Washington State’s first-in-the-nation public long-term care insurance program is headed to court. A group of employers and workers has sued the state with the goal of getting the law overturned.

The lawsuit, filed on behalf of three employers and six workers, argues that the insurance program violates a long list of federal and state laws including the Employee Income Security Act (ERISA), the US Constitution, and state insurance regulations. The plaintiffs are represented by the Seattle-based law firm Davis Wright Tremaine.

Even before the suit, the state commission that was created to operate the program was looking at revisions. The litigation is likely to accelerate changes when the Washington legislature meets in January, though some issues raised by the suit will be very difficult to address in a way that maintains the program.

Does the program violate ERISA?

The lawsuit’s major argument appears to be that the law violates ERISA’s guaranties against non-forfeiture—the idea that workers cannot be denied benefits after paying into a benefit program.

The state insurance program, known as the Washington Cares Act, requires most employees to pay a 0.58 percent annual payroll tax in return for a long-term care insurance benefit of up to $36,500. However, the law effectively requires workers to make contributions for 10 years before they can become eligible for benefits. It also would pay benefits only to Washington State residents.

Thus, the suit argues, the law prohibits older workers who pay the premiums for only nine years from receiving benefits despite their ongoing contributions. Similarly, it would not pay benefits to workers who are employed by a Washington company but who live in another state. For example, many residents of Portland, Oregon work just across the river in Vancouver, Washington. In addition, a Washington worker who retires to a different state would be ineligible for benefits.

Age discrimination?

Finally, the program charges higher-income workers higher premiums even though, the plaintiffs say, “there is no compelling state interest for the difference in rate.” Since older workers tend to make more than younger ones, the suit says this violates multiple laws aimed at protecting older workers from discrimination.

The suit alleges that all these limitations also violate the Equal Protection clause of the Fourteenth Amendment  to the US Constitution.

The Washington legislature could address these issues, though at a cost. For example, paying benefits to non-residents would increase premiums for all participants. Similarly, reducing or eliminating the 10-year vesting period also would increase premiums.

Employer program or public benefit?

The public insurance program also has another problem. The state legislature exempted people from paying the tax (or receiving a benefit) if they owned a private long-term care insurance policy as of Nov 1. The state reports it has received more than 344,000 applications for exemptions and approved about 140,000.

The suit raises a number of important questions:

Is the program an employee benefit subject to ERISA or is it a public benefit? ERISA generally protects employees who participate in benefit plans voluntarily created by their employers.

Are employers merely acting as agents of the state by collecting and remitting the tax/premium? Or is this an employee benefit similar to health or life insurance?

Is the payment a premium or a tax?

Closely watched

The district court is highly unlikely to block the law before the state begins collecting premiums in January. However, the lawsuit asks the court to order the state to return any premiums that workers do pay before the litigation is resolved. That could leave the program in a high state of uncertainty for years.

Some of the issues raised by the lawsuit are specific to Washington State. But others, such as the ERISA and federal constitutional issues, would apply to any mandatory state public long-term care insurance program. Other states considering their own programs will be watching this case closely.