Religious Hospitals Should Fully Fund Their Employees’ Pensions

Originally published on the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics Bill of Health blog.

In July, the Ninth Circuit held that Dignity Health, a faith-based hospital system in the southwest United States, was not exempt from the employee pension requirements of the Employee Retirement Income Security Act (ERISA). The hospital system decided in 1992 that it would consider itself a church for the purposes of ERISA, and therefore would qualify for ERISA’s church exemption and not have to provide fully funded or insured pensions for its employees. As a result of this decision, it underfunded its employees’ pensions to the tune of $1.2 billion.

The Ninth Circuit was the second to make such a ruling after the Seventh Circuit issued a similar decision against Advocate Health Care in March. Many thought these rulings would lead the Supreme Court to leave the issue alone, but that may not be what SCOTUS has in mind. Associate Justice Anthony Kennedy recently granted Dignity reprieve from complying with the Ninth Circuit decision while he and the other justices decide whether to hear the case. Hopefully, this signals that the Court is planning to extend the Ninth Circuit’s decision, ensuring that hospital systems with religious affiliations across the country fulfill their responsibilities to their employees and provide them with the pensions they deserve.

Dignity Health is not a church. While it did have an official relationship with the Catholic Church until 2012, at the end of the day Dignity Health is a medical services juggernaut. It is the fifth-largest hospital system in the country, with 39 acute care hospitals and over 250 ancillary facilities spread across Arizona, Nevada, and California. Its annual revenue is approximately $10.5 billion. It’s so big that in 2012 it was included in an antitrust investigation by the California Attorney General’s Office to assess the impact of hospital consolidation on health care pricing in California.

The arguments in court centered on Dignity’s relationship with the Catholic Church. Dignity argued that because it is a non-profit with a religious affiliation, its pension plans should be regarded as church plans. The plaintiffs countered by arguing that Dignity is a hospital system — not a church — and that it has acquired many non-religious hospitals which perform procedures that go against catholic teachings. Both sides are trying to make sense of an opaque statute. ERISA provides that an organization qualifies for the church plan exemption if it is “associated with a church..[and] shares common religious bonds and convictions,” but it also notes that plans are not church plans if they are for the benefit of employees “who are employed in connection with…unrelated trades or businesses.”

While these arguments make sense from a legal perspective, on a policy level they appear to miss the point. Whether or not Dignity Health has a strong association with the Catholic Church seems irrelevant to whether it should be able to underfund the pensions of its estimated 56,000 employees. The purpose of ERISA is to protect employees, and it’s unclear why a nurse who works for a non-religious hospital is entitled to more protection than a nurse who works for Dignity Health simply because its board shares a set of religious beliefs.

Furthermore, under the provision of ERISA on which Dignity relies, there is no requirement that the organization be a non-profit. Thus, taking Dignity’s argument to the extreme, for-profit companies could avoid complying with ERISA’s pension funding and disclosure requirements by establishing a relationship with a religious organization. In other words, Google could stop adequately funding the pensions of its 57,000 employees — saving billions of dollars — simply by finding religion.

Fortunately, the federal courts that have heard the case have recognized the absurdity of this argument. The U.S. District Court for the District of Northern California noted in its rejection of Dignity’s position that “to maintain a church plan, an organization must not only be associated with the church, but it must have [as] its ‘principle purpose or function . . . the administration or funding of a [benefits] plan or program . . . for the employees of a church.’” Given that Dignity is not a church, the court found that it should have to comply with ERISA like all the other hospital conglomerates that don’t have spiritual proclivities.

It seems as though the courts are getting this one right, but those decisions fail to reach many hospitals and medical centers across the country that continue to underfund pensions for their employees because of religious affiliations. We’re talking hundreds of thousands of doctors, nurses, technicians, orderlies, and other staff members that don’t have ERISA protection for their pensions because the hospitals for which these people work think their religious connections exempt them from fulfilling their obligations as large-scale employers. Hopefully, the Supreme Court’s decision to consider taking this case signals that this practice will soon come to an end.

The church exemption to ERISA exists for good reason. Faith-based organizations without avenues for generating revenue likely can’t fund and insure pensions for their employees in the way multi-national companies can, and they shouldn’t be held to the same standards. But that doesn’t mean a health care conglomerate with over $10 billion in annual revenue should be able to shirk its responsibilities to its employees because it has a spiritual affiliation.  ERISA exists to protect employees, regardless of their employers’ religious leanings, and it’s time for that protection to be afforded to employees of religiously affiliated health care systems.