Coverage tangled up in court
Some states and communities are moving to provide universal health coverage for their residents, but a federal law is thwarting their efforts.
Many of these new health insurance proposals require employers either to offer health coverage themselves or pay a set amount into a public fund.
Some employers say that requirement conflicts with a federal law that bars states from requiring or regulating employer-provided benefits such as health coverage. The law, which protects private-sector companies from meeting a patchwork of state and local demands, is supported by businesses.
"There are people who believe that but for (this law), we would be much farther along in knowing what works in terms of health reform," says Phyllis Borzi, a George Washington University health policy professor.
Greg Scandlen, president of the advocacy group Consumers for Health Care Choices, says the law shields businesses from state and local demands on health care. "The idea that the employer is required to provide coverage or pay a fee will be thrown out in a heartbeat" during a court challenge, he says.
An early legal test of these plans is taking place in San Francisco, the first city to offer universal coverage to its residents. A group of restaurant owners sued the city in 2006, saying the law violates the federal Employee Retirement Income and Security Act (ERISA).
In December, a lower court judge sided with employers. But last week, an appeals court allowed San Francisco to proceed temporarily with its program and begin charging employers a fee, ruling that the city has a "strong likelihood of prevailing" in its appeal.
The court battle is being closely watched by states considering similar plans. California, Colorado, Michigan and Minnesota have proposals pending that rely on partial funding by employers.
The lower court ruling "raises doubt with regard to all of the state health reform proposals," says Atlanta attorney John Hickman, an expert on the federal law.
The 1974 law poses the biggest challenge in California, where Gov. Arnold Schwarzenegger has spent more than a year pushing a $14 billion health coverage plan funded by the state, federal government, tobacco taxes, hospitals - and a payroll tax on employers who don't offer health insurance. The state Assembly has approved the plan, and it may go before a Senate health committee next week.
"We believe the ruling (of the lower court) is not insurmountable," says Frank Furtek, chief counsel at the California Health and Human Services Agency.
If the 9th U.S. Circuit Court of Appeals ultimately rules in the city's favor, the case may end up before the U.S. Supreme Court, Borzi says.
That's because last January, the 4th U.S. Circuit Court of Appeals reached the opposite conclusion over a Maryland law. Dubbed the "Wal-Mart bill," the plan would have charged very large employers a fee if they did not spend 8 percent of payroll on health care, essentially affecting only Wal-Mart in that state. The appeals court ruled the measure violated federal law.
"If the 9th Circuit disagrees with the 4th, it sets up a conflict, which is the classic pathway to having the Supreme Court resolve it," Borzi says. A similar law in Suffolk County, N.Y., was rejected by a lower court in July; the county decided not to appeal.
Massachusetts, the first and only state to require all residents to carry insurance, sets a $295 per worker annual fee on employers who don't offer coverage. The fee is small and the law's supporters got business leaders' support early, so no legal challenges have arisen.
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