Municipal Health Care Reform:
An Effective Challenge to ERISA?

As we have all seen during the interminable presidential campaign, the availability of adequate, affordable health care is at or close to the top of the issue list for American voters. An increasing number of states and municipalities have begun to experiment with programs to address this issue. Some of them, including San Francisco, have sought to address it by enacting regulations that require employers to secure insurance coverage for their employees. San Francisco now has in place an ordinance, the San Francisco Health Care Security Ordinance (HCSO), mandating that employers with more than twenty employees provide health insurance (or health savings plans) to those employees. Employers can comply in various ways, including by providing insurance or HMO membership, establishing dedicated health savings accounts, paying into the City's own Health Access Program ("HAP," a program for City residents in which the employee would then be enrolled) or paying into City-run health care reimbursement accounts (for employees, whether City residents or not).

Immediately after San Francisco enacted the ordinance in 2006, the Golden Gate Restaurant Association (GGRA) sued to enjoin it, arguing that the ordinance violated ERISA. ERISA (the Employment Retirement Income Security Act of 1974), as its name suggests, was promulgated in 1974 as a measure to protect employee pension. But the language of the Act embraces more than just pensions. It embraces all "employee benefit plans," health benefit plans included. Like all legislation enacted for the protection of a class of people the legislature finds in need of special protection, the provisions of the Act are to be, and have been, interpreted liberally by the courts. Among those provisions is sec. 514(a), which provides that ERISA "shall supercede any and all State laws insofar as they may now or hereinafter relate to any employee benefit plan."

The United States District Court for Northern California (Judge Jeffrey White), using the established analysis for ERISA preemption cases, found that San Francisco's plan was preempted, because it is both "connected to" and "makes reference to" employer-sponsored plans. Judge White held in Golden Gate Restaurant Association v. City and County of San Francisco (PDF, 177KB) that the ordinance requires employers to provide mandated benefit levels, imposes specific record keeping, administrative and inspection burdens, and that the ordinance both directly and indirectly affects the structure and administration of ERISA plans by requiring employers to make additional medical care payments. Judge White also found the ordinance to have a "prohibited connection with ERISA plans because it interferes with nationally uniform plan administration." In light of these findings (which seem inarguable), Judge White determined that sec. 514(a) "superceded" (and preempted) the San Francisco ordinance.

Judge White's decision would effectively preclude the possibility that any state or local ordinance specifying employers' minimum health care obligations could pass legal muster under ERISA. Judge White broke no new ground with his decision. A federal district court in New York had found a similar Suffolk County, New York ordinance preempted by ERISA for similar reasons. The United States Court of Appeals for the Fourth Circuit held Maryland's "Fair Share Health Care Fund Act" preempted, again, for similar reasons. At the time of Judge White's decision, this seemed to be "the law of the land."

The City, however, immediately appealed Judge White's decision to the Ninth Circuit. To the surprise of many legal analysts, that court stayed Judge White's decision, permitted the ordinance to continue pending its review, and issued an order (PDF, 2633KB) finding that the City has a "strong likelihood" of prevailing on appeal. It is, at least initially, the view of the Ninth Circuit that notwithstanding the City's mandates and administration of what are inarguably employer funded health care benefits for employees, the ordinance does not "relate to any employee benefit plan" within the meaning of ERISA. On February 7, 2008, the GGRA filed an application (PDF, 1488KB) to the U.S. Supreme Court, seeking to lift the Court of Appeals' ruling. On February 21, 2008, Justice Kennedy denied the GGRA's application; thus, HAP continues to be in effect pending the Ninth Circuit's review. Oral argument in the appeal has been scheduled for April 17, 2008.

The Ninth Circuit appears to be prepared to stake out a bold position on this important public issue. There are good policy reasons to do so. It seems certain that the Congress that enacted ERISA in 1974 did not imagine that its pension protection legislation would have the unintended consequence of precluding states and municipalities, decades later, from experimenting with mandates on employers in order to provide health care benefits in a climate in which an alarming and increasing number of Americans are without adequate health insurance. On the other hand, there is no question that by upholding the ordinance, the Ninth Circuit would fly in the face of established precedent.

If the Ninth Circuit reverses Judge White's decision, it will create a clear conflict among the federal circuits on this issue. The result? The question of the scope of ERISA sec. 514(a) in the context of the 21st century health insurance crisis would be placed squarely in the lap of the U.S. Supreme Court. Regardless of how the current Supreme Court might rule on this issue, the case could have enormous political impact. We may well see GGRA and its sister cases creating the type of public scrutiny and attention necessary to pressure a new administration and congress to take effective action to solve this national problem.