Ninth Circuit Allows SF Health Plan to Go Forward

A three judge panel of the Ninth Circuit Court of Appeals is allowing San Francisco to go forward with a key funding component in its new health care plan despite a lower court’s ruling the funding mechanism was preempted by ERISA.

I appreciate this may not sound earthshaking, but it actually does have significant implications for California’s health care reform efforts. So here’s an oversimplified primer on what’s happening and what it might mean:

San Francisco, not wanting to wait for national or state health care reform, enacted the San Francisco Health Care Security Ordinance, its own plan for reducing the number of uninsured in the city. The city’s program aims to provides coverage for uninsured and eligible residents (and some non-residents) at a network of hospitals and clinics. Among the ways it sought to pay for this program was a requirement that  “… private employers with at least 20 workers, and nonprofits with at least 50, to provide coverage at dollar amounts set by the city or pay a fee to cover the city’s cost of care for their uninsured employees.” (This description comes from the San Francisco Chronicle.)

However, in very late-December, Federal District Court Judge Jeffrey White ruled that the funding mechanism violated ERISA on the grounds that the federal law prevents states and local governments from interfering with coverage offered by employers. Judge White’s decision only impacted the financing mechanism. The city could, and has, implemented much of the ordinance, but without the employer-based funding source, the city has had to dramatically restrict enrollment in the program.

Within days of Judge White’s ruling, the city appealed the decision to the Circuit Court of Appeals which is expected to hear the case later this year. San Francisco, however, didn’t want to wait months before fully implementing its health care program. So it asked the Circuit Court to suspend Judge White’s pending the Court’s consideration of the appeal. 

The Circuit Court assigned a three-judge panel to consider the city’s request for suspension. That hearing took place last week. The judges questioning focused on whether the San Francisco health care program requires employers to provide a specific level of health benefits or whether it simply requires employers to spend a certain amount on health care.

Now we know the panel’s answer. As reported by the Chronicle, “the appeals court said San Francisco has not required any employer to adopt a health plan or provide specific benefits, as long as the company complies with the ordinance by paying a fee.” The panel consequently unanimously granted the suspension on the grounds that Judge White’s earlier decision was likely to be overturned by the full court. (If you’re a glutton for punishment, here’s a link to the panel’s decision on the case, known as Golden Gate Restaurant Association versus City and County of San Francisco).

Not everyone agrees with this conclusion (which is why we have courts and horse races). Professor Paul Secunda, writing in the Workplace Prof Blog, notes that “A mandate is a mandate is a mandate and such mandates, under ERISA preemption precedent, cause a significant impact on the management and administration of employment benefit plans, even if not solely on employee benefit plans.” We’ll have to wait several months to see what the Ninth Circuit rules. In the meantime, San Francisco can now go forward with the full program, including the pay-or-play provision.

The Circuit Court’s ruling is also providing comfort to supporters of Assembly Bill X1-1, the compromise statewide health care reform package emerging from negotiations between Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez. ABX1-1 and its companion ballot initiative create a similar funding mechanism at the state level. Opponents of the legislation claim it, too, violates ERISA. This decision undermines the argument of those critics.

Or as Speaker Nunez put it in a statement issued by his office today, in what can be considered the political equivalent of a running back’s victory dance in the end zone, “Opponents of health care reform now have one less rubber arrow in their quiver as they try to stop our historic effort to fix the broken system and make health care more affordable and accessible to the people of California.”

What’s next? As previously noted, the Ninth Circuit Court of Appeals still needs to consider the matter. Whatever they decide will no doubt be appealed to the Supreme Court. If the Supremes take the case it will be many more months before we hear the final word on whether this kind of funding mechanism is preempted by ERISA. If they decline to hear the case, however, then whatever the Ninth Circuit decided will be the last word on the subject.

At least in states, like California, encompassed by the Ninth Circuit. And at least for now.