a citizen’s journal by Thomas Nephew

Fair Share Health Care: canary in the ERISA coal mine

Posted by Thomas Nephew on December 15th, 2006

On November 30, the 4th U.S. Circuit Court of Appeals took up an appeal of a July district court RILA v. Fielder ruling that Maryland’s “Fair Share Health Care” act infringed on federal law.

Earlier in the month, the National Academy for State Health Policy published an extremely valuable and informative issues brief, “ERISA Implications for State Heath Care Access Initiatives: Impact of the Maryland “Fair Share Act” Court Decision,” by Dr. Patricia Butler. That brief suggests to me that what’s at stake in RILA v. Fielder may be the ability of states to innovate in health care reform — and not “just” incremental reform like the Fair Share bill, but broader initiatives reformers hope to legislate in Maryland and elsewhere.

As AP’s Zinie Chen Sampson wrote, the Fair Share act “would require nongovernment employers with 10,000 or more workers to spend at least 8 percent of their payroll on health care or cover the difference in taxes.” In his July ruling, Judge Motz held — incorrectly, I think — that Maryland was essentially imposing a mandate on targeted companies to improve their health plans, in defiance of federal law insisting such matters must be administered in a uniform way across the country.

The federal law that the Fair Share act is argued to conflict with is the Employee Retirement Income Security Act, or ERISA for short. That law governs employee benefit plans including health plans, and holds that its provisions “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described” (Title 29, Section 1144). The trouble is that the word “relate” is vague and subject to shifting interpretations. Butler:

Because ERISA’s preemption provisions are not particularly clear on their face, courts have been interpreting them in the 32 years since ERISA was enacted. For two decades, the U.S. Supreme Court took an expansive view of ERISA state law preemption. The Court noted, for example, that the preemption clause was “conspicuous in its breadth,” and overturned state laws with any impact on or reference to an ERISA plan’s benefits, structure, or administration. […]

The Court has held in Travelers and subsequent cases that it would not presume (without clear evidence to the contrary) that Congress intended ERISA to preempt laws in areas of traditional state authority. Despite greater flexibility granted to state laws, however, the Supreme Court’s two basic tests for preemption remain. A state law will be preempted if it:

  • Refers to an ERISA plan, either explicitly or by requiring reference to an ERISA plan in order to comply with the state law, or
  • Has a connection with an ERISA plan by substantially affecting its benefits, administration, or structure.

But echoing arguments like Professor Phyllis Borzi‘s during debate about the law, solicitor general Steven M. Sullivan argued beore the 4th Circuit Court — correctly, I think — that the law didn’t actually force targeted companies like Wal-Mart “to offer health care; it gives companies the choice of spending at least 8 percent on employee health benefits or covering the costs with increased taxes.”

While there’s little doubt that would be an unwelcome choice to the Scrooges of Bentonville, it would still be a choice that potentially leaves their so-called national “health plan” intact. Companies like Wal-Mart could calculate the pros and cons of setting up an adequate health care plan for their employees, and then either go ahead — or just cut a check to Maryland’s Medicaid system.

As Butler puts it, courts must decide whether “Supreme Court precedent [prohibits] state laws that merely raise plan costs—in other words, that a spending mandate is not a benefits mandate.” If a court decides — however wrongly — that a state law creates a health plan spending mandate, and that that is equivalent to a benefits mandate, the state law must be overturned under current ERISA law.

Butler’s brief leaves me with the feeling that just about any health care reform law can founder on the shoals of a vague federal ERISA preemption provision, shifting legal interpretations, and individual judicial temperaments. Butler is guardedly cheerful about the prospects for popular new health care reform notions such as a recently enacted Massachusetts law coupling a mandate for individual health insurance by those who can afford it with state-funded health care for those who can not. But in discussing a Vermont health care reform law, she notes that

This law also raises ERISA issues similar to those in the Massachusetts law, though it also may survive a preemption challenge. Because these laws are drafted differently and have different likely impacts than the Maryland act, the RILA decision may not be directly applicable. But, the laws will need to overcome potential challenges based on the Supreme Court’s preemption principles.

In adding the emphases above, I realize that Dr. Butler may feel more confident about the prospects for these and other state health care reform initiatives than she lets on. Yet in reading about the arcane legal issues involved, I’m often put in mind of those scholastic debates about how many angels can dance on the head of a pin. And I recall that a bevy of legal experts — including the state’s attorney general — guessed wrong about the prospects for “Fair Share Health Care” once it came down to at least one district judge. If a clear, fair choice to “pay or play” like Fair Share can be preempted by ERISA, so can any number of other laws.

Butler sets out some guidelines in her conclusion for how “pay or play” plans like “Fair Share” could avoid ERISA preemption. But once she goes beyond “offering real employer choice between paying and covering their workers” — which I, for one, insist “Fair Share” offered — it seems to me the Fair Share Act fits the bill:

  • It does not refer to ERISA plans.
  • Legislative sponsors are explicitly neutral regarding whether the employer pays the assessment or plays by offering coverage.
  • The credit applies to any health care spending on behalf of employees (not only to more traditional health insurance or formal health plan).
  • The credit is not conditioned on an employer’s plan meeting benefits or structural requirements such as employer premium sharing standards.
  • An employer’s payment of the assessment is not a prerequisite to its employees qualifying for coverage under the public program.

Some critics have rightly pointed out that the Fair Share Health Care law was not a solution for Maryland’s health care crisis. But the law had another important purpose as well. As its name implied, “Fair Share Health Care” was always about both health care and fair competition between decent businesses and robber barons. If a company like Giant Foods can’t compete with Wal-Mart because it’s “dumb” enough to have a decent health plan, we all lose in the long run — and probably in the short run, too. In the glory days a-coming, a national health care plan would moot this concern, but meanwhile, it’s deeply ironic that “Fair Share Health Care” would be tripped up by federal statutes purporting to safeguard employee income security.

At any rate, whether it lives or dies on appeal, “Fair Share Health Care” may have served at least one useful purpose: as a canary in the coal mine, showing that current federal ERISA law is a formidable obstacle to any progressive state legislator hoping to reform health care. Accordingly, Dr. Butler’s suggestion to reform ERISA is worth a look by federal legislators hoping to break the national health care reform logjam.

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