U.S. Supreme Court Interpretation Permits Thousands of “Church Plans” – Including Many for Hospitals and Health Systems – to Remain Exempt from ERISA

On June 5, 2017, the United States Supreme Court unanimously adopted a “broad” interpretation of the exemption allowed under the Employee Retirement Income Security Act (“ERISA”) for “church plans.”   The decision effectively permits thousands of retirement plans adopted by church-affiliated organizations – including numerous hospitals, schools and social-service organizations – to remain exempt from most ERISA requirements.

Plaintiffs in the case of Advocate Health Care Network v. Stapleton argued that a “narrow” interpretation of the “church plan” exemption was appropriate, and that they were damaged by their employers failing to comply with ERISA’s various requirements designed to protect employee retirement savings.  Advocates of the “narrow” interpretation argued that only plans actually established by a church should be eligible for the exemption.

A split among the United States Courts of Appeal between the “broad” and “narrow” interpretations of the exemption had left plan sponsors and participants in an uncertain state where the applicable plan was maintained by a church-affiliated group and not established by the church itself.

A considerable number of plans in question related to church-affiliated hospitals and health systems.  A “narrow” interpretation would render such plans subject to ERISA.

In an 8-0 decision authored by Justice Elena Kagan, the Supreme Court concluded that principles of statutory interpretation favored the conclusion that Congress chose language indicating a “broad” exemption.  The “broad” exemption had been employed in interpretive materials, advisory opinions and private letter rulings of the Internal Revenue Service and Department of Labor, so the decision eliminates, for now, the uncertainty that had arisen with respect to plans that had relied on said interpretation.

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Supreme Court Upholds Individual Mandate

The Supreme Court has upheld the constitutionality of PPACA in a 5-4 ruling issued today.  The Supreme Court determined the individual insurance  mandate was not unconstitutional under the Tax Clause of the Constitution.

A key provision of PPACA was deemed unconstitutional.  Under the Act as originally drafted, the Secretary of Health and Human Services would have had the power to withdraw all Medicaid payments from any state that failed to comply with the expanded Medicaid requirements under the Act.  The Supreme Court held that this provision is unconstitutional.  As a result, the Secretary of Health and Human Services may only withhold funds disbursed under PPACA if a state chooses to participate in the program and fails to comply with its provisions.

The Supreme Court’s ruling underscores the importance of planning for the implementation of PPACA.  Several key provisions of the Act take effect in 2013.  These provisions include Medicare tax increases for individuals earning more than $200,000 per year and married persons filing jointly  earning more than $250,000 per year.  The Act also imposes a $2,500 cap on employee health flexible spending account contributions.  Beginning in 2013, employers will no longer be eligible to take a deduction for providing retiree prescription drug coverage.

Additionally, the comparative effectiveness research fee for employers sponsoring group health plans will increase in 2013.  Employers were previously required to pay a $1 fee for each participant in a sponsored group health plan.  That fee will now double in 2013, and will afterward be indexed to national health expenditures.  Employers will also be subject to additional notification requirements regarding exchange programs.  For example, employers in participating states will be required to provide employees with information about options they may have if the employer’s coverage is not affordable.  In light of the major effects that PPACA will have on group health plans and other related policies, it is crucial for employers to review these plans and policies to make sure that they comply with PPACA provisions coming into force in 2013.

Stay tuned for future blogs and articles about the PPACA once the entire opinion can be digested…

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