ordinances be
and hereby is amended read as follows:
(a) All members of the City Employees [sic]
Pension Fund who retired prior to July 1, 1999,
and who did not terminate their participation in
the group health insurance plan provided by the
urban county government before that date, shall
continue to be eligible to participate in a group
health insurance plan (providing hospitalization
and medical or health maintenance organization
health care coverage) approved by the urban
county council for such returnees [sic] (the
"plan").
(b) The urban county government shall
provide, on behalf of all members of the City
Employees [sic] Pension Fund who retired prior
to July 1, 1999 and who were participants in the
group health insurance plan coverage provided
-8-
to urban county government employees and
retirees immediately prior to July 1, 1999, the
following benefits: (1) for the period from July
1, 1999 through June 30, 2000, a sum equal to
fifty percent (50%) of the urban county
government’s contribution to the health
insurance component of the benefit pool for
current urban county government employees
(the "contribution"); and (2) for the period from
July 1, 2000 through June 30, 2001 and
thereafter, a sum equal to the single premium
for the plan coverage selected by the retiree, but
not more than one hundred percent (100%) of
the contribution.
(c) No benefits shall be available under this
section to retired members of the City
Employees [sic] Pension Fund who were not,
immediately prior to July 1, 1999, participants
in the group health insurance plan coverage
provided to urban county government
employees and retirees.
...
Section 2 - That section 23-36.5 of the Code of Ordinances be
and hereby is amended to read as follows:
(a) All members of the Policemen’s and
Firefighters’ Retirement Fund of the LexingtonFayette Urban County Government, operated
pursuant to KRS 67A.360, et seq., who retired
prior to July 1, 1999, and who did not terminate
their participation in the group health insurance
plan provided by the urban county government
before that date, shall continue to be eligible to
participate in a group health insurance plan
(providing hospital and medical or health
maintenance organization health care coverage)
approved by the urban county council for such
retirees (the "plan").
-9-
(b) The urban county government shall
provide, on behalf of all members of the
Policemen’s and Firefighters Retirement Fund
who retired prior to July 1, 1999 and who were
participants in the group health insurance plan
coverage provided to urban county government
employees and retirees immediately prior to
July 1, 1999, the following benefits: (1) for the
period from July 1, 1999 through June 30, 2000,
a sum equal to fifty percent (50%) of the urban
county government’s contribution to the health
insurance component of the benefit pool for
current urban county government employees
(the "contribution"); and (2) for the period from
July 1, 2000 through June 30, 2001 and
thereafter, a sum equal to the single premium
for the plan coverage selected by the retiree, but
not more than one hundred percent (100%) of
the contribution.
(c) No benefits shall be available under this
section to retired members of the Policemen’s
and Firefighters' Retirement Fund who were
not, immediately prior to July 1, 1999,
participants in the group health insurance plan
coverage provided to urban county government
employees and retirees.2 (Emphasis added.)
The Appellants then filed an Amended Complaint, asserting that Ordinance
No. 366-2000 violated Sections 2 and 3 of the Kentucky Constitution and the 14th
Amendment to the United States Constitution.
During the course of litigation, the Appellants moved for injunctive relief
and summary judgment. Both motions were initially denied. Following a change in
circuit court judges, the Appellants renewed their motion for summary judgment and
sought a ruling that Ordinance No. 217-99 provided health insurance benefits to the opt
2
The remainder of Ordinance No. 366-2000 is the same as No. Ordinance 217-99.
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out retirees as well as to the continuous retirees and that Ordinance No. 366-2000 was
unconstitutional.
On June 1, 2004, the circuit court entered an order holding that Ordinance
No. 217-99 provided health insurance benefits to the opt out retirees. However, the
circuit court stated that the record needed to be more fully developed before it could rule
on the constitutionality of Ordinance No. 366-2000. Pursuant to the circuit court's
instructions, the parties took additional proof, which is summarized below.
Allen Craig, an actuary retained by LFUCG, testified that he reviewed
minutes of the Ad Hoc committee meetings and other documents related to those
meetings. Craig testified that there were three primary reasons for treating the two
groups of retirees differently. The first is the higher cost of retirees to the Plan.
