New Twist In State Health Care Reform
Michele Aiken January 31st, 2008
The maze that ERISA has posed for state health care reform just became more complex and uncertain.
In 2006, the Fourth Circuit issued their decision in RILA V. Fielder. The Court affirmed the decision of a federal district court that found Maryland’s Fair Share Health Care Fund Act to be preempted by ERISA. The Fair Share Act would have required for-profit employers with 10,000 or more employees in the state to either spend a certain percentage of their total payroll on employee health insurance costs or pay to the state the amount their spending fell short of that percentage. In the final analysis, the Court held that the Fair Share Act “falls squarely under Shaw’s prohibition of state mandates on how employers structure their ERISA plans”. Therefore, since “the Fair Share Act effectively mandates that employers structure their employee healthcare plans to provide a certain level of benefits, the Act has an obvious ‘connection with’ employee benefit plans and so is preempted by ERISA.”
Up until this year, the Fourth Circuit had been the only jurisdiction that had decided on a state legislated “pay or play” statute. It was assumed that the RILA decision would set the trend for future decisions.
However, on January 9, 2008, the Ninth Circuit Court of Appeals issued its decision in Golden Gate Restaurant Association v. City and County of San Francisco. In this case, the Golden Gate Restaurant Association (“the Association”) challenged the San Francisco Health Care Security Ordinance (“the Ordinance”) on the basis of ERISA preemption, as the Ordinance mandated that employers which have an average of at least 20 employees during a quarter must make required health care expenditures to or on behalf of employees. The district court granted a motion for summary judgment by the Association, which the City immediately appealed. A three-judge panel from the Ninth Circuit heard the appeal and concluded that the Ordinance would not require either the establishment of or alteration to any existing ERISA plan, so the burden of any administrative requirements would be on an employer, not on a plan. The Court therefore granted the stay requested by the City, and the Ordinance will go into effect on schedule. The Ninth Circuit will hear the case again in the spring of this year when it will decide the case on its merits.
Since the Ninth Circuit has yet to decide the Golden Gate Restaurant case on its merits, there is not yet a true conflict between Circuits on the issue of “pay or play” state statutes and ERISA preemption. However, based on the three-judge panel’s ruling on the stay, that conflict is looming on the horizon. Combine this soon-to-be conflict and the current societal focus on health care reform, and you get a fast track to the Supreme Court for a “tie breaker”. When that happens, the Supreme Court will almost certainly come down on the side of the Fourth Circuit, in favor of ERISA preemption.
Historically, the Supreme Court has interpreted the preemption provisions very broadly. Additionally, the Court has numerous times called on Congress to “fix” the problems ERISA has created. Since Congress hasn’t seen fit to “answer” the Court’s suggestions, I’m really looking forward to reading this opinion when it comes down!
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