The Alan Katz Health Care Reform Blog

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Posts Tagged ‘ERISA’

Ninth Circuit Allows SF Health Plan to Go Forward

Posted by Alan on January 9, 2008

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.

Posted in California Health Care Reform, Health Care Reform, Healthcare Reform | Tagged: , , | 1 Comment »

California Health Care Reform’s Likely Long Legal Journey

Posted by Alan on January 5, 2008

California’s health care reform effort awaits action by the State Senate which will take up Assembly Bill X1-1 around January 16th. Crucial to its fate will be a report from the Legislative Analyst analyzing the legislation’s impact on the state’s finances (which, for those who may have forgotten, is a wreck). Backers of the bill, specifically Governor Arnold Schwarzenegger and Assembly Speaker Fabian Nunez, claim the legislation’s won’t effect the budget deficit because funding for the reform package comes from new, specified taxes and fees plus additional health care reimbursements flowing to California from the federal government. This overlooks the fact that money raised for health care is money unavailable for other obligations of the state, but, for purposes of this post, let’s assume the Legislative Analyst agrees with the Governor and Speaker.

Then let’s assume the Senate passes ABX1-1. The legislation takes effect only if voters approve a financing initiative supporters are seeking to place on the November 2008 ballot. That initiative includes all those new taxes and fees.

Since we’re in an assuming mood, let’s say the ballot measure passes. ABX1-1’s provisions become law, right? Maybe yes, maybe no. And it could take a long time to find out.

The end of a successful initiative campaign would be an astounding political achievement. It would only mark, however, the start of the court battles. Yes, plural. A raft of law suits would be filed on several grounds, among them a claim the law violates ERISA, federal legislation regulating employer-sponsored benefit plans. This is exactly what happened when San Francisco Supervisors sought to implement a health care reform ordinance.

To oversimplify, ERISA preempts state and local governments from interfering in certain ways with those benefit plans. Late last month a Federal District Court judge struck down a San Francisco health care program on the ground it violated ERISA. (For more information on the court case, Golden Gate Restaurant Association v City and County of San Francisco, here’s an earlier post on the topic). San Francisco’s lawyers appealed this ruling to the Ninth Circuit Court of Appeals and a three judge panel was assigned to consider whether it was appropriate to reverse the lower court without a full appellate hearing. The panel took testimony earlier this week.

The San Francisco Chronicle, in an article written by Bob Egelko, reports the panel “made it clear they thought U.S. District Judge Jeffrey White was on shaky ground last week when he struck down a key funding provision of the health program ….”

The panel focused on whether the San Francisco health care program requires employers to provide a specific level of health benefits or whether it requires employers to spend a certain amount on health care. In fact, the city ordinance requires employers to either purchase insurance for their workers or pay the city to provide coverage. Based on this, the three Circuit Court judges seemed “prepared to interpret [ERISA] in a way that leaves room for universal, shared-cost health coverage at the state and local levels, in the absence of a national health care law,” according to the Chronicle. It should be noted that ERISA creates several hoops state and local laws need to navigate to avoid preemption. The prohibition against defining a specific level of health benefits is just one of them.

What’s significant about all this is that California’s ABX1-1, like the San Francisco ordinance, requires employers to spend a specified percentage of their payroll on health care services for their employees or to pay a fee equal to that amount to the state. The state, in turn, would use the fees to help pay for the cost of offering eligible individuals coverage through a government-run insurance purchasing pool. This approach, which avoids defining what benefit package employers must offer their workers, would seem to avoid an ERISA preemption based on where the Circuit Court panel appears to be headed.

Not everyone agrees. Chris Reed has written frequently on this topic over at the San Diego Tribune’s blog. Mr. Reed is convinced the Supreme Court will overturn the “pay-or-play” aspect of the San Francisco health care plan and the similar provision in ABX1-1. He cites a list of Supreme Court precedent to support his argument.