According to Craig, because of the increased age of retirees and associated increased
health care needs, for every $1.00 of premium paid by a retiree, the Plan pays $1.68 in
benefits. Craig admitted that he did not have any specific information about the health of
the opt out retirees or the age of the opt out retirees compared to the health and age of the
continuous retirees. Craig testified that such information would be helpful in
determining the cost impact of adding the opt out retirees to the Plan. However, he stated
that, generally speaking, once a person reaches 40 to 45 years of age, he or she changes
from a net payor into a health insurance plan to a net consumer of benefits.
The second reason Craig identified for treating the two groups differently
was adverse selection. Adverse selection occurs when healthy individuals opt out of a
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health plan, leaving that plan top heavy with unhealthy individuals. Adverse selection
also occurs when unhealthy individuals join a health plan, again skewing the plan's
membership toward the unhealthy. In either event, the cost of such health plans
increases. In order to prevent this adverse selection, health insurance plans usually
provide that, once a member opts out, he or she cannot re-join the plan. This prevents
individuals from discontinuing health insurance when healthy and obtaining it when
unhealthy. Such adverse selection would not necessarily apply if the opportunity to rejoin a plan was only offered on a one-time basis.
The third reason Craig identified for treating the two groups differently is
common business practice. Craig testified that he did not know of any plans that would
permit someone who opted out to re-join the plan. However, Craig also testified that he
was not aware of any situations where an employer changed from paying no premium
benefits for retirees to paying those benefits after retirees had opted out of a health plan.
In fact, Craig noted that it is rare for employers to enhance or increase retiree health
benefits.
Additionally, Craig testified that he did not know why retirees opted out of
the Plan. He assumed that they did so because they did not need coverage at the time of
the opt out. However, Craig admitted that he did not know whether the opt out retirees
had obtained coverage through a different carrier.
Finally, although Craig did not provide his opinions to the Committee or to
the LFUCG, he testified that the issues discussed by the Committee were the types of
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issues his clients would discuss when considering whether to offer the benefits in
Ordinance Nos. 217-99 and 366-2000.
Scott Blakely is a Sergeant with the LFUCG Police Department who served
on the Committee and voted to permit the opt out retirees to re-join the Plan. Blakely
testified that the Committee members discussed whether to permit the opt out retirees to
re-join the Plan and whether doing so would be lawful. The Committee members
generally discussed that permitting the opt out retirees to re-join the Plan would increase
the cost of the Plan. However, the Committee members did not have available any
specific statistics regarding the impact the opt out retirees would have on the Plan.
Furthermore, Blakely testified that the Committee members did not have any information
indicating that opt out retirees would cost the Plan any more or less than continuous
retirees of the same or similar age.
Albert Mitchell is a retired LFUCG firefighter and served on the
Committee. Mitchell continued his membership in the Plan after his retirement. Mitchell
testified that the continuous retirees paid premiums that were invested to help cover later
expenses as they aged. However, Mitchell admitted that, at some point, continuous
retirees changed from being net contributors to the Plan to being net consumers of the
Plan's benefits.
Mitchell testified that he did not believe that the opt out retirees should be
permitted to re-join the Plan because of the additional cost involved. However, Mitchell
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admitted that the Committee members did not have any specific information indicating
that opt out retirees would be any more costly to the Plan than the continuous retirees.
Mitchell also testified that he believed that the opt out retirees opted out in
order to participate in a better health plan; however, he admitted that the Committee
members did not have any specific information regarding whether the opt out retirees had
alternative health insurance or the type of insurance they might have.
Dr. David Stevens served as chairman of the Committee. Stevens opposed
permitting the opt out retirees to re-join the Plan because doing so would have increased
the cost of the Plan. Stevens noted that an opt out retiree who had not had health
insurance would likely have greater health problems and be more costly for the Plan.
However, Stevens admitted that the Committee members had no information regarding
how many of the opt out retirees had health insurance.
Stevens testified that, based on their age, the opt out retirees would be more
costly to the Plan. Furthermore, Stevens testified that he did not believe it would be fair
to permit the opt out retirees to re-join the Plan because they had not continuously
contributed to the Plan. However, Stevens stated that he did not know whether the opt
out retirees had been net contributors or net consumers of the Plan at the time they opted
out.
