States face ERISA hurdle on employer-funded universal care

March 1, 2008

Across the country, state and local lawmakers are discussing various mechanisms to provide healthcare coverage to uninsured residents, and some states have recently enacted such legislation. Some of these laws include the requirement to make employers fund at least part of the states' health insurance programs.

The employer funding requirement would compel covered employers with 20 or more employees to make healthcare expenditures of $1.17 per hour on behalf of each covered employee working more than 10 hours per week. For private employers with 100 or more employees, the expenditure would increase to $1.76 for each hour a covered employee worked. The city estimated that the program would have a budget of $200 million and would serve more than 72,000 uninsured residents. Without the employer funding requirement, the program would serve fewer residents, and would be subsidized mainly through tax revenues and patient premiums.

On December 26, 2007, a federal judge in the Northern District of California in Golden Gate Restaurant Assoc. v. City and County of San Francisco, No. 06-06997 (N.D. Cal. Dec. 26, 2007), struck down the employer-mandated funding requirement of the Ordinance, granting summary judgment in favor of the restaurant association. The court held that the funding requirement of the Ordinance was pre-empted by the Employee Retirement Income Security Act (ERISA) because it had an impermissible connection with employee welfare benefit plans. In reaching its decision, the court noted that Congress included an expansive pre-emption provision in ERISA that pre-empts any and all state laws that relate to employee welfare benefit plans. Further, the court asserted that ERISA was designed, in part, to promote uniformity and consistency for employee benefit plans by preventing multi-state employers from having to satisfy a number of different state regulations. Thus, the court reasoned that allowing San Francisco to impose funding requirements on private employers conflicts with one of the principal purposes of ERISA-to provide a uniform regulatory system over employee benefit plans. Significantly, this outcome is similar to a holding reached on July 19, 2006, by the United States District Court for the District of Maryland, which was affirmed by the Fourth Circuit Court of Appeals. The court struck down that state's proposed universal health insurance program, which also contained an employer-mandated funding provision, because the program violated ERISA.

The City and County of San Francisco have announced plans to appeal the Northern District of California's decision.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP in the firm's Austin, Texas, office.

Janet Farrer is an associate in the Austin office of Akin Gump Strauss Hauer & Feld.

This column is written for informational purposes only and should not be construed as legal advice.