One of the things I learned in law school (other than the realization I really didn’t want to practice law) is that while folks can predict whatever they want about how a case will be resolved, in the end the courts do what the courts do. (Not that my professors put it this way). It doesn’t matter whether the court is conservative or liberal, strict constructionists or activists. Where’s there’s a will, there’s a way. So no one can be sure what the Supreme Court will rule on this — if they even take up the case.  The only thing certain is that no matter what the Ninth Circuit decides on the San Francisco law, someone will appeal to the Supreme Court.

Meaning ABX1-1 could be suspended in judicial limbo for a very long time. Assuming, of course, it gets even that far.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform | Tagged: , , , | 1 Comment »

California Health Care Reform and the Inevitable ERISA Challenge

Posted by Alan on December 28, 2007

Few were surprised when a Federal Court struck down San Francisco’s Health Security Ordinance on ERISA grounds. There were elements of the city’s ordinance that seemed to invite a suit and to have been drafted on shaky legal grounds. What’s interesting is whether the Health Care Security and Cost Reduction Act (Assembly Bill X1-1), passed earlier this month by the state Assembly and scheduled for a Senate Health Committee hearing on January 16th, will fare any better. University of Mississippi law professor Paul Secunda, writing in the Workplace Prof Blog and Anthony Wright in a December 27th posting on the Health Access blog think it will. Chris Reed of the Union-Tribune and Daniel Weintraub at the Sacramento Bee think it won’t.

The reality is, no one knows what a court will decide until a court decides. (Those three years at law school weren’t a total waste!)  The District Court ruling,  Golden Gate Restaurant Association v City and County of San Francisco, will be appealed to the Ninth Circuit Court of Appeals. And anything could happen there. 

What’s important to keep in mind is that previous ERISA decisions by Circuit Courts, such as that of the Fourth Circuit when it overturned a Maryland law aimed at Walmart, are not controlling in California. A decision from the Ninth Circuit will be. That’s just the way Federal Appeals Court decisions work — they’re only controlling in Federal Courts in the states comprising that circuit.

ERISA has been the bane of state and local health care reform efforts for years and is one of the reasons national health care reform is likely to be required. While the authors of ABX1-1 have taken great care to avoid running afoul of ERISA, that’s a far from easy task. Just ask the San Francisco Board of Supervisors. Better still, ask the Ninth Circuit Court of Appeals.

Posted in California Health Care Reform, Health Care Reform, Healthcare Reform, State Health Care Reform | Tagged: , , , , , | 2 Comments »

Unintended Consequences: A Looming Example

Posted by Alan on October 16, 2007

The law of unintended consequences is like gravity: it’s pervasive and unavoidable. Take ERISA. It was passed for the right reasons: to protect the health and pension benefits of American workers. Over the years, however, it has resulted in some unintended consequences which makes it difficult for states to experiment with certain health care reform models. For California, this may lead to a situation that has dire consequences for among the most in need  of help — lower income workers.

First some background: ERISA preempts some state laws relating to pensions and health benefit plans in part to enable national companies to have uniform programs in place across their entire workforce. As a result, when Maryland tried to enact a “pure” pay-or-play plan, one which would only have impacted WalMart, it was overturned in 2006 by the Fourth Circuit Court of Appeals on ERISA grounds. Just this year a federal district court in New York used similar reasoning to turn down a Sulfolk County ordinance.( For those wanting to learn more about ERISA and its impact on state health care reform, a good place to start is on the California Healthcare Foundation’s health care reform site.)

In part because of ERISA, the Governor’s current proposal pretty much leaves the group marketplace alone. For example, it does not (and under ERISA, probably could not) impose a minimum benefit package on health plans provided by employers.

Then things get complicated. The Administration wants to create a pool to provide low- and middle-income families (those with incomes up to about $50,000 for a family of four) with subsidized coverage. ERISA, however, requires a firewall to isolate the pool from the group group marketplace. Another provision of the plan (again, inspired in large part by ERISA) results in workers offered coverage under an employer plan ineligible for state subsidies.

Taken together the result will be that some low-income employees will be offered health care coverage by their companies requiring higher cost sharing than they would pay if they could participate in the purchasing pool. But being offered work-based coverage makes them ineligible to participate. It’s a Catch 22. It’s unintended, but it’s a consequence.

