Illinois Attorney General Lisa Madigan’s office argued last week in state court that state constitutional protections against impairing retiree pensions don’t extend to healthcare benefits.

Attorneys representing plaintiffs in four lawsuits in Sangamon County District Court are challenging legislation that took effect last July overhauling retiree healthcare subsidies by shifting more of the funding burden for premiums to recipients. They argued that language in the state constitution guarding against the diminishment or impairment of pension benefits extends to retiree healthcare.

Madigan’s office, which is representing the state, asked the court to dismiss the lawsuits.

The state has stepped cautiously on altering pension benefits for current employees and retirees because of the impairment clause but believes that OPEBs are not protected as pensions.

Previously, the state fully covered the premiums for those who retired prior to 1998. For retirees after that date, it provided a 5% subsidy for retirees’ health care premium coverage for every year of service.

Under the new law, the Illinois Department of Central Management Services will determine the subsidy based a sliding scale that will take into consideration length of service and a retiree’s ability to pay.

The benefit levels are subject to collective bargaining negotiations with state unions. The state had covered the full cost for about 90% of more than 78,000 retirees in the group insurance program that covers a total of 357,800 people counting current employees are counted. Illinois projects the subsidies will cost more than $877 million in fiscal 2013.

The state funds the benefits on a pay-as-you-basis and it carries a $33.3 billion unfunded OPEB liability. The state expects the changes will cut that number by at least $9 billion and also save about $250 million annually.

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