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State Health Plans Challenged by ERISA

State Health Plans Challenged by ERISA

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LAWS: Healthy San Francisco | Suffolk County, NY | Maryland

bridgeHealthy San Francisco Health Plan Challenged Under ERISA Guidelines

Updated July 2008; material added 2014

Background:
In February 2006, the Universal Healthcare Council, created by San Francisco Mayor Gavin Newsom convened to develop a health care plan to provide access for San Francisco's 82,000 uninsured adults. The Council proposed the San Francisco Health Access Program which was incorporated into Supervisor Tom Ammiano's Worker Health Care Security Ordinance (WHSCO) and passed unanimously in July 2006. The ordinance provides for the implementation of the Health Access Program (now known as Healthy San Francisco) in addition to the Employer Spending Requirement (ESR) which will fund a portion of the health care program.

The plan does not offer insurance but rather it provides enrollees with a medical home that offers primary and preventive and urgent care, referrals for more specialized treatment, emergency care, family planning and prescription medications among other services within the San Francisco city limits. Dental and optometry coverage are not included.

The program is intended to provide access to care for uninsured adults living within the city limits who do not qualify for coverage under Medicaid. Once fully implemented, the program is expected to cost around $200 million per year and it will be funded through taxpayer contributions, participant co-payments and monthly premiums based on a sliding scale, and the ESR. Under the ESR, for-profit employers with more than 20 employees and non-profit employers with more than 50 employees will contribute $1.17 to $1.76 per hour per employee towards 1) employer-provided insurance; 2) health savings accounts; 3) direct payment of medical bills; or 4) payment towards the new city program, Healthy San Francisco.

In November 2006, the Golden Gate Restaurant Association (GGRA) challenged the ESR mandate claiming that it violates the 1974 federal Employee Retirement Income Security Act (ERISA) which establishes national standards for pension and health plans in the private industry. The GGRA claims that the new fees are neither affordable nor fair to employers and participants and will result in financial ruin for already struggling businesses, discourage the opening of new restaurants and hurt local job growth.

Federal District Court Judge Jeffrey White sided with the restaurant association in December 2007, concluding that the mandate conflicted with federal regulation of employee benefits. The ruling would limit the city's ability to expand the program to residents with incomes greater than 300% FPL. The City then turned to the Ninth U.S. Circuit Court of Appeals to call for emergency stay on the ruling to allow the implementation of the fee and an increase in eligibility to 3 times the FPL as scheduled on January 1, 2008.

On January 10, 2008 a Federal panel of judges from the United States Court of Appeals for the Ninth District granted the city the right to implement the mandate under a temporary stay of the district court order until the city completes the appeals process later this year. The panel further indicated that it was likely that San Francisco would win the appeal because they are not regulating employee benefits plans, but rather giving employers options to improve their workers' health care.

In February 2008, the GGRA again attempted to block implementation of the ESR, but Justice Kennedy of the U.S. Supreme Court upheld the Court of Appeals' emergency stay allowing the program to continue its expansion. A hearing before the Court of Appeals was conducted on April 17, 2008 and a decision has yet to be reached. As of July 2008, enrollment in the program has reached 24,868 participants with more than 734 employers signed up for Healthy San Francisco. Additionally, particpation of primary providers and hospitals in HSF is on the rise. The program is still limiting enrollment to adults with incomes up to 300% FPL, but ESR mandates have been implemented.

More Information on Healthy San Francisco:
Press Releases 
Program Statistics

Suffolk County, New York's Fair Share for Health Care Act Pre-empted by ERISA, Court Concludes

In 2005, the Suffolk County Legislature became the third governmental body to adopt a "Fair Share" Health Care Act requiring large retailers selling groceries to contribute at least $3 per hour per employee towards worker's health coverage. The law would affect only companies that do not have collective bargaining agreements, make at least $1 billion in annual revenue and have at least 25,000 square feet for retail grocery sales such as Wal-Mart, BJ's Wholesale Club, Target and Kmart.

The Retail Industry Leaders Association (RILA) filed suit against the county in 2006, asserting that the law was preemtped by ERISA. In April 2006, the county amended the law to require employers to contribute a minimum health care expenditure equal to the public health cost rate - as determined annually by the county - multiplied by the number of hours worked by employees. Failure to provide the appropriate expenditures would result in civil penalties made payable to the county.

The U.S District Court for the Eastern District of New York sided with RILA and in July 2007 ruled that ERISA preempted the Suffolk County law because it would require employers to vary the benefits offered to New York employees rather than relying on a uniform nationwide plan.

Maryland's Fair Share Health Care Fund Act Overturned in ERISA Challenge

The U.S. Court of Appeals for the Fourth Circuit today upheld the ruling of a Federal judge who last year nullified the Maryland Fair Share Health Care law, which singled out Wal-Mart for special health care spending mandates.

Background:
Maryland's Fair Share Health Care Fund Act was vetoed by the governor in 2005 (read the veto message).  In January 2006, the legislature overturned the veto, making the much-debated bill state law.  Senate bill 790 requires organizations with more than 10,000 employees to spend at least 8 percent of their payroll on health benefits -- or put the money directly into the state's health program for the poor. 

