Constitutional Law

San Francisco's Universal Health Care Plan Lives, Federal Court Rules

by Harper Jean Tobin, staff attorney, National Senior Citizen Law Center

The 9th U.S. Circuit Court of Appeals Ninth Circuit Court of Appeals rejected yesterday a legal challenge to San Francisco’s universal health care ordinance. Employer groups, backed by the Department of Labor, argued that the local program was preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The Ninth Circuit’s decision to uphold the plan, called Healthy San Francisco, bodes well for similar state and local reforms in Massachusetts, Vermont and elsewhere.

State and local governments have been hard at work in recent years devising innovative solutions to the lack of insurance for millions, the rising costs of health care and inaction by Congress. Several states and major cities have adopted some version of a “pay-or-play” system, where employers are required to either spend on employee health care or make payments to the government. But these plans have run into a major stumbling block in the form of ERISA, which the Supreme Court has interpreted broadly to preempt many state and local laws. Having succeeded in using ERISA to limit individual employees’ remedies for denials of coverage, businesses asserted that ERISA also preempted pay-or-play laws. Last year those arguments helped defeat similar laws in Maryland and New York.

San Francisco’s law requires that businesses with more than twenty workers make minimum expenditures for employee health care, either in the form of benefits directly to employees, or through payments to the city’s own health care program. If employers choose to pay the city, then their employees can enroll in the city plan or in city-sponsored medical reimbursement accounts, depending on their incomes. The employer need not provide its own benefits, or alter a plan it already has. Restaurant owners in San Francisco and the Bush administration challenged San Francisco’s law in federal court arguing that ERISA trumped it. On the day after Christmas, federal district judge Jeffrey S. White (a G.W. Bush appointee) enjoined the law, but the Ninth Circuit stayed the injunction and ruled yesterday that the city had the authority to require employers support the health care plan.

The Ninth Circuit reasoned that the ordinance does not upset national uniformity, because it doesn’t require employers to create or alter benefit plans. Nor do the law’s modest record keeping requirements – simply keeping track of how much they spend per employee – require employers to change how they administer their plans.

The court said it did not necessarily agree with the 4th U.S. Circuit Court of Appeals decision to strike down the Maryland law, but that in any event, this case was different. In Maryland, employers argued that they had no real choice, because any employer would choose to provide health care to employees when the alternative was paying a fee to the state. Since a company’s employees would not necessarily benefit from these payments, the Fourth Circuit agreed that any reasonable business would choose to provide benefits. But since San Francisco employer payments go to a program in which uninsured workers can enroll, the court concluded that employers do have a real alternative. This was confirmed by the fact that hundreds of employers in the city had chosen to pay. This is significant because state reforms in Massachusetts and Vermont, while not exactly the same as the San Francisco plan, appear more similar to it than to the Maryland law.

While trade groups had no objection to the San Francisco insurance program itself, the Department of Labor made the curious argument that the city’s program was itself an “ERISA plan” and should be preempted in addition to the employer mandate. The court rejected the argument as nonsensical: the city created the plan and administers it, and most of its participants are not employees of covered businesses. Employers have nothing to do with the city plan except, if they choose, making payments to it.

The Maryland decision last year raised the question of whether state and local governments could play a meaningful role in expanding access to health care. With the defeat of that law and the initial injunction in San Francisco, it appeared that Americans’ only choice might be to wait, perhaps years, for Congress to act. Given its national implications and the opposition of the U.S. Chamber of Commerce and the Bush administration, this week’s decision might yet be reconsidered by the full Ninth Circuit. (Despite its liberal reputation, the Ninth Circuit today has only a slight majority of Democratic appointees and is considerably more conservative than this panel of Carter, Clinton and Nixon appointees.) But the panel’s decision provides hope that, regardless of the outcome of this year’s election, health care reform may remain alive and well on state and local level.

Full post as published by ACS Blog on October 01, 2008 (boomark / email).