Donna Counts was Commissioner of Finance for the LFUCG and served on
the Committee. Counts testified that she voted against permitting the opt out retirees to
re-join the Plan for several reasons: 1) the opt out was irrevocable; 2) permitting the opt
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out retirees to re-join the Plan would have an adverse impact on all members of the Plan;
3) the opt out retirees had not continuously contributed to the Plan; and 4) other
businesses did not permit retirees to re-join a health plan after they had opted out of that
health plan.
Counts admitted that the Committee members did not know whether the opt
out retirees had alternative health coverage. Furthermore, Counts admitted that the
Committee members did not have any information about when a participant in the Plan
changed from being a net contributor to a net consumer of services. Finally, Counts
testified that she did not remember if the Committee received any expert testimony
regarding the impact permitting the opt out retirees to re-join the Plan would have.
Walter Skiba was director of human resources for LFUCG at the time in
question. Skiba provided information and guidance to and served on the Committee.
Skiba testified that, prior to 1999, retired city employees, policemen, and firefighters paid
100% of the premium for continuing in the Plan. If a retiree chose to remain in the Plan,
premium payments were deducted from the retiree's benefit checks. Once a retiree opted
out of the Plan, he or she was not permitted to re-join the Plan. Skiba noted that the Plan
is a self-insured fund. Because the opt out retirees had not paid premiums, the Plan
would not have accumulated funds from which to pay claims. However, Skiba testified
that, for every $1.00 in premium paid by a retiree, that retiree consumes $1.68 in benefits.
Skiba testified that factors to be considered with regard to permitting the opt
out retirees to re-join the Plan included their health status and whether the opt out retirees
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had other health insurance during the opt out period. Skiba testified that the cost for
those who had not been insured would be greater than for those who had been
continuously insured. However, he noted that the Committee members did not have any
specific information regarding the insured status of the opt out retirees. Furthermore,
Skiba testified that if an opt out retiree were continuously insured through an alternative
plan, there were no statistics indicating that a retiree's health or claims experience would
be any different from that of a continuous retiree.
Finally, Skiba testified, as did other members, that the Committee members
did not have any specific information regarding the cost difference to the Plan for opt out
retirees versus continuous retirees or of the claims experience for the opt out retirees.
ORDINANCE NO. 217-99 (LFUCG'S CROSS-APPEAL)
On June 1, 2004, the circuit court entered an order on the Appellants'
motion for summary judgment finding that Ordinance No. 217-99 was clear on its face,
that it provided that the opt out retirees were covered by the Plan, and that LFUCG was
responsible for paying premiums associated with that coverage. It is from this order that
LFUCG perfected its cross-appeal, which we shall review prior to addressing the
Appellants' direct appeal.
LFUCG argues that Ordinance No. 217-99 either clearly excludes the opt
out retirees from the Plan or is so ambiguous that the circuit court should have referred to
the legislative history or deferred to LFUCG in order to interpret the meaning of the
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ordinance. We agree with the circuit court and, therefore, affirm as to the circuit court's
order regarding Ordinance No. 217-99.
Construction and interpretation of statutes is a matter of law; therefore, the
standard of review is de novo. Lexington-Fayette Urban County Health v. Lloyd, 115
S.W.3d 343, 347 (Ky.App. 2003). When interpreting a statute, we must "ascertain and
give effect to the intention of the Legislature and that intention must be determined from
the language of the statute itself if possible". Id. at 347, citing Moore v. Alsmiller, 289
Ky. 682, 686-87, 160 S.W.2d 10, 12 (1942). "We have a duty to accord to words of
statute their literal meaning unless to do so would lead to an absurd or wholly
unreasonable conclusion." McElroy v. Taylor, 977 S.W.2d 929, 931 (Ky. 1998), citing
Bailey v. Reeves, 662 S.W.2d 832 (Ky. 1984). When reviewing a statute, we must give
"significance and effect . . . to every part of [an] Act." Id. at 931, citing George v. Scent,
346 S.W.2d 784, 789 (Ky. 1961). However, where the language of a statute is plain and
unambiguous, we should not resort to the legislative record in order to interpret the
statute. City of Vanceburg v. Plummer, 122 S.W.2d 772, 775 (Ky. 1938).
