State and city healthcare reforms collide with a U.S. law

Many efforts to expand coverage have been blocked in court. More legal tests are likely, starting in San Francisco.

from the September 27, 2007 edition

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No suit against Massachusetts plan – yet

The Bay State plan has so far avoided provoking an ERISA legal challenge, restoring some optimism among reformers in California, Illinois, and other states. "Massachusetts gave hope in the sense of not just ERISA, but the ability to have bipartisan consensus," says Richard Cauchi, health program director at the NCSL. "The insurers, employers, and the providers all were saying positive things."

The Massachusetts play-or-pay model has avoided a lawsuit so far, suggest experts, because all the stakeholders were involved in the negotiations, and, crucially, because the pay option for employers is less than under $300 per worker.

It could yet be challenged, of course. "Even in Massachusetts, the ERISA preemption still hangs over the head of the policymakers trying to hammer out details of the plan," says Mr. Miller of the National Coalition on Health Care.

In California, Governor Schwarzenegger has followed Mr. Romney's consensus-building approach. The plans floating around the capitol call for businesses to pony up more money, however, raising the risk that a deal will be undone in court. The National Federation of Independent Businesses says it needs to see the outcome, but the group is weighing a lawsuit.

San Francisco already faces an ERISA challenge to its new Healthy San Francisco program. It offers reduced-cost medical care within city limits to 82,000 uninsured residents. Much of the funding comes from public sources, but there's also a play-or-pay component for employers in the city. Businesses with 20 or more workers must spend a minimum dollar amount per hour on healthcare for their employees. City officials say the mandate on employers allows them many options for meeting the requirement, therefore skirting ERISA.

But a restaurant association has taken the issue to court, arguing that the spending amount isn't optional and that the program forces their members to administer benefits. The cost would put some restaurants out of business, they say. The city could cover the expenses by raising the sales tax one-quarter of a cent, they suggest.

"When there is an affordable, legal funding mechanism, why would we have to break the back of businesses when we don't have to hurt anybody?" says Kevin Westlye of the Golden Gate Restaurant Association, which filed suit.

If the California plans ultimately are rejected by the courts, pressure could build on Congress to clarify the law or issue waivers to states trying to expand health coverage. But experts say any changes to ERISA are unlikely.

"I've been looking at this issue for the last 32 years, and any attempts have been thwarted by employers and other stakeholders," says Miller. Healthcare reform, he adds, "has to happen at the federal level."

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