While the Health Care
Security and Cost Reduction Act, which would have mandated that employers statewide
contribute toward healthcare premiums on a sliding scale, died in the
California Senate Health Committee at the end of January, San Francisco’s own universal
healthcare legislation has been on rocky ground following a recent federal
district court decision and the Ninth Circuit Court of Appeals’ stay of that decision.
A federal district court
in
ruled in December that the federal Employee Retirement Income Security Act
(ERISA) preempted the San Francisco Health Care Security Ordinance, which
mandates that employers within the city limits contribute to a city tax fund
that would go toward health insurance costs. But on January 9, the Ninth
Circuit, ruling that the public interest would be served by halting the lower
court’s finding, put the ordinance into full effect and ordered
to start contributing to the city-run healthcare fund for the uninsured while
the appeal on the matter is pending.
Join us this fall in San Francisco for the California Employment Law Update conference, a 3-day event that will teach you everything you need to know about new laws and regulations, and your compliance obligations, for the year ahead—it’s one-stop shopping at its best.
What the Ordinance
Requires
In the summer of 2006,
San Francisco Mayor Gavin Newsom signed the ordinance into law, which seeks to regulate
healthcare within the city and county. The legislation features a government
healthcare program that would be funded in part by employer contributions and
would ensure that the city’s 82,000 uninsured residents would have healthcare
coverage, even if they are unemployed. The ordinance’s employer health-spending
mandate is the subject of the lawsuit. It requires private employers with
between 20 and 99 employees and nonprofit employers with 50 or more employees to
spend $1.17 per hour on behalf of each employee employed for 90 days who worked
more than 10 hours per week. Private employers with 100 or more employees must
make healthcare expenditures of $1.76 per hour on behalf of each covered
employee. (Note that Jan. 9, 2008, is the effective date for employers with 50 or
more employees to start contributing, and April 1, 2008, is the effective date
for for-profit employers with 20 to 49 employees.) The law does not cover
public sector employers.
The ordinance also sets
forth several qualifying healthcare expenditures, such as contributions to health
savings accounts; direct reimbursement to employees for expenses incurred in
purchasing healthcare services; payments to third parties to provide healthcare
services; or payments that the employer made to the city for the benefit of
covered employees.
Lawsuit Arises
In November 2006, the
Golden Gate Restaurant Association sued
Francisco
ordinance’s enforcement, arguing that ERISA preempted the ordinance’s spending
requirement. The district court sided with the restaurant association in
December 2007.
Under ERISA, a state law
would be precluded if it related to an employee benefit plan that the federal statute
regulated. An ordinance would be preempted if it was connected with or created
in reference to an ERISA plan. Further, even if an ordinance did not spell out
its connection to ERISA, it could be preempted if it had an indirect effect on
an ERISA plan. Therefore, the court needed to assess the ordinance’s effect as
it related to ERISA’s intent.
Here, the district court
ruled, the ordinance’s healthcare expenditure requirements were preempted
because it provided an impermissible connection to employee welfare benefit
plans.1 By mandating the
structure and administration of employee health benefits, the ordinance
interfered with an employer’s right to determine whether it would offer
healthcare coverage and the manner in which it would offer it. The court also found
that the ordinance directly and indirectly affected how plans would be
structured and administered because it required private employers with existing
plans to modify the administration of their existing ERISA plans or structure
their additional payments with reference to the amounts paid under the existing
plans. In addition, ERISA was enacted to set uniform standards for reporting
and disclosing employee welfare plans and allowed employers to adopt, modify,
or terminate such plans. The ordinance in this case affected plan
administration.
What Now?
The district court noted
that although
goal of providing universal healthcare coverage was laudable, ERISA was drafted
to preclude state or local governments from passing laws concerning ERISA plans
to avoid a patchwork of state and local programs nationwide. The Ninth Circuit’s
stay of that decision, however, could serve as legal precedent for
municipalities nationwide that are trying to enact similar legislation. The
Ninth Circuit anticipates hearing arguments on the appeal in April. Meanwhile,
the ordinance remains in full effect.
It’s important to note
that because the ordinance applies to employers with 20 or more employees, national
employers with 20 or more workers who permanently reside in
90 days and work at least an average of 10 hours a week must adhere to its
requirements.
_
1 Golden Gate Restaurant
Association v. City and
2007