The first issue we must address is whether the language in Ordinance No.
217-99 is unclear. If it is, then we can and should look to the legislative history. If it is
not, then we must apply the Ordinance according to its terms.
The salient portions of Ordinance No. 217-99 Section 2 read as follows:
(a) All members of the Policemen's and Firefighters'
Retirement Fund . . . who retired prior to July 1, 1999, shall
be eligible to participate in a group health insurance plan . . .
approved by the urban county council for such retirees . . . .
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(b) The urban county government shall provide, on behalf of
all members of the Policemen's and Firefighters' Retirement
Fund who retired prior to July 1, 1999 and who were
participants in the group health insurance plan coverage
provided to urban county government employees and retirees
prior to July 1, 1999, the following benefits . . . .
(c) No benefits shall be available under this section to retired
members of the Policemen's and Firefighters' Retirement
Fund who were not, prior to July 1, 1999, participants in the
group health insurance plan coverage provided to urban
county government employees and retirees.
Reviewing the above language, we hold that there is no ambiguity. Section
2(a) of Ordinance No. 217-99 clearly makes all members of the Policemen's and
Firefighters' Retirement Fund (the Fund) who retired before July 1, 1999, eligible to
participate in a group health insurance plan. Section 2(b) clearly states that the urban
county government shall provide premium benefits to all members of the Fund who
participated in the Plan prior to July 1, 1999. Section 2(c) excludes any members of the
Fund who were not participants in the Plan prior to July 1, 1999. This language is clear
and unambiguous.
LFUCG argues that interpreting Ordinance No. 217-99 as providing
benefits to the opt out retirees "would render Section 2(c) meaningless and superfluous."
However, section 2(c) is superfluous regardless of the interpretation of the Ordinance.
Section 2(c) simply reiterates the requirement that a person must have been a participant
in the Plan at some point before July 1, 1999, in order to qualify for any benefits. That is
the same requirement necessary to qualify for the benefits offered by the Ordinance -
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eligibility to participate in the Plan and payment of premiums by LFUCG. Section 2(c)
does not impose any greater or lesser restrictions on eligibility for benefits than either
Sections 2(a) or 2(b), and interpreting the Ordinance in some way other than based on its
plain language will not make Section 2(c) any less superfluous or more meaningful.
LFUCG also argues that we should defer to LFUCG's interpretation of the
Ordinance. However, the deference recommended by LFUCG is only required if there is
some question regarding the meaning of the Ordinance. City of Louisville v. Board of
Education, 17 S.W.2d 210, 212 (Ky. 1929). Based on our holding that there is no
question regarding the meaning of the Ordinance, LFUCG's interpretation of the
Ordinance is not due any particular deference.
Based on the above, we hold that the circuit court correctly interpreted
Ordinance No. 217-99. Because there is no ambiguity in Ordinance No. 217-99, there is
no need to examine the legislative history with regard to interpretation of that Ordinance.
ORDINANCE NO. 366-2000 (APPELLANTS' DIRECT APPEAL)
Having determined that Ordinance No. 217-99 provided for coverage under
the Plan and for payment of premiums for the opt out retirees, the circuit court then ruled
that LFUCG could, by way of Ordinance No. 366-2000, constitutionally exclude those
retirees. In doing so, the circuit court noted that entitlement to health care benefits is not
a fundamental right. Therefore, LFUCG needed only to show some rational basis for
excluding the opt out retirees. The circuit court noted the three reasons given by Craig.
In addition, the circuit court noted the testimony of Mitchell, which stated that the
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additional health care benefits were merely meant to be an "enhancement" to the option
chosen by the continuous retirees. In doing so, the circuit court stated that it was rational
for LFUCG to rely on the choices made by the opt out retirees when making plans for the
future. It is from this ruling that the Appellants perfected their direct appeal.
The Appellants challenge the constitutionality of Ordinance No. 366-2000
on the grounds that LFUCG had no reasonable basis in fact and no substantial and
justifiable reason for excluding the opt out retirees from the benefits offered under the
Ordinance. In doing so, the Appellants state that LFUCG cited four reasons for treating
the opt out retirees differently than the continuous retirees: (1) higher utilization by
retirees; (2) perceived risk of adverse selection; (3) perceived lack of fairness; and (4)
industry standards.
