Ninth Circuit To Consider Mandatory Health Insurance

In April, the United States Court of Appeals for the Ninth

Circuit heard oral argument in Golden Gate Restaurant

Association v. City & County of San Francisco, on

whether ERISA preempts a San Francisco Ordinance that requires

that private employers with more than twenty employees make

certain hourly expenditures towards the health care costs of

their employees, and sets mandatory levels of health

coverage.

In 2006, the City of San Francisco enacted the San Francisco

Health Care Security Ordinance ("HCSO"). The HCSO

requires that private employers with more than twenty employees

make certain hourly expenditures towards the health care costs

of their employees. The required expenditures vary depending on

the employer's size, and can be earmarked for various

health-related costs, including contributions to the City

"to be used on behalf of covered employees." These

payments can be combined with individual contributions, and

funds added by the City, to organize and administer a Health

Access Program ("HAP"). The HAP would function as an

HMO and would also provide health coverage to uninsured San

Franciscans, regardless of their employment status. Employer

violations of the Ordinance result in significant

penalties.

The Golden Gate Restaurant Association, "an industry

group established to promote, extend, and protect the general

interests of the restaurant industry," filed a lawsuit

against the City and County of San Francisco in the United

States District Court for the Northern District of California

on November 8, 2006, seeking a declaratory judgment and an

injunction against the application of the ordinance, arguing

that the HCSO's employer spending requirements are

preempted by ERISA.

ERISA and its interpretive regulations constitute a

comprehensive legislative scheme deigned to promote the

interests of employees and their beneficiaries in employee

benefit plans. Congress sought to avoid a multiplicity of

regulation and establish nationally uniform employee benefit

plan administration, and intended for federal law to occupy the

field of employee benefits. As a result, ERISA's preemptive

scope is exceptionally broad, and the statute specifically

preempts "any and all state laws insofar as they now or

hereafter relate to any employee benefits plan." Despite

its broad preemptive scope, however, ERISA was not intended to

interfere with traditional fields of state regulation, such as

matters of health and safety or general health care regulation.

Obviously, the two policy concernsuniform national employee

benefits regulation and leaving the regulation of health

insurance to the different states, are often in conflict.

These conflicts often result in litigation over whether a

particular state or local law has overstepped its bounds and

interferes with the federal regulatory scheme. Generally,

courts examine the extent to which a state law is related or

connected to an ERISA plan in determining whether it is

preempted. State laws that regulate ERISA-covered benefits,

require the establishment of employee benefit plans, impose

reporting, disclosure, funding, or vesting requirements for

ERISA plans, or regulate ERISA relationships will generally be

found to be preempted by ERISA.

On December 26, 2007, the Northern District of California

agreed with Golden Gate, and ruled that the HCSO was preempted

by ERISA. The court ruled that: (1) the HCSO's employer

spending requirements constituted regulation of employee health

benefit plans, (2) the HCSO required structural changes to

existing ERISA plans, (3) the HCSO places additional

recordkeeping requirements on employers, and (4) the HCSO makes

direct reference to and acts directly upon employee benefit

plans.

The City of San Francisco petitioned the court to stay

implementation of its order pending an appeal. The court denied

that request, and an immediate appeal followed. On January 9,

2008, the Ninth Circuit granted the stay application pending a

final ruling on the City's appeal. In late February,

Supreme Court Justice Anthony M. Kennedy refused to overturn

the stay, permitting San Francisco to begin enforcing the HCSO.

Oral argument on the City's appeal of the district

court's substantive decision was heard in April, and a

decision is pending. Local officials have explained that

although the HCSO is technically in effect, no expenditures

from employers will come due until April 30, 2008, leaving a

short window for the Ninth Circuit should it choose to rule

before the HCSO's implementation is complete.

The Golden Gate case has come to the forefront of

the national debate on compulsory health care laws, and the

Ninth Circuit will not be the first court to consider the

issue. In January 2007, the United States Court of Appeals for

the Fourth Circuit considered whether the Maryland Fair Share

Health Care Fund Act was preempted by ERISA, in Retail

Industry Leaders Association v. Fielder. The Fair Share

Act was designed to fund public health benefits in part from

contributions from large employers. It would have required

large employers to spend a certain percentage of the total

wages paid to their employees on health insurance costs, or to

pay the state the difference between what the required

percentage and what the employer actually provided to its

employees. The state would then spend the money on public

health care. The Fourth Circuit held that the Maryland Fair

Share Act was preempted by ERISA because the law interfered

with uniform national administration of employee benefit plans,

and would result in inconsistent health benefits regulations in

different states.

Suffolk County, New York enacted a similar law, the Suffolk

County Fair Share for Health Care Act. The United States

District Court for the Eastern District of New York struck down

the Suffolk County Act based on ERISA preemption on July 14,

2007. The Suffolk County Fair Share Act was structured

similarly to the Maryland Fair Share Act, and the court relied

heavily on the Fourth Circuit's holding in reaching a

similar conclusion.

Multiple other states are considering similar legislation,

and Massachusetts enacted comprehensive statewide health

insurance legislation in 2006. The Massachusetts law has yet to

be challenged in court. It is...

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