Court upholds San Francisco employer insurance mandate
■ The decision could lay the groundwork for a U.S. Supreme Court fight over "pay or play" laws requiring companies to pitch in for health coverage.
By Amy Lynn Sorrel — Posted Oct. 27, 2008
A recent federal appeals court ruling may open the door for states looking to experiment with employer mandates as part of health system reform.
A panel of the 9th U.S. Circuit Court of Appeals unanimously upheld San Francisco's initiative requiring businesses to spend a minimum level of money on workers' health care, rejecting arguments that the federal Employee Retirement Income Security Act preempted the city ordinance.
Under the provision, which took effect Jan. 1, businesses with 20 to 99 workers must spend at least $1.17 per hour per employee, while those with 100 or more employees must pitch in at least $1.76 per hour per worker. Employers can contribute to their own coverage plans or to a city fund for "Healthy San Francisco," a universal access program offering primary and preventive care to uninsured residents through a clinic network.
In a Sept. 30 opinion, judges found that the ordinance did not violate ERISA because it gave businesses options to comply with the spending requirement without establishing a benefit plan or changing an existing one.
The court recognized that ERISA was intended to help employers provide uniform, nationwide employee benefits by relaxing administrative and financial burdens. But judges also noted that Congress left health care regulation up to states and localities, particularly in providing services for poor and low-income residents. Nothing in ERISA was intended to preempt such regulation, the court said.
The decision may set the stage for a U.S. Supreme Court battle. An appeal to the full 9th Circuit, or possibly the high court, is under way, said the Golden Gate Restaurant Assn., which challenged the San Francisco ordinance.
Meanwhile, city officials hailed the 9th Circuit ruling and encouraged others to follow their lead. "By thinking outside the box, every city and state in this country can provide health care if they are willing to challenge the conventional wisdom and take risks," San Francisco Mayor Gavin Newsom said in a statement.
Healthy San Francisco covers nearly 31,000 of the city's estimated 73,000 uninsured residents.
Unlike a sweeping tax or fee, the spending mandate gives a majority of eligible employers credit for health coverage they already provide, City Attorney Dennis J. Herrera said in a statement.
The decision provides a road map for states looking to use financing from employers as a component of health system reform, said Sonya Schwartz, National Academy for State Health Policy program manager. The independent policy organization has backed states attempting the approach.
"States have to be careful when crafting these laws and should focus on the dollars and not the benefits provided by employers," Schwartz said. The ruling also is likely to bolster existing programs in states such as Massachusetts and Vermont, which combine employer and individual responsibility.
The effect on businesses
San Francisco's funding mandate was only one piece of the program, noted Steve Heilig, who served on a city commission that created Healthy San Francisco. The city already had a network of community clinics, and most of the city's employers already offered coverage, said Heilig, director of public health and education for the San Francisco Medical Society. The organization did not take a position on the program.
But businesses insist that the spending mandate imposes substantial administrative burdens on them in conflict with ERISA standards, said Kevin Westlye, the Golden Gate Restaurant Assn.'s executive director.
"Congress' intent with ERISA was to avoid a patchwork of local benefit plans so more dollars could go into benefits," he said. Instead, employers fear that the decision will lead directly to that maze of differing laws.
Rather than simply paying out each month for workers' health coverage, employers must spend additional resources calculating employees' hours and figuring out which city option works best for each individual, Westlye said.
The restaurant association supports comprehensive health system reform, he said. "But all this ordinance did was shift the burden [of health care] from the city to the business community without addressing the cost."
The 9th Circuit rejected the association's arguments that its decision conflicted with a 4th U.S. Circuit Court of Appeals ruling in 2007 striking down a similar Maryland law. That statute required companies with more than 10,000 employees to spend at least 8% of payroll costs on health benefits or to pay into a pool to expand state health programs. Judges in that case said the law affected only one employer -- Wal-Mart -- and gave the company no meaningful alternative for compliance other than to change existing ERISA plans.
A perceived split between the two decisions could prompt the U.S. Supreme Court to take up the issue.
The San Francisco Medical Society's Heilig said the development council for the city program was not insensitive to cost pressures and that an implementation committee continues to monitor its effects.
"But if you wait for the perfect program to satisfy everyone, you'll never do anything," he said. "So we tried to do something at the local level that will hopefully provide some good lessons."