Court overturns "Wal-Mart" law

The Maryland measure breaks a federal law letting big businesses offer uniform health coverage nationwide, judges say. The ruling sparks questions about employer mandates' legality.

By Amy Lynn Sorrel — Posted Feb. 12, 2007

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A federal appeals court decision against Maryland's "Wal-Mart law" may not halt other state efforts to require that employers offer health coverage, but it likely will force them to chart a different course, some policy experts said.

A three-judge panel of the 4th U.S. Circuit Court of Appeals in January ruled 2-1 that the federal Employee Retirement Income Security Act preempts Maryland's Fair Share Health Care Act.

Because the law "effectively requires employers in Maryland covered by the act to restructure their employee health insurance plans, it conflicts with ERISA's goal of permitting uniform nationwide administration of these plans," Judge Paul V. Niemeyer wrote.

The act, which passed a year ago and was set to take effect last month, requires firms with more than 10,000 employees to spend at least 8% of payroll costs on health benefits or pay the difference into a fund to support the state's Medicaid program. Although the law applied to four large employers in the state, it singled out Wal-Mart because it was the only business that did not meet the threshold.

Twenty-seven other states last year considered bills that would require businesses to offer insurance or pay in some way to cover the uninsured.

The court said that "a proliferation of similar laws in other jurisdictions would force Wal-Mart or any employer like it to monitor these varying laws and manipulate its health care spending to comply with them."

W. Stephen Cannon, legal counsel for the Retail Industry Leaders Assn., the trade group that sued, said ERISA was meant to make it easy for businesses to roll out nationwide benefit plans under uniform rules.

If laws like Maryland's were allowed, employers "could find themselves having to comply with so many different requirements, that would act as a giant disincentive to provide health care coverage," Cannon said.

In a dissenting opinion, Judge M. Blane Michael disagreed that ERISA preempted Maryland's law because the statute gives employers the option to contribute to a state fund.

"Innovative ideas for solving the funding crisis are required, and the federal government, as the co-sponsor of Medicaid, has consistently called upon the states to function as laboratories for developing workable solutions," Michael wrote.

Rick Abbruzzese, a spokesman for Maryland Gov. Martin O'Malley, said the state attorney general's office is reviewing the decision. The governor is considering a comprehensive package that is not likely to include an employer mandate, he said.

While the ruling leaves the future of similar measures doubtful, there are other ways to structure an employer responsibility statute, some policy experts said.

"This decision can be construed narrowly as to the specifics of Maryland's law, which applied to the largest of employers. But there is lots of room to look at this again," said Kathleen D. Stoll, director of health policy for Families USA, a consumer group that backed Maryland's statute.

She said legislation could apply to smaller businesses or create a tax to generate funds for public programs, instead of a penalty. States could set the size of a compulsory fee so that it would be less burdensome, Stoll said.

Following a different lead

Some are watching plans in Massachusetts and California that combine personal and employer responsibility.

Under Massachusetts' law, set to take effect July 1, businesses with more than 10 employees must offer health benefits or contribute up to $295 per full-time worker per year to a state program to cover the uninsured.

California Gov. Arnold Schwarzenegger's proposal would require employers with 10 or more workers to provide coverage or pay 4% of payroll costs into a similar state fund.

Although there are no signs of impending legal challenges in Massachusetts or California, it is not out of the question, some legal experts say.

Texas lawyer Mark Johnson, PhD, an ERISA expert, said that under these reform plans, an employer that does not have a health plan could choose to establish one, rather than pay a tax, and claim it is exempt from state regulation under ERISA.

"That's an interesting scenario where these plans [in California and Massachusetts] might not pass muster," Dr. Johnson said.

RILA's Cannon said, "The reality is no company is going to pay a tax in lieu of improving benefits for employees."

The Massachusetts law addresses some of the court's concerns because responsibility is shared among businesses, individuals and the state, said John McDonough, executive director of Health Care for All, a Massachusetts advocacy group that supports universal coverage. He added that the tax amount is not a significant levy and does not burden any one firm.

Most medical societies have not taken a position on employer mandates, although doctors generally do not view them as a stand-alone solution to covering the uninsured.

"There needs to be individual and corporate responsibility for this to work," said Charles Alagero of the Massachusetts Medical Society, which supported the state's universal coverage law.

MedChi, the Maryland State Medical Society, did not take a position on the Fair Share Act.

California Medical Assn. spokeswoman Karen Nikos said Schwarzenegger's proposed employer mandate "still isn't going to cover everyone."

The American Medical Association advocates for individual responsibility and expanding access to health coverage through tax credits and other insurance reforms.

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State action on employer coverage

Last year nearly 30 states considered bills to require employers to offer health insurance or pay in some way to cover the uninsured. So far, similar bills have been filed in 14 states this year.

2006 legislation failed: Alaska, Arizona, Colorado, Connecticut, Florida, Georgia, Kansas, Kentucky, Louisiana, New Hampshire, New Jersey, New York, Ohio, Oklahoma, Rhode Island, Tennessee, Virginia, West Virginia

2006 legislation passed: Maryland, Massachusetts, Vermont

2007 proposals introduced: Illinois, Indiana, New Mexico, New York, Oregon, Pennsylvania

2006 legislation failed and 2007 proposals introduced: California, Iowa, Michigan, Minnesota, Mississippi, Missouri, Washington, Wisconsin

Sources: National Conference on State Legislatures and American Legislative Exchange Council

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