Federal court overturns Md. employer mandate

Requiring large employers to provide health coverage violates ERISA law, which allows multistate companies to develop uniform benefits, a judge finds. Maryland appeals the decision.

By Amy Lynn Sorrel — Posted Aug. 14, 2006

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A federal court decision overturning Maryland's "Wal-Mart law" likely won't stop state legislative efforts to mandate that employers offer health insurance, but it may force a switch in tactics, policy experts predicted.

On July 19, Judge J. Frederick Motz ruled that Maryland's Fair Share Health Care Act is preempted by the federal Employee Retirement Income Security Act. The state law "violates ERISA's fundamental purpose of permitting multistate employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration," he wrote.

The Maryland statute requires companies with more than 10,000 employees to spend up to 8% of their payroll costs on health benefits or pay the difference into a state fund. The measure, challenged in a lawsuit by the Retail Industry Leaders Assn. in February, singled out Wal-Mart -- the only business in the state that did not meet the requirements.

About 28 other states this year pressed for similar legislation, dubbed "fair share" or "pay or play." The trend was fueled by state lawmakers frustrated by the number of working people on Medicaid and the strain of the cost associated with treating rising numbers of uninsured residents. Backed heavily by organized labor, the laws, supporters say, were designed to create a level playing field and stop profitable companies from shifting the burden of their employees' insurance costs onto taxpayers.

However, in Maryland's case, the court found that the law not only conflicted with ERISA but also unfairly hurt Wal-Mart by making the company report its payroll and benefits expenditures to the state. This requirement did not apply to any other employer in the state.

Paul T. Kelly, senior vice president of government affairs for the retail trade group, praised the ruling. The federal regulations were meant to let companies create benefit plans that meet the needs of their national work force without being subject to a patchwork of varying state laws, he said.

"The very uniformity ERISA provides is what gives employers the incentive to provide benefits," Kelly said.

Impact on other states

Although the decision favoring ERISA preemption will likely put up roadblocks to expanding health insurance coverage through employer mandates, policy experts say states are likely to test other means.

"This may be perceived as a hard blow, but there are a number of ways an employer-responsibility bill could be drafted," said Kathleen D. Stoll, director of health policy for the consumer group Families USA, which supported the Maryland law. One way, she explained, would be to make it clear that such laws act more as a tax to raise money for public programs, rather than a mandate that penalizes certain businesses.

AFL-CIO President John J. Sweeney in a statement called the ruling "deeply disappointing" but said that it will not deter the union "from demanding that large corporations like Wal-Mart ... do their part to address our nation's health care crisis."

Maryland Attorney General J. Joseph Curran Jr. has appealed the decision to the 4th U.S. Circuit Court of Appeals. State lawmakers, who overrode a veto by Gov. Robert L. Ehrlich Jr. to pass the law, have pledged to re-tackle the measure to comport with Motz' objections.

According to Motz, his decision narrowly addressed the Maryland law and did not necessarily undo measures in other states. A Massachusetts law, passed in April, "arguably has only incidental effects upon ERISA plans," the opinion states. Within the federal boundaries, Motz continued, it is in the public interest for states to "experiment in controlling the costs and increasing the quality of health care for all citizens."

Some medical groups and policy experts are eyeing the Massachusetts law, which combines employer and individual responsibility, as a model for future efforts to expand access to health coverage. Under the law, set to take effect July 1, 2007, businesses with more than 10 employees that do not provide worker coverage must contribute up to $295 per full-time worker per year to a state-subsidized program for the uninsured. Individuals who can afford to buy coverage must do so or face a tax penalty.

While most medical societies have shied away from taking a stance on employer mandates, the Massachusetts Medical Society supported the law's multipronged approach. The Vermont Medical Society also backed a similar measure, the Catamount Health plan, passed in May. Catamount imposes an assessment on employers who do not contribute to their workers' health benefits, but participation in the program is voluntary for the uninsured.

"If we are going to solve the problem of the uninsured, every major stakeholder -- employers, politicians, patients, physicians -- has to participate," said radiologist Kenneth R. Peelle, MD, president of the MMS. Meanwhile, it remains unclear whether the statute will prove impervious to an ERISA challenge, according to John McDonough, executive director of Health Care for All, a nonprofit advocacy group in Massachusetts that supports universal coverage.

The measure "answers some of the objections raised by the Maryland judge because it is not a levy simply against one employer," and the monetary penalty is also less significant, he said. Still, "given the vagueness and lack of definition in this terrain, it's all worrisome," McDonough added.

AMA policy does not address employer mandates. The Association is pressing in the long term for adoption of a consumer-driven, market-based plan to expand coverage through tax credits and insurance reforms. The AMA applauded Massachusetts' law as a "positive" new course to covering the uninsured.

MedChi, the Maryland State Medical Society, did not take a position on the state's Fair Share Act, but interim executive director Stephen H. Johnson said the group is skeptical of employer mandates as a singular approach to improving health coverage.

To date, Hawaii is the only state to require employer-sponsored health insurance. Its law dates to 1974.

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States try "pay or play"

In 2006, nearly 30 states considered legislation that would require employers to pay for health coverage or face a fine. Here is a snapshot of the status of the legislation in those states.

Legislation pending Alaska, Arizona, California, Connecticut, Georgia, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, Tennessee

Legislation passed Maryland, Massachusetts, Vermont (A federal court struck down Maryland's law in July. The state appealed the ruling.)

Legislation died or failed Colorado, Florida, Mississippi, Virginia, Washington, West Virginia, Wisconsin

Sources: National Conference of State Legislatures data as of July; State Coverage Initiatives, a Robert Wood Johnson Foundation initiative

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