<nobr>Jan 4, 2008</nobr>

Court Rules That ERISA Preempts San Francisco Employer Health Mandate

A California federal district court December 26 issued a ruling on summary judgment that a San Francisco health ordinance mandating employer health expenditures was preempted by the Employee Retirement Income Security Act of 1974 (ERISA). The ordinance would have required employers to meet a minimum health care expenditure on behalf of covered employees. The funds drawn from this employer health-spending requirement would have been used to partially fund a local government health program -- the major objective of the ordinance. The City of San Francisco requested a stay of the court's decision and has appealed to the Ninth Circuit Court of Appeals.

The Golden Gate Restaurant Association in November 2006, filed suit against the city and county of San Francisco arguing that the health-spending requirement violated ERISA by mandating the conditions for employer participation in the provision of health care benefits in a pay-or-play framework.

The specific health-spending requirement had several components. First, the actual rate of expenditures would vary depending on the size of the employer. Medium businesses, defined as having between 20-99 employees, would have been required to contribute $1.17 per hour. Large employers, defined as any business with over 100 employees, would make a minimum expenditure of $1.76 per hour. The ordinance provided that these spending requirements could be met by, but not necessarily limited to, contributions to health savings accounts, payment to third party health service providers, employee reimbursement, or direct payments to the city of San Francisco "to be used on behalf of covered employees."

The final component was the monitoring of health care expenditures. All subject employers would have been required to maintain records of all health care expenditures, maintain proof of the expenditures, and finally allow city officials "reasonable access" to the records outside of the requisite annual report that businesses would have to file to the city.

The U.S. District Court for the Northern District of California ruled that these health-spending requirements would "directly and indirectly affect the relationship between private employers and the provision of health care coverage, a relationship that has traditionally been governed by ERISA" (Golden Gate Restaurant Association v. City and County of San Francisco, N.D. Cal., No. C 06-06997 JSW, 12/26/07).

The court also held that "Congress has evinced its intent to preclude state or local governments from passing any legislation that relates to ERISA plans so as to avoid a patchwork of state and local health care programs across the nation." District Judge Jeffrey White concluded: "The Ordinance's health care expenditure requirements are preempted because they have an impermissible connection with employee welfare benefit plans. By mandating employee health benefit structures and administration, those requirements interfere with preserving employer autonomy over whether and how to provide employee health coverage, and ensuring uniform national regulation of such coverage."

The City Attorney office petitioned the Ninth Circuit Court of Appeals for an emergency stay pending appeal. However, the appeals court declined the stay, but held a preliminary hearing and will decide on the case in the near future. Several unions as intervenors in the case also filed a petition for a stay. In its appeal to the Ninth Circuit, the City of San Francisco is expected to argue that, "Although state and local laws that dictate employer choices about ERISA plans are preempted, legal requirements that employers may readily satisfy without altering or adopting ERISA plans are not because they do not interfere with uniform benefit plan administration. San Francisco's Ordinance clearly falls in this latter category, because it allows employers to comply with the health care spending requirement without adopting an ERISA plan or altering an existing ERISA plan."

ERIC members should take note that proponents of state waivers of ERISA preemption are likely to use this case as an argument that ERISA bars states from taking effective action, especially in the face of the failure to date of national healthcare reform, to provide coverage and care for locally uninsured. In fact, as ERIC has argued in testimony, states have ample authority to provide for their uninsured but have sought to hide the tax increases necessary in the form of mandates and premium taxes on employers, including those who already provide health care coverage. State waivers and attacks on ERISA preemption are likely to be at the forefront of health legislation in Congress in 2008.


Text Files:

Golden Gate Restaurant Association v. City and County of San Francisco

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