<nobr>Jul 24, 2006</nobr>

District Court Rules Against State Health Mandate

A Maryland district court has granted summary judgment to the Retail Industry Leaders Association (RILA) in its action for declaratory and injunctive relief against Maryland regarding the Maryland Fair Share Health Care Fund Act (the "Act"). The court held that the Act is preempted by ERISA.

A copy of the opinion is attached.

Background

In January 2006 the Maryland General Assembly passed a law requiring non-governmental, for-profit employers with 10,000 or more Maryland employees to either: 1.) spend up to 8% of the total state wages on health insurance costs or 2.) pay the State an amount equal to the difference between what the employer actually spends for health insurance costs and 8% of the total wages. In passing the Act, the Maryland General Assembly anticipated that Wal-Mart would be the only employer affected by the Act. After the Maryland legislature passed the Act, RILA brought suit seeking a declaration that the Act was preempted by ERISA and violated the Equal Protection Clause, and also seeking injunctive relief against Maryland to prevent enforcement of the Act.

Opinion Summary

After examining questions of RILA's standing to bring the action and the court's jurisdiction, the court turned to the issue of whether the Act is preempted by ERISA. The court examined Section 514(a) and legal precedent on the boundaries of ERISA preemption. In finding that the Act was preempted, the court cited long established Supreme Court law in cases such as Shaw v. Delta Airlines and District of Columbia v. Greater Washington Board of Trade, both holding that state laws that impose employee health or welfare mandates on employers are invalid under ERISA. The court rejected the defendant's assertion that the law was only tangentially 'related to' an employee benefit plan, and that cases such as NY State Conf. of Blue Cross and Blue Shield Plans v. Travelers and its progeny bound the court to apply a narrow interpretation of the preemption statute. Instead, the court found that the legislative history of the Act indicated that the law was not merely tangentially related to ERISA plans, but was targeted directly at the ERISA plan of a particular employer. The court further held that the Act also violated ERISA's fundamental purposes of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits, and permitting uniform national administration.

The court also rejected Maryland's argument that the law was not a "mandate" for employers since an employer could also comply with the law by contributing to an HSA on behalf of its employees or spending a percentage of payroll on first aid facilities. The court held that the choice to pay benefits to the state or to employees was a "Hobson's choice" that imposed a substantive mandate under the Supreme Court's Travelers decision.

The court also held that the Act did not violate the Equal Protection Clause.

The state of Maryland is expected to appeal the decision.

Text Files:

Maryland District Court Opinion

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