LFUCG cites three reasons from the preamble of Ordinance No. 366-2000
to support its decision to exclude the opt out retirees:
(1) to avoid creating an incentive and opportunity for persons to
terminate their health care coverage during times of good health,
and reinstate their health care coverage during times of high risk
or poor health, to the detriment of other participants;
(2) to maintain the underwriting risk undertaken by the health
care insurance plan at a more constant and predictable level by
limiting the availability of coverage to those persons who have
maintained it consistently since their retirement; and,
(3) to maintain the ability to provide an appropriate level of
benefits for those persons who have maintained their
participation at their own expense.
- 20 -
LFUCG also cites to statements contained in the committee's meeting minutes and
reports, as well as documents from outside sources. All of LFUCG's reasons, whether
put forth by it or by the Appellants, synthesize to three primary ones – the increased cost
associated with retiree health care, the unknown risk presented by the opt out retirees, and
the perceived inequity to the continuous retirees.
We believe that the circuit court's order regarding the constitutionality of
Ordinance No. 366-2000 would be correct if LFUCG had not adopted Ordinance No.
217-99 permitting the opt out retirees to re-join the Plan. However, once the opt out
retirees were permitted to re-join the Plan, LFUCG needed to put forth a rational basis for
removing them from the Plan. Therefore, the rational basis analysis must proceed from
there. With that as our starting point, we hold that LFUCG has not provided a rational
basis for removing the opt out retirees from the coverage and premium benefits provided
by Ordinance No. 217-99. Therefore, we must hold that Ordinance No. 366-2000 is
unconstitutional, and that the circuit court erred in ruling otherwise.
Whether a statute is constitutional is a question of law. Kohler v. Benckart,
252 S.W.2d 854 (Ky. 1952). Therefore, our review is de novo.
It is well settled that, under the 14th Amendment to the United States
Constitution and Sections 1, 2, and 3 of the Kentucky Constitution, all persons similarly
situated should be treated alike. If there is no fundamental right at stake, a legislature
may discriminate among similarly situated persons, but only if there is a rational basis for
doing so. However, "arbitrary and irrational discrimination violates the Equal Protection
- 21 -
Clause even under the rational-basis standard of review." Elk Horn Coal Corp. v.
Cheyenne Resources, Inc., 163 S.W.3d 408, 414 (Ky. 2005) citing Lindsey v. Normet,
405 U.S. 56, 92 S.Ct. 862, 31 L.Ed.2d 36 (1972). See also Moore v. Ward, 377 S.W.2d
881 (Ky. 1964). Kentucky courts are "not bound by decisions of the United States
Supreme Court when deciding whether a state statute impermissibly infringes upon
individual rights guaranteed in the State Constitution so long as state constitutional
protection does not fall below the federal floor, meaning the minimum guarantee of
individual rights under the United States Constitution as interpreted by the United States
Supreme Court." Elk Horn, 163 S.W.3d at 417-18, citing Commonwealth v. Wasson, 842
S.W.2d 847, 492 (Ky. 1992).
In Elk Horn, the Supreme Court of Kentucky noted:
[T]he Kentucky Constitution’s equal protection provisions,
Sections 1, 2, and 3, are much more detailed and specific than
the Equal Protection Clause of the United States Constitution.
Moreover, the equal protection provisions of the Kentucky
Constitution are enhanced by Section [sic] 59 and 60. Section
59 prohibits, inter alia, the General Assembly from enacting
special legislation . . . . Section 60 reiterates the prohibition
against special legislation . . . . Because of this additional
protection, we have elected at times to apply a guarantee of
individual rights in equal protection cases that is higher than
the minimum guaranteed by the Federal Constitution. Instead
of requiring a "rational basis," we have construed our
Constitution as requiring a "reasonable basis" or a
"substantial and justifiable reason" for discriminatory
legislation in areas of social and economic policy."
Elk Horn, 163 S.W.3d at 418-19.
