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April 5, 2006
Massachusetts Universal Health Care and ERISA Preemption
The Massachusetts House and Senate have overwhelmingly approved a bill that would require individuals to have health insurance. The new system would work through a combination of incentives and regulations and, according to the Associated Press:
[R]equires all residents to be insured beginning July 1, 2007, either by purchasing insurance directly or obtaining it through their employer.
The plan hinges in part on two key sections: the $295-per-employee business assessment and a so-called "individual mandate," requiring every citizen who can afford it to obtain health insurance or face increasing tax penalties.
Under the plan, the state would create a fund to provide health insurance to the poorest segments of society and then would require those who are employed to get health insurance through their employer. Employers actually have a choice under this "play or pay system": they can either provide health insurance or pay $295 an employee per year into a state fund which will provide health insurance coverage for those who are employed but whose employers do not provide coverage.
Of course, there is likely to be a legal challenge to this bill once it is signed into law under a theory of ERISA preeemption. Although at one point I opined that I thought whether this state law would be preempted by ERISA would depend on whether a plan was fully insured or self-insured, I now believe that the part of the Masschusetts law dealing with employer payments will be preempted regardless how the insurance plan is established.
This is because such a law that requires employers to play or pay is related to an employee benefit plan under Section 514(a) of ERISA in that it will impact how employers will administrate and operate their health plans and will potentially lead to the uniformity interests served by ERISA to be undermined. Thereafter, the law is not saved under the Savings Clause because the law is not specifically directed against entitles engaged in insurance as that language has been defined by the Supreme Court in Miller. Consequently, the Massachusetts law will probably not be saved from ERISA preemption.
Just my two cents and not that I favor this outcome, but this is the way it appears to me the ERISA analysis would come out.
PS
April 5, 2006 in Pension and Benefits | Permalink
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» Massachusetts' Health Care Initiative from The ERISA Blog
Another state is making some benefits history. Massachusetts has passed legislation (House No. 4850) that would require most of its citizens to purchase health insurance. The legislation would also require employers with 11 or more employees to contrib... [Read More]
Tracked on Apr 6, 2006 8:13:10 PM
» Massachusetts' Health Care Initiative from The ERISA Blog
Another state is making some benefits history. Massachusetts has passed legislation (House No. 4850) that would require most of its citizens to purchase health insurance. The legislation would also require employers with 11 or more employees to contrib... [Read More]
Tracked on Apr 7, 2006 9:02:30 AM
Comments
I am unburdened by any real understanding of ERISA, and so this post may be way off, but after Davila, isn't the analysis different? Don't we now look to see whether a particular state law is incompatible with the purposes of ERISA in establishing a uniform regulation of welfare benefit plans that encourage employers to provide them? In other words, if the state law doesn't provide a remedy that is different from the remedies provided by ERISA, then it's not inconsistent and not preempted. If that is the analysis, then the Massachussetts law wouldn't be preempted. It doesn't provide a remedy that would affect how to interpret the plan, i.e. the contract between the employer and the insurer. It simply mandates that there be a contract--and I mean "contract" to encompass the one that an employer has with itself when it self insures.
Posted by: Marcia McCormick | Apr 5, 2006 6:55:42 PM
Marcia, my understanding of the Davila opinion is that it provided a "preemption override." In other words, even if a state law is saved from preemption under the Savings Clause as a law that regulates insurance, Davila still provides for preemption if the state law contains a cause of action or remedy not found in ERISA. Because based on my analysis I don't even believe the Massachusetts law is a law regulating insurance under the Miller test, and also because this is not a case where there are additional private enforcement actions provided under state law, Davila is inapplicable in this regard.
As far as whether the law initially "relates to" an employee benefit plan under Section 514(a), Davila merely restates the law since the Travellers case in 1995. Because I believe that under this standard the law will interfere too much with the policies underlying ERISA, including uniformity of employee benefit plan regulation, I believe the initial preemption provisions apply to this law and then are not saved from preemption based on the analysis above.
Posted by: Paul | Apr 5, 2006 8:11:30 PM
On the one hand, your analysis jibes with everything i know about ERISA. On the other hand, Maryland recently managed to pass a law mandating that large employers spend a minimum of 8% of payroll on health insurance. Clearly, they foudn a way around ERISA, and I assume the MA folks followed their lead.
Posted by: theorajones | Apr 6, 2006 9:12:55 AM
My firm rendered an opinion that a since repealed and never implemented California law that would have charged employers a tax equal to the cost of providing comprehensive state-mandated health coverage to their employees likely was preempted by ERISA because the tax was waived if the employer provided the coverage. The Mass. law appears to be similar in structure except that the tax is only a relatively nominal amount. That difference might be sufficient to warrant a different result because the charge is so low that it hardly seems likely to pressure employers who provide no coverage into providing it, unlike the California charge. On the other hand, it may pressure employers who are providing inadequate coverage to improve it sufficiently to secure an exemption from the $295 charge (assuming the Mass. law imposes minimum coverage standards for an exemption). That may be sufficient to warrant preemption.
The Supreme Court in Greater Washington Board of Trade applied the "reference" test for ERISA preemption to strike down a DC law that required similar health coverage to be provided during workers comp leaves by employers that otherwise provided health coverage. Under the reference test, ERISA preempts a state law that explicitly or implicitly refers to or applies to ERISA covered plans exclusively or disproportionately, such as the DC law. In the Supreme Court's Dillingham decision, the Supreme Court cited Greater Washington Board of Trade with approval, notwithstanding Justice Ginsburg's and Justice Scalia's concurring decision which stated that the majority should not have been citing older cases as if they were still good law, perhaps with Greater Washington Board of Trade in mind. Thus, notwithstanding Justices Ginsburg and Scalia, the majority of the court quite recently reaffirmed Greater Washington Board of Trade. If I seem familiar with this it is because I argued to the Second Circuit in January that Greater Washington Board of Trade is still good law and warrants holding that ERISA preempts a state tax on certain retirement plan investments.
If Greater Washington Board of Trade is good law, as I believe it to be, I am dubious that the Mass. law (or any similar law) would withstand an ERISA preemption challenge if it has any material "pay or play" effect.
As fond as I am of ERISA preemption, the Mass. law seems like a reasonable approach. Years ago, I helped develop a California Chamber of Commerce universal coverage proposal. We came up with a recommendation that is just like the Mass. law, but without the $295 charge on employers.
Posted by: Ethan Lipsig | Apr 6, 2006 1:09:50 PM
I don't think the question of whether the Maryland law is preempted has been settled yet.
Posted by: Steve | Apr 6, 2006 1:33:02 PM