There are ways to mitigate this harm. For example, employers could be permitted and encouraged to pay more of the premium for lower-wage workers than for those earning more. To the extent existing laws or regulations hinder this approach in the small group market, changes to those obstacles should be made. Every creative solution to help help those who find themselves trapped by this dynamic should be explored.

Regardless of whatever mitigation emerges, however, this unfortunate situation highlights the reality of any legislation. The Governor’s proposal, with some modification, would benefit millions of Californians. Some, however, would fall through the unintended fissures every law creates. Yes, every law. This particular problem confronts the Governor’s efforts. Those with more far reaching solutions should not be smug however. Whenever anyone says their solution solves every problem, that it’s cost free yet delivers more, they’re simply ignoring the law of unintended consequences. As a wise man once said, we rarely solve problems, we just replace them with new ones.

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Schwarzenegger’s Health Care Reform Dilemmas

Posted by Alan on May 9, 2007

Governor Arnold Schwarzenegger’s health care reform team may have backed themselves into a corner — one which could make passing comprehensive changes problematic.

Governor Schwarzenegger’s health care reform plan is a comprehensive package which would achieve universal coverage. This stands in contrast to proposals put forward by legislative leaders of both parties in both houses. The Governor has made clear he partial measures are unacceptable.

This creates two dilemmas for Governor. One is a morass, the other occupies space between a rock and a hard place.

The Morass: comprehensive reform has to somehow reach those companies which self-insure. These companies, usually large with many employees, assume much of the risk of their worker’s health care costs. An insurer takes over claims payment only if they reach a very large level ($100,000 per person or $1,000,000 for the entire company, for example). The problem for the Governor is that self-insured plans are generally exempt from state regulation under a federal law known as ERISA. Consequently a huge portion of the state’s population will find itself exempt from the Governor’s reform requirements. And as even the Administration’s team admits, without full participation the package begins to unravel. Most every comprehensive state proposal finds itself bogged down in the morass of ERISA exemptions.

But the Governor has a further problem: he also has backed himself into the proverbial rocky, hard place corner. You can’t require individuals and employers to obtain health care coverage if that coverage is unaffordable to them. Which is why the Governor’s plan rightly calls for premium subsidies to help low income individuals pay for the coverage his plan requires them to buy. And subsidies cost money.  Which is why Governor Schwarzenegger’s proposal includes new fees to be imposed on hospitals, doctors, employers and others. The Administration’s calling these revenue enhancements “fees” is critical. Under California law, raising taxes requires a two-thirds vote of the legislature. Fees require only a majority. To achieve a two-thirds majority some Republicans will have to vote for a bill. A simple majority can pass with only Democratic votes. Since Republicans in both chambers of the legislature have flatly ruled out voting for new taxes the funding in the Governor’s plans are called “fees.”

This definitional finesse may work within the Capital, but in the real world, if it quacks, walks and talks like a tax, it’s probably a tax. Which means as soon as the Governor and Democrats might pass “fee-based” health care reform, the law suits begin. And they’ll likely win.

This is all a long way of saying, the Governor’s health care reform plan requires subsidies which in turn requires new revenue. The Rock: If the Governor raises the revenue through taxes, Republican legislators defeat the reform package. The Hard Place: If he raises the revenue through fees which act like taxes the courts strike down the package.

This doesn’t mean comprehensive health care reform is dead in Sacramento. It simply points out that it won’t be easy. I agree comprehensive reform makes sense. CAHU’s Healthy Solutions plan does this is a realistic way. Yes, it suggests new taxes, but they’re appropriate and reasonable. Because it focuses on individuals, not employers, it avoids the ERISA exemption morass. And by calling a tax a tax, it allows for full debate on the trade offs involved in making sure every Californian has access to basic health care coverage. This may not completely avoid the Rock and Hard Place, but it allows attention to be given to the real issues, not the semantics.

Posted in Arnold Schwarzenegger, California Health Care Reform, Health Care Reform, Healthcare Reform, Politics | Tagged: , , , | Comments Off on Schwarzenegger’s Health Care Reform Dilemmas