Court Addresses Conflict of Overlapping PSEBA and Medicare Benefits - Ottosen DiNolfo Hasenbalg & Castaldo, Ltd

by Shawn P. Flaherty

On May 11, 2021, the Illinois Appellate Court for the First District issued an opinion on the issue of the interplay of benefits for persons who are eligible for health insurance benefits from Medicare and from an employer under the provisions of the Public Safety Employee Benefits Act (PSEBA) in McCaffrey v. Village of Hoffman Estates, 2021 IL App (1st) 200395. The court examined the PSEBA’s offset clause deeper than any previously reported decision, while leaving the analysis open for legislative clarification.

Background

Section 10(a) of PSEBA provides in pertinent part that the employer of a police officer or firefighter “who suffers a catastrophic injury or is killed” in the line-of-duty “shall pay the entire premium of the employer’s health insurance plan for the injured employee, the injured employee’s spouse, and for each dependent child” 820 ILCS 320/10(a). The Act also provides that “health insurance benefits payable from any other source shall reduce benefits payable under this Section.”

Plaintiff Paul McCaffrey served as a police officer for the Village of Hoffman Estates until he suffered a severe injury, which resulted in the award of a line-of-duty disability pension. In February 2006, the Village granted the Plaintiff’s application for PSEBA health insurance benefits for him, his wife and dependent son.

During the period in which they received Village-paid health insurance premiums, Plaintiff’s wife and son both became eligible for the federal Medicare health insurance program based upon their disabilities. In 2018, the Village learned about the dual coverage and informed the Plaintiff that it would cease paying PSEBA health insurance benefits for the wife and son, and seek recoupment for the premiums and for up to three years of payments for the period of the dual coverage. The Village’s rationale for this cancellation was that the Medicare benefits constituted benefits payable from another source.

Plaintiff challenged the Village’s decisions to terminate PSEBA benefits and recoup past premium payments. The trial court granted the Village’s motion to dismiss the complaint finding that the Village was not obligated to pay the premiums for Plaintiff’s wife and son when they were eligible for Medicare.

Analysis

On appeal, the Plaintiff alternatively argued that the trial court erred because: (1) Plaintiff retained a “current employment status” and therefore Medicare was only a secondary payer of health benefits; (2) mere access to Medicare was insufficient to reduce the health insurance benefits paid under PSEBA; and (3) the Village was obligated to provide at least the basic health insurance benefit as agreed to in the CBA with the police union.

The court rejected each of these arguments. First, the court agreed with the trial court that Plaintiff did not retain a “current employment status” with the Village simply because the Village might summon the Plaintiff to submit to a fitness for duty examination or to be recalled to duty in an emergency situation pursuant to Section 3-116 of the Illinois Pension Code. After a full review of the federal Secondary Payer Act and the corresponding regulations, the court rejected that argument and did not find that this language created any current employment status. The court found that an employee whose active employment ended due to disability is not in a business relationship with the employer simply by virtue of receiving employer-paid health benefits during the period of disability.

Plaintiff next argues that because his wife opted out of disability benefits for a period of time, that her expenses were not payable from another source. The court denied this argument, citing Pyle v. City of Granite City, 2012 IL App (5th) 110472, for the proposition that mere eligibility for Medicare will relieve the obligation of the employer to provide PSEBA health insurance benefits. The court found that the Village was relieved from paying the health insurance benefits for the wife even for the period that the wife chose not to take advantage of the Medicare benefits. The court then clarified that “reduce” as defined in PSEBA should normally mean a diminishment of a benefit, but would actually result in an elimination of the benefit when the PSEBA recipient is in Medicare.

The court also rejected Plaintiff’s argument that the collective bargaining agreement between the Village and police union would control how “basic coverage” should be defined and that its existence in the CBA would trump the statutory language on reduction of PSEBA payment for payments from another source. The court cited a lack of framework in the PSEBA statute for determining how the reduction of benefits is to take place, either through collective bargaining or unilateral employer action. The court suggested that this is a matter best left for the legislature, and it therefore declined to defer to the CBA as a substitute for legislative intent.

Conclusion

The McCaffrey case may prove to be a noteworthy addition to the PSEBA jurisprudence in that it is the first reported decision to delve into what is meant by the clause that other pension benefits paid from any other source shall “reduce benefits” payable. While the court suggests that legislative clarification on this point is welcome, it shares a commonly-held management belief that a reduction of PSEBA benefits would result in the elimination of PSEBA benefits for an individual when the individual is eligible for Medicare. This question still remains outstanding for individuals who receive health insurance benefits from another private source. The McCaffrey decision ensures that municipalities and fire protection districts are responsible for this PSEBA expense only when it is the primary benefit to individuals who do not have other coverage.