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...
To continue reading
Request your trial