Class action attorneys have filed a class action lawsuit against two home care agencies, Edison Home Health Care and Preferred Home Care of New York, in the first lawsuit targeting the use of captive insurance companies to provide health benefits.
The suit, alleges that Edison and Preferred used a captive, Healthcap Assurance, to cheat their home care workers out of millions of Wage Parity Act (WPA) dollars.
The suit was brought under the Employee Retirement Income Security Act of 1974 (ERISA), the federal statute governing EB plans, as well as the WPA.
It alleges that Edison and Prefered used the captive to avoid paying their Medicaid funded home care workers the full $4.09 WPA package of additional wages and benefits, instead returning the WPA-credited benefit dollars to the agencies and their owners.
Allegedly, Healthcap Assurance held $35.5 million WPA-credited benefit dollars earmarked to pay for home care worker health insurance benefits for 4,000 workers but paid out less than $10 million between 2015 and 2017.
The remaining dollars were returned as ‘surplus’ or other financial benefits to the agencies and their owners.
These returned dollars are the focus of the suit, as the WPA prohibits any ‘refund’ or ‘dividend’ to an agency of monies contributed toward the WPA package, and an agency must guarantee that the WPA credit taken is not more than the amount of the contribution actually used for benefits.
The lawsuit asserts that the defendants, therefore, violated the WPA by taking a full credit against the WPA package for the entire amount of $35.5 million, despite this amount not being the cost of the benefits actually incurred.
Additionally, it is alleged that all named defendants, Edison, Preferred, Healthcap Assurance, Berry Weiss and Samuel Weiss (owners of Preferred and Edison, respectively), and 15 unnamed individuals are fiduciaries who breached their fiduciary responsibilities and/or parties in interest that benefitted from prohibited transactions.
The repercussions for the defendants could be severe, under ERISA, the agency owners can be held personally liable to make the plan whole for any losses resulting from the fiduciary breaches, and for disgorging assets and profits wrongfully taken.
In addition, there is a mandatory 20 percent civil penalty that is assessable by the US Department of Labor on any recovery for a fiduciary breach.
The parties in interest are also liable for an excise tax penalty with respect to any prohibited transactions they engage in, which ranges between 5 and 100 percent of the amount involved.
Improperly benefiting from the assets of an ERISA, which includes receiving kickbacks or anything of value, is a felony prosecutable by the US Justice Department.
Penalties for not complying with the WPA, which is enforced by the New York State Departments of Health and Labor, as well as the State Attorney General’s Office, are also severe.
They include liability for unpaid wages and benefits, withdrawal of an agency’s home care license, and potential civil and criminal Medicaid fraud prosecution.
US labour and employment law firm Ford & Harrison noted that as “no prior lawsuit has targeted use of captive insurance companies in this way … the progress of this lawsuit will be closely watched”.
Edison and Preferred did not immediately respond to a request for comment.