Health Reform: ERISA and Pay or Play

A majority of Americans obtain health insurance through their place of employment, or the place of employment of an immediate family member. The Census Bureau provides more detail in Figure 7, here. However, small employers, and employers in certain sectors of the economy (e.g., retail and agriculture) are much less likely to offer coverage. In the view of many, employers that fail to offer coverage to their employees (leaving aside, for the moment, the affordability of that coverage), are morally blameworthy free-riders. A popular policy response is a "pay or play" initiative. Employers can either offer health insurance to their employees ("play") or pay a tax/penalty to the state ("pay"). These initiatives may be subject to ERISA preemption, depending on how they are designed and implemented.

Last week, the 9th Circuit denied en banc review of the panel decision in Golden Gate Restaurant Association v. City and County of San Francisco. The case turned on whether ERISA preempted San Francisco's attempt to impose a mandate on employers to provide health insurance to their employees, or make payments to the city, with the precise amount to be paid tied to the number of employees, hours worked, and whether the employer was non-profit or for-profit. The panel upheld the law, overturning the district court's decision. Eight judges dissented from the denial of en banc review. The summary paragraph of the dissent is as follows:

Our decision in this case creates a circuit split with the Fourth Circuit Court of Appeals [in Retail Industry Leaders Association v. Fiedler, 475 F.3d 180 (4th Cir. 2007)], renders meaningless the tests the Supreme Court set out in Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), conflicts with other Supreme Court cases establishing ERISA preemption guidelines, and, most importantly, flouts the mandate of national uniformity in the area of employer-provided healthcare that underlies the enactment of ERISA.

Judge Fletcher, who wrote the original panel disputed these claims -- mostly by repeating the arguments he had made in the panel opinion. Professor Ed Zelinsky of Cardozo has written a detailed critique of the panel's decision here. The plaintiff has vowed to seek Supreme Court review. A detailed chronology of all the filings in the case may be found here.

Related Posts (on one page):

  1. Health Reform: ERISA and Pay or Play II
  2. Health Reform: ERISA and Pay or Play
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Health Reform: ERISA and Pay or Play II

San Francisco is not the only place to adopt a pay or play initiative. In the past few years, Maryland, Massachusetts, and Suffolk County, New York have all adopted such statutes. California adopted a pay or play statute in 2003, but it was overturned by Proposition 72 in the 2004 election. These statutes required employers to spend at least a specified percentage of their payroll (Maryland) or a specific amount per worker per hour (Suffolk County) or their "fair share" of the cost of coverage (Massachusetts).

The Maryland statute was enjoined by the 4th Circuit in Retail Industry Leaders Association v. Fiedler, 475 F.3d 180 (4th Cir. 2007). The Suffolk County ordinance was also enjoined by the District Court and was not appealed to the 2nd Circuit. The Massachusetts statute has not yet been challenged, and the (comparatively) modest imposition on employers makes it less likely it will be preempted under ERISA. For a detailed examination of that issue, see this paper by Professor Amy Monahan of Minnesota.

The Maryland statute and Suffolk County ordinance, although facially neutral, were nonetheless carefully targeted: the Maryland statute was widely known as the "Wal-Mart bill," since it was drafted so as to exclude every other company in the state, and the Suffolk County ordinance targeted non-unionized retail stores selling groceries. Both were strongly backed by local and national unions. Public choice, anyone?

Finally, pay or play strategies dovetail nicely with the widespread perception that employers are paying for health insurance for their employees -- and employers who fail to contribute are shirking their responsibility. In reality, employer contributions toward health coverage for their employees are simply another form of compensation -- meaning that it is workers who bear the costs of coverage -- whether it is provided voluntarily, or as the result of a "pay or play" mandate.

Related Posts (on one page):

  1. Health Reform: ERISA and Pay or Play II
  2. Health Reform: ERISA and Pay or Play
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