San Francisco employer mandate may end up in U.S. Supreme Court

San Francisco's universal health access program scored another victory in the courts in a decision that has set the stage for a possible U.S. Supreme Court showdown over the use of employer mandates as part of health system reform.

The full 9th U.S. Circuit Court of Appeals in March upheld an earlier decision by a panel of three of its judges validating the city program's employer spending provision. The provision requires businesses to contribute a minimum amount toward workers' health coverage or pitch in to a city fund for Healthy San Francisco, a universal access program offering primary and preventive care to uninsured residents.

Judges voted down a plea by the Golden Gate Restaurant Assn. for the full court to reconsider arguments that the city ordinance violated the federal Employee Retirement Income Security Act. The court reaffirmed the lack of an ERISA violation because it said the law offers a true choice to employers rather than a straight requirement that they offer or revise an ERISA plan. As of May 1, 2008, more than 700 employers elected to pay money to the city rather than alter their health care spending levels, the court noted.

Judges also, for the second time, rejected the notion of a conflict with a 2007 4th U.S. Circuit Court of Appeals ruling striking down a similar Maryland law. The 4th Circuit found that the law affected only one employer -- Wal-Mart -- and gave the company no realistic alternative for compliance other than to change existing ERISA plans.

The Golden Gate Restaurant Assn. has appealed the issue to the U.S. Supreme Court. The perceived conflict between court rulings could prompt a high court review.

City officials and some physicians want to see the 9th Circuit ruling stand in hopes that it will spark further reform efforts. The decision preserves health coverage for roughly 30,000 of San Francisco's estimated 73,000 uninsured residents, said Vince Chhabria, the city's deputy attorney.

Conflict or complement?

Rather than posing a conflict, the 9th and 4th Circuit rulings operate in harmony, Chhabria said.

"The Maryland case stands for the proposition that local government may not impose a penalty on employers for failing to provide health care. And the 9th Circuit ruling stands for the proposition that local government may impose health care spending requirements if they allow employers to comply without disrupting their own plans," he said. Together, the rulings "create a rule that is easy to follow and provides predictability for employers and local governments."

The Healthy San Francisco program was not intended to replace health insurance but rather act as a safety net, said Long X. Do, director of litigation for the California Medical Assn. The organization filed a friend-of-the-court brief urging the 9th Circuit to uphold the spending ordinance, but it has not taken a position on Healthy San Francisco.

Health system reform can take on many different forms and is an area traditionally left to state and local authorities, Do said. In the absence of a national solution, "there shouldn't be a broad application of ERISA that would prevent local and state government from taking measures to reform their own health care system."

But dissenting judges said the ruling stands in clear opposition to the 4th Circuit case, and they said so-called "fair share" or "pay-or-play" laws impose the type of burdensome employer directives that ERISA sought to prevent.

"If our decision in this [9th Circuit] case remains good law, similar laws will become commonplace, and the congressional goal of national uniformity in the area of employer-provided health care will be thoroughly undermined, with significant adverse consequences to employers and employees alike," Judge Milan D. Smith Jr. wrote.

That fear spurred the Golden Gate Restaurant Assn. to file an emergency appeal asking U.S. Supreme Court Justice Anthony M. Kennedy to block the 9th Circuit ruling. If the request is denied, the trade group will petition the full court.

The ordinance imposes a variety of costly administrative burdens on businesses that ultimately could force employers to drop coverage, said GGRA Executive Director Kevin Westlye. "There is no real reform here. We have a problem that needs to be addressed on a national basis" rather than through a maze of differing local laws, he added.

The CMA's Do noted that the 9th Circuit took the unusual step of issuing a written opinion with its decision not to rehear the case. "That does speak to how important the 9th Circuit feels this issue is and would signal to the Supreme Court that it's something they should pay attention to." If the high court accepts the case, the CMA plans to weigh in with a friend-of-the-court brief.

San Francisco's Chhabria said the high court may be reticent to get involved in the case with the health system reform debate still evolving at the federal level. "Anything adopted nationally is going to have an impact on what local government can do."