The Supreme Court last year ruled that faith-based hospitals don't have to abide by federal rules that govern the pension plans of private companies. Now, a new lawsuit raises a related question: What about certain not-for-profit health systems?
In the latest case, a group of former Atrium Health employees argue the health system improperly classifies itself as a governmental entity so that its health plan, MedCost, doesn't have to abide by the federal Employee Retirement Income Security Act of 1974, which does not apply to government entities.
As in other prominent cases, in which health systems argued their religious origins qualified them as churches that are exempt from ERISA, attorneys say there's some gray area when it comes to whether certain not-for-profit health systems qualify as government entities.
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Karen Handorf, partner at Cohen Milstein Sellers & Toll, the firm representing the employees, said the U.S. Department of Labor investigated Atrium's health plan and determined it was not a government plan. She said the department did not take action at the time because the Internal Revenue Service was crafting new regulations that sought to clarify the definition of governmental plans. The IRS has not finalized those regulations, Handorf said.
In some cases, health systems started out as being operated by the government, but then privatized later on, which Handorf said adds murkiness to the situation, and led to the IRS proposing regulations several years ago.
“The fact is: There must have been some need to clarify and some belief that organizations were improperly claiming the exemption,” she said.
Handorf also represented a former Dignity Health employee who sued Dignity because its health plan failed to comply with ERISA.
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