Maryland's legislation was dubbed the 'Wal-Mart Bill' because the 8 percent threshold would affect only the retailer, though three other companies in the state count over 10,000 employees.  Johns Hopkins University only needed to meet a 6 percent threshold, as it is classified as a non-profit organization.  The other two companies, Northrop Grumman and Giant Food, are large enough to be subjected to the law, but spend enough on health care to be exempt.  Wal-Mart CEO H. Lee Scott spoke to the National Governors Association on February 26, 2006, arguing that the law was bad for all business in the state.  Link to his comments.

The Retail Industry Leaders Association (RILA) filed suit in Maryland in February to block the law, saying that it is illegal under the Employee Retirement Income Security Act (ERISA) and that it violates the equal protection clause of the 14th Amendment because it affects only Wal-Mart.  Oral arguments begin in the case on June 23, 2006.  RILA says that the suit is also meant to advise caution to the many other states considering similar legislation. 

"Fair Share" Invalidation Impact in Other States (Section added in 2014)

A legal analysis is online at http://www.healthlawyers.org/Publications/Journal/Documents/Vol%201%20Issue%201/ERISA%20as%20an%20Obstacle%20to%20Fair%20Share%20Legislation.pdf
[excerpts]

State legislators in California and Colorado passed fair share bills; however, each state’s respective Governor vetoed the bills.  “Several of the 2006 bills were substantially similar to the Maryland Fair Share Act, discussed in greater detail below, both in terms of the nature of the mandates themselves and the types of employers to be regulated. For example, Alaska, Iowa, Kansas, Georgia, Michigan, New Jersey, New York, Tennessee, and West Virginia all considered legislation that would have required that for-profit employers with 10,000 or more employees spend at least 8% of their total payroll on employee health benefits or pay a certain amount into a state fund. The bills impose $250,000 civil monetary penalties for not paying those assessments.

Florida, Louisiana, Minnesota, New Hampshire, Oklahoma, and Washington had fair share bills similar to the Maryland Fair Share Act, but differing in the amounts they required employers to spend on employee health benefits. Other state legislatures structured their fair share bills similarly, but departed from the Maryland Fair Share Act in the treatment of certain categories of employers. As examples, Kentucky’s fair share bill specifically excluded nonprofit employers from regulation, whereas Colorado’s bill would not have distinguished between for profit and nonprofit employers (imposing an employer mandate of 11% of total payroll spent on employee health benefits). Still other states drafted bills to reach more employers than the Maryland Fair Share Act did, by imposing mandates on much smaller employers than Wal-Mart. Such bills included Arizona (100 or more employees), Colorado (3,500 or more), Louisiana (8,000 or more), New Hampshire(1,500 or more), Oklahoma (3,000 or more),  Rhode Island (1,000 or more), and Washington (5,000 or more). Other states such as Ohio targeted only the very largest employers within their borders (30,000 or more employees).

          Some of the bills that state and local legislators introduced in 2006 were significantly more ambitious and potentially far-reaching than the Maryland statute. For example, the New York state legislature considered a bill that required any employer with more than 100 employees either to pay into a state fund $3 per hour per employee or provide health insurance coverage worth at least that much. New Jersey attempted a similar approach, introducing a bill requiring companies with at least 1,000 employees either to spend at least $4 per hour on healthcare for their employees or pay the difference into the state’s healthcare access fund. Similarly, Connecticut’s proposed legislation would have required that retailers that employ 5,000 or more workers without providing employee health insurance pay a $2.50 per hour per employee fair share surcharge to the state.

More information regarding ERISA court challenges:
NCSL ERISA Resource Page
ERISA Case Study
Maryland Health Care for All! Coalition

Articles about Maryland's Fair Share Health Care Fund Act
Washington Post, February 10, 2006.

What the nation's newspapers said after Maryland's veto override
Washington Post, January 13, 2006
Huffington Post, December 1, 2012

What the nation's newspapers said about the bill before the veto:
Washington Post, April 6, 2005

The NCSL Health Program regularly collects articles of interest to legislators, policymakers and those interested in health-related issues. We provide the links for informational purposes only, and they do not necessarily reflect NCSL positions.

Please note that some links may not work since many media Web sites keep active links to articles for a limited time, some as little as 24 hours. If you are interested in a story with a link that does not work, please visit the Web site of its origin.

ERISA's Impact on State Health Policy

Maryland as a Case Study

   Congress passed the Employee Retirement Income Security Act in 1974 to reform and streamline employee benefit packages.  ERISA intended to create uniform federal standards by eliminating competing state laws and protecting employee benefits from fraud and mismanagement.  The law addresses pension plans in detail but only touches on other employee benefits, like health care.  In fact, ERISA's "preemption clause" has been a sticking point for state lawmakers looking to reform health care since the law's inception. 
   The preemption clause states that "[ERISA] shall supersede any and all State laws insofar as they relate to any employee benefit plan."  These benefits include health care.  Thus state reforms have often come into conflict with ERISA because they relate, directly or indirectly, to employee benefits and conflict with the federal law.  States cannot mandate that employers pay for health insurance, directly tax benefit plans, or require reports on cost or use of the plans from employers.  What states can do under ERISA is "regulate the business of insurance."  Through this clause states have tried to side-step ERISA, usually without success. Hawaii, with its Prepaid Health Care Act of 1974, is the only state with an employer mandate.  This law was grandfathered in after ERISA passed.
   ERISA is administered by the Department of Labor, but the only body that can grant an ERISA waiver (to a state implementing broad health care reform, for example) is Congress.  They have never granted such a waiver.  You can read the judge's decision here.

 Healthy San Francisco Page 

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