- 22 -
As noted by the Supreme Court in Tabler v. Wallace, 704 S.W.2d 179, 186
(Ky. 1986), "there must be a substantial and justifiable reason apparent from legislative
history, from the statute's title, preamble or subject matter, or from some other
authoritative source" in order to support otherwise discriminatory legislation. In passing
on the constitutionality of a statute, the "question is not what influenced legislation, but
whether emergent law is reasonably within the scope of legitimate public purpose."
Moore v. Ward, 377 S.W.2d 881, 883 (Ky. 1964).
A statute is presumed to be constitutional and the person challenging the
constitutionality of a statute bears the burden of proving otherwise. Commonwealth v.
Howard, 969 S.W.2d 700, 703 (Ky. 1998). Therefore, in the present case, the Appellants
bear the burden of proving that LFUCG had no rational basis for excluding the opt out
retirees from the benefits provided by Ordinance No. 36-2000.
In the present case, we agree that LFUCG certainly has a legitimate
governmental interest in controlling the cost of the Plan to itself and to participants of the
Plan. Furthermore, it cannot be denied that, because of their age, retirees are net
consumers of the Plan's benefits. However, in order for LFUCG to remove the opt out
retirees from the Plan once they have been admitted, LFUCG must show that there is
some reasonable basis for treating the opt out retirees differently from continuous
retirees. This, LFUCG has failed to do. LFUCG has offered no evidence that the opt out
retirees will be any more of a drain on the Plan than the continuous retirees are. In fact,
participants in the Committee testified that they had no reason to believe that the health
- 23 -
experience of the opt out retirees was any different than the health experience of the
continuous retirees.
The opt out retirees do present an unknown risk, since the Plan
administrators do not have any information regarding their health care experience.
However, LFUCG undertook that risk when it provided benefits to all retirees in
Ordinance No. 217-99. There is no rational basis for LFUCG, after undertaking that risk,
to then withdraw coverage from the opt out retirees.
As noted by LFUCG, the Appellants did not contribute to the Plan for a
significant number of years. However, all of the evidence indicates that Appellants
Robinson and Gumm would have been net consumers of benefits during the years they
were not in the Plan. Therefore, any premiums they would have paid to the plan would
have been more than offset by the medical expenses they incurred. Based on his age,
only Appellant Johnson would have been a net payor to the Plan when he retired.
However, as previously noted, once LFUCG extended benefits to all retirees by
Ordinance No. 217-99, it could not arbitrarily withdraw those benefits from the opt out
retirees. LFUCG extended health care benefits to the opt out retirees in Ordinance No.
217-99 knowing that the opt out retirees had not paid premiums. Having extended them,
LFUCG cannot rationally support the withdrawal of those benefits based on facts known
when the benefits were extended. Therefore, LFUCG cannot use the lack of a history of
premium payments as a reason to then withdraw benefits that have already been
extended.
- 24 -
For the above reasons, we hold that Ordinance No. 366-2000
unconstitutionally discriminates between the opt out and continuous retirees because
LFUCG had no rational basis for making that distinction once it had extended health care
benefits to all retirees.
REMEDY
The Appellants argue that in lieu of admitting the opt out retirees to the
Plan, LFUCG should be ordered to pay the amount of the premium benefit directly to the
Appellants. However, we note that Ordinance No. 217-99 specifically states that all
payments shall be made directly to the approved provider of the Plan, not to the retiree.
On remand, th circuit court shall fashion the appropriate remedy.
CONCLUSION
For the above reasons, we affirm the portion of the circuit court's ruling as
to Ordinance No. 217-99. However, we reverse the portion of the ruling as to Ordinance
No. 366-2000 and remand this matter to the circuit court for further proceedings
consistent with this opinion.
ALL CONCUR.
- 25 -
BRIEF FOR APPELLANTS/CROSSAPPELLEES:
BRIEF FOR APPELLEE/CROSSAPPELLANT:
John Frith Stewart
Crestwood, Kentucky
Douglas T. Logsdon
Brent L. Caldwell
Lexington, Kentucky
Everett C. Hoffman
Louisville, Kentucky
ORAL ARGUMENT FOR
APPELLANTS/CROSS-APPELLEES:
ORAL ARGUMENT FOR
APPELLEE/CROSS-APPELLANT:
Douglas T. Logsdon
Lexington, Kentucky
Everett C. Hoffman
Louisville, Kentucky
- 26 -
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