Wednesday, April 5, 2006

Massachusetts Universal Health Care and ERISA Preemption

000084_1 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

http://lawprofessors.typepad.com/laborprof_blog/2006/04/the_beginning_o.html

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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 6:13:10 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 7:02:30 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 4:55:42 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 6:11:30 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 7:12:55 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 11:09:50 AM

I don't think the question of whether the Maryland law is preempted has been settled yet.

Posted by: Steve | Apr 6, 2006 11:33:02 AM

I know this is a little late to the game, but I'm wondering what the opinion of the experts is on this law in the wake of the Wal-Mart decision. Also, what about the constitutionality of mandating residents obtain health insurance or effectively have a tax imposed on them (regardless of it being called a fee).

Posted by: David Woods | Aug 4, 2006 4:27:28 PM

On the "preemption override" issue I wonder which step comes first.

Is the first step determining whether the state law is preempted under the preemption, savings and deemer clauses and then (and only then), if the answer is "no", ask whether the state law duplicates a remedy of ERISA?

OR is the analysis the reverse, i.e., do you first figure out whether the state law duplicates an ERISA remedy and if the answer is "no", then determine whether the state law is preempted under the preemption, savings and demmer clauses?

Posted by: ss | Oct 18, 2006 2:16:50 PM

I get scared whenever the government is going to get more involved in something like this. It seems like so often, the more the government is involved, the more screwed up things get.

Posted by: Weston MA | Feb 27, 2007 9:05:27 AM

I am not an attorney and am amused at the attention those in the legal profession pay to the minutiae of the recent Massachusetts health care mandate. Let me tell you that, as an ordinary citizen, I am appalled at the arrogance of the state government to order me to spend what is ostensibly my own money to satisfy their view of what is "good" for me. For those of you who evidently cannot see the forest for the trees, this health care bill is an affront to liberty!

Posted by: David | Jul 2, 2007 8:24:24 AM

If the Massachusetts law will probably not be saved from ERISA preemption,what guarantee is there?

Posted by: Online Pharmacy | Sep 28, 2009 3:14:26 PM

I have not tried to review all of the archived material on this web site yet; but, I wonder if one of the attorneys who follows this site, or anyone else with the expertise, could leave a comment letting me and others know how all of this ERISA preemption of Massachusetts state law debate came out in the courts. Namely, did the part of the Massachusetts healthcare law that requires employers to provide "group health insurance" or, otherwise, pay a $250 fee into, I believe, a pool through which group health insurance will be provided, I believe, for those whose employers do not provide it and for others who need such group health insurance, survive the issue of possible "preemption" by the Federal ERISA legislation? Could you also please, in your comment, also explain briefly how the Massachusetts law in fact works for (i) employees whose employers are not providing adequate group health insurance; and (ii) others who do not have coverage and who are, under the law's individual mandate, required to purchase health insurance. Do individuals in (ii) always purchase coverage as part of some group health plan? Or, do such individuals also end up, either by choice or necessity, purchasing, for example, a Blue Cross "individual policy? (Of course, it may be that what people used to, at least, refer to as a "Blue Cross / Blue Shield individual policy" may, in fact, form an insurance group pool along with the other similar BC/BS "individual policies. Do you know how this works? Are individuals in either category (i) or (ii) having trouble affording coverage? How, in fact, is such coverage subsidized (if at all)? Thank you in advance for your help to me. Unfortunately, we cannot at this point count on new Federal reform legislation taking care of this in a different manner.

Posted by: Tom, Weston, MA | Nov 8, 2009 2:19:43 PM

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