Health reform comes slowly for California

State leaders vow to try to extend insurance coverage, though a Dec. 26 US court ruling complicates their efforts.

from the December 31, 2007 edition

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The plan also relies on a $1.75 per pack hike in cigarette taxes and new fees on hospitals. The diversity of revenue streams, as well as the fact that they must be ratified by voters through a ballot initiative, will strengthen the plan if it's challenged in court, says Mr. Wright.

But legal experts aren't so sanguine.

The plan still affects – in a direct enough way – how employers will set up and manage their benefit plans, says Paul Secunda, professor of law at the University of Mississippi. "This is a real no-no."

"ERISA preemption as currently construed by the Supreme Court is so broad that it makes state experimentation with healthcare financing and delivery almost impossible," he says.

The highest hurdle, however, remains the legal bar set by ERISA, says Michael Lotito, a lawyer with Jackson Lewis, a San Francisco firm specializing in workplace law. He says the San Francisco court decision was "somewhat predictable" and health reform discussions must get serious about the issue.

"What the politicians are ignoring is the ERISA preemption problem, and it doesn't get discussed. And for the average citizen‚ this is not something that captivates their attention," says Mr. Lotito.

While a court ruling against California would likely result in an outcry heard in Washington, he says, that outcome might take half a decade to play out – wasting precious time.

Mixed reviews on new rule that lets firms reduce retiree benefits

Companies dealing with the residual cost of retired employees have issued a sigh of relief following the Equal Employment Opportunity Commission's ruling last week that employers could cut voluntary health benefits for retirees once those retirees turn 65.

The announcement removes the threat of age-discrimination lawsuits against employers who scale back benefits when their former employees become eligible for Medicare and other government assistance.

Such practice had been commonplace when a federal court decision in 2000 ruled employers must offer parity in benefits between retirees who hadn't yet turned 65 and those who had. Businesses balked, saying the expense would force them to drastically cut benefits for younger retirees, or simply stop offering retiree health insurance altogether.

"The EEOC's ruling encourages current practices that are in place," says Michael Lotito, a lawyer with Jackson Lewis, a San Francisco firm specializing in workplace law. "A change in the regulation would have encouraged employers to give serious thoughts to dropping healthcare or making draconian changes."

The uncertainty and cost-analysis costs created by the 2000 court ruling scared off some companies from instituting benefits for younger retirees, says Kathryn Bakick, national director of healthcare compliance at The Segal Co. The decision could be a boon for workers prone to retire early, such as teachers, firefighters, and construction tradesmen, she says.

AARP, which advocates on behalf of senior citizens, lambasted the EEOC announcement, however. "This policy is a civil rights and economic fiasco," said David Certner, legislative policy director with the advocacy group for the elderly. "It is a wrong-headed move to legalize discrimination, allowing employers to back off their healthcare commitments based on nothing more than age."

Ms. Bakick notes that if employers wanted to simply eliminate health benefits to retirees they could do that before the EEOC ruling. Retiree health benefits are already rare, offered by one-third of large employers and one-tenth of small employers, according to a 2001 Government Accountability Office estimate.

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