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Ninth Circuit Upholds San Francisco Health Care Plan
Court Rejects Administration Plea for Preemption under ERISAHarper Jean Tobin, Federal Rights Project Attorney
The Ninth Circuit U.S. Court of Appeals on September 30 upheld the San Francisco Health Care Security Ordinance, rejecting arguments by businesses and the Department of Labor that the law was preempted by the Employee Retirement Income Security Act of 1974 (ERISA). Business succeeded last year in stopping Maryland’s Fair Share Health Care Act, when the Fourth Circuit declared it preempted by ERISA. The case is part of a general campaign by employers to cut off individual remedies for denial of employee health benefits and at the same time block states from enacting reforms to expand health coverage – all on the basis of unstated congressional intentions in ERISA. The case is Golden Gate Restaurant Ass’n v. City and Cty. of San Francisco, --- F.3d ---, 2008 WL 4401387 (9th Cir. Sep. 30, 2008) (No. 07-17370).
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, employees can either enroll in the city’s plan or in city-sponsored medical reimbursement accounts, depending on their incomes. And if they choose to pay, employers need not provide their own benefits, or alter plans they already have.
Trade groups representing employers sued to block the ordinance, and the district court enjoined it, 535 F.Supp.2d 968 (N.D. Cal. Dec. 26, 2007) (summary here). The Ninth Circuit stayed the injunction. 512 F.3d 1112 (9th Cir. Jan. 9, 2008) (summary here). The U.S. Secretary of Labor filed a brief supporting preemption.
The Ninth Circuit reasoned that because have the option to make payments to the city in lieu of taking any action themselves, ordinance does not upset the national uniformity of rules governing employee health plans. Employers are not required to create benefit plans if they don’t have them already, or to alter them if they do; instead, they can simply pay the city. The court said it did not necessarily agree with the Fourth Circuit’s decision to strike down the Maryland law, but that in any case 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. But since in San Francisco the money goes to a public health care program in which uninsured workers can enroll, employers have a real alternative.
While trade groups had no objection to the city insurance program itself, the Administration 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 this argument as nonsensical: the city created the plans 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 Ninth Circuit’s decision is a refreshing change from the tide of recent decisions cutting off access to health care. If it stands – that is, unless business and the Bush Administration succeed in getting a reversal from the full Ninth Circuit – it means that other cities and states are free to adopt similar reforms until such time as adequate health insurance is guaranteed nationwide.
Legal analysis
The court said that a presumption against preemption applied here, because “the provision of health care services to persons with low or moderate incomes… has long been the province of state and local governments.”
The panel reasoned that the ordinance does not upset national uniformity, because it doesn’t require employers to create or alter benefit plans at all. Employers’ obligations under the law are based purely on the time worked by employees and the health care payments made by employers, not on the terms of ERISA-covered plans. While the law may indirectly influence some employers’ benefits choices, this kind of indirect effect does not trigger preemption.
The court noted other cases that upheld laws mandating payments to employees based on the time employees worked in the context of severance. Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 (1987); Massachusetts v. Morash, 490 U.S. 107 (1989). The San Francisco ordinance similarly required payments based on time worked by employees, and although the payments were ongoing, employers had no responsibility for managing the use of the money.
The court also observed that the ordinance’s modest recordkeeping requirements – simply keeping track of how much they spend per employee – do not require employers to change how they administer their plans.
Plaintiffs pointed to Retail Industry Leaders Ass’n v. Fielder, 475 F.3d 180 (4th Cir. 2007) (summary here), which held Maryland’s Fair Share Health Care Act preempted. The court said it “neither adopt[ed] nor reject[ed]” the Fourth Circuit’s analysis, but that in any case this case was distinguishable. In Maryland, employers argued that they had no real choice but to provide health insurance under the state law, because the alternative was simply to pay an assessment for the state’s Medicaid program. Because payments for the general funding of Medicaid provided no direct benefit to either employers or their employees (even if some employees were eligible), the Fourth Circuit agreed that any reasonable business would choose to provide insurance. By contrast, payments to San Francisco are used to fund either medical reimbursement accounts or enrollment in the city plan. Employers had a real choice, since however they spent the money it would go directly to health care for their employees. This was confirmed by the fact that hundreds of employers in San Francisco had chosen to pay.
Read the decision: Golden Gate Restaurant Ass’n v. City and Cty. of San Francisco, --- F.3d ---, 2008 WL 4401387 (9th Cir. Sep. 30, 2008) (No. 07-17370)