• Some ERISA and Code Implications of Long Term Care Plans
  • March 22, 2004
  • Law Firm: Winston & Strawn LLP - Chicago Office
  • As the population ages and medical advances continue, there has been an increased concern about the often overwhelming cost of long term care programs. Some employers are sponsoring such arrangements and/or paying a portion of the cost of such programs. (While long term care programs cannot be offered under a cafeteria plan, the costs of long term care could be treated as a qualifying medical expense under the recently enacted health savings account.) In those instances, employers accept the legal consequence of such decision; since long term care programs provide hospital care or benefits, which are welfare type benefits, these programs are employee welfare benefit plans, subject to ERISA's reporting and disclosure requirements. In addition, a plan document and summary plan description will be required. Finally, unless the arrangement is a nursing home fixed indemnity policy, it will be subject to HIPAA's privacy requirements. While not necessarily onerous, some clients would prefer avoiding ERISA's requirements if possible, while still making long term care programs available to its employees.

    The DOL regulations provide a possible out. As a technical matter, to become subject to ERISA, an arrangement that would otherwise be an ERISA benefit plan must be established or maintained by an employer. Assuming that an employer does not pay any premiums or receive any compensation from the vendor (other than reasonable compensation for administrative services in connection with payroll deduction), and the participation in the arrangement by employees is voluntary, the arrangement will not be an employee benefit plan if the sole functions of the employer with respect to the program, "without endorsing the program" are to permit the insurer to publicize the program, to collect premiums through payroll deduction and remit them to the insurer. The sixty-four thousand dollar question is what conduct constitutes endorsement of the program by the employer. Unfortunately, there is no bright line answer. It depends on a number of factors, no one of which is determinative.

    If your company has some involvement with a long term care arrangement, it would be prudent to examine it from either perspective. If the employer is sponsoring the arrangement and/or paying premiums, are ERISA and HIPAA being satisfied? If the employer is not complying with ERISA and HIPAA, are the appropriate steps being taken to reduce the risk that the DOL would treat the employer as endorsing the arrangement.