Blue Mass Group

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WSJ Argues MA Health Plan Illegal

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The regressives who run the Wall Street Journal’s editorial page offered an interesting argument today that the employer mandates at the heart of the MA and CA health care plans may be illegal.

GOP Governors Arnold Schwarzenegger and Mitt Romney have become media darlings for proposing sweeping state health insurance reforms aimed at achieving “universal” coverage. Now out of office, Mr. Romney is trying to ride his plan to the Republican Presidential nomination. But it turns out state schemes that feature “pay or play” employer taxes or mandates are probably illegal.

At least that’s the clear implication of a significant but underreported ruling last week by the Fourth Circuit Court of Appeals, which said that Maryland’s “Fair Share” health legislation — otherwise known as “the Wal-Mart tax” — violates a federal employee-benefits law …

Sadly, a subscription is required to read the piece, but the basic argument is that employer mandates like those imposed by the health plans may violate the federal ERISA employee benefits law. In the Maryland case, according to the not always reliable WSJ editorialists, a state law required that all companies that employ more than 10,000 employees had to spend 8% of their payroll on health care or pay the state the difference. The District Court ruled that the law violates the basic purpose of ERISA, which was to allow multi-state companies to provide standard benefits packages, the Journal said. The Fourth Circuit affirmed.

Does anyone know more about this matter — first, if the WSJ is reporting this accurately; second, if the implications for the MA and CA plans are as severe as it sounds, even in principle.

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  1. The facts are these:  Maryland’s Fair Share Health Care Fund Act requires employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees’ health insurance or else fund the shortfall to the State of Maryland.

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    The argument goes something like this, multi-state employers shouldn’t have to comply with the complexities of state and local rules when it comes to doling out benefits to employees–better that the money be spent on the benefits.  Enter ERISA, a complicated Federal framework of statutes, enacted decades ago, intertwined within tax and labor statutes that regulate employee benefit plans:  discrimination, funding requirements and oversight.

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    Retail Industry Leaders Association v. Fielder, a ruling from the Fourth Circuit Court of Appeals, now finds that the Maryland Fair Share health legislation violates ERISA.  More precisely, The Maryland Act is preempted by ERISA because it conflicts with ERISA’s goal of permitting uniform nationwide adiminstration of the benefit plans in question.

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    Chapter 58, the great Massachusetts compromise, takes cash from taxpayers, the insured and business ($295 per head to employers that don’t provide minimum insurance).

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    Now as it turns out, the $295 per head charge to the employers may be illegal.

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    Like Maryland, the Massachusetts Chapter 58 and the California Schwarzeneger Healtcare may well too, via their similar employee mandate, be in trouble.  Maryland’s health care Act is preempted by ERISA, can California and Massachusetts business plaintiffs be far behind?

    • There is a decent dissent in Retail Industry Leaders Assoc v. Fielder, basically disagreeing about ERISA preemption because the Company didn’t have to adjust its benefit plan at all to provide specifically for the Maryland law.  The Company could have chosen to simply pay the extra cash to the State. 

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      Not sure which side those darn activist judges were on this time.

      • I thought the majority was quite unconvincing, and the dissent got much the better of the argument.  The crux of the majority opinion is this (emphasis mine):

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        At its heart, the Fair Share Act requires every employer of 10,000 or more Maryland employees to pay to the State an amount that equals the difference between what the employer spends on “health insurance costs” (which includes any costs “to provide health benefits”) and 8% of its payroll. Md. Code Ann., Lab. & Empl. §§ 8.5-101, 8.5-104. As Wal-Mart noted by way of affidavit, it would not pay the State a sum of money that it could instead spend on its employees’ healthcare. This would be the decision of any reasonable employer. Healthcare benefits are a part of the total package of employee compensation anemployer gives in consideration for an employee’s services. An employer would gain from increasing the compensation it offers employees through improved retention and performance of present employees and the ability to attract more and better new employees. In contrast, an employer would gain nothing in consideration of paying a greater sum of money to the State. Indeed, it might suffer from lower employee morale and increased public condemnation.

        In effect, the only rational choice employers have under the Fair Share Act is to structure their ERISA healthcare benefit plans so as to meet the minimum spending threshold. The Act thus falls squarely under Shaw’s prohibition of state mandates on how employers structure their ERISA plans. See Shaw, 463 U.S. at 96-97. Because the Fair Share Act effectively mandates that employers structure their employee healthcare plans to provide a certain level of benefits, the Act has an obvious “connection with” employee benefit plans and so is preempted by ERISA.

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        Ridiculous.  Even thought the Maryland law plainly gives employers the choice of spending 8% of its revenues on health care or giving the difference to the state, the Court says it’s “in effect” a mandate because no “rational” employer would take the alternative route of paying money to the state.  That gives the court the “mandate” it needs to invoke ERISA preemption.  But there are lots of rational reasons an employer might choose to give the difference to the state — maybe the company thinks it’s a good way to support the state’s Medicaid program, which helps poor people and therefore would be considered a community service.  Maybe the administrative costs of restructuring its health care program would exceed the costs of just writing the state a check.  The majority opinion is, IMHO, totally unconvincing.

        • …the court’s holding makes sense in light of the fact that any corporation of that size is likely publicly traded and as such owes a duty to its shareholders not to waste money.  No corp. in that situation could make the case to its shareholders that rather than pay the minimum amount “in company” it would choose instead to surrender it to the state.  I don’t like the final result of their holding very much, but the concept of a public company volunteering to give assets to the state seems the more ridiculous outcome.

        • A number of points:

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          1. While there’s disagreement, the top national expert thinks the Maryland decision would not affect Massachusetts or even a well-drafted broad “pay-or-play” requirement like Schwarznegger proposed. A good summary of the law in this area is here: http://www.statecove…

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          2. The Maryland decision is just one circuit’s divided opinion. Many people advised Maryland to not appeal the unfavorable lower decision because the court they were going to was so conservative.

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          3. The current Massachusetts law is different because the assessment is not meant as a penalty, but a revenue-raising mechanism. The explicit goal was to equalize the pool payments of firms that don’t provide coverage with those that do provide coverage. The Supreme Court has ruled that general taxes that may impact a health insurance decision is OK. We already tax employers with health plans to pay for the pool; the law just adds a tax on employers without health plans.

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          4. If the Maryland decision was upheld, one alternative would charge firms if their employees used state health benefits. Charging companies if they have employees in Commonwealth Care, the new subsidized health program, would be a perfect proxy for charging employers who don’t offer coverage (since to get CommCare, you have to have no coverage from your employer). The advantage for ERISA is that the law wouldn’t have to worry about the kind of plan a company offers, and the tax would be justifiable as a charge on companies that cost the state money.

    • has tanked a number of worthy initiatives over the years, including various attempts to force employers to cover certain conditions.

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      If the employer mandate goes sideways, that pretty much tanks this legislation, doesn’t it?

      • Does it tank it, or just cost the taxpayers more?  (i.e. the $295 per head contribution from business).  I think the latter.

        • This is also true for corporate taxes … consumers always pick up the the cost.

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          Why do progressive always anthropomorphize corporations?

          • Anyway, corporations are creations of the state and owe everything to the state: they wouldn’t even exist if it weren’t for the state.

          • This is also true for corporate taxes … consumers always pick up the the cost.

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            You left out the words “some of”.  When a business is taxed, the result is that consumers pay some of that cost and the business pays some of that cost, as long as the supply and demand curves have a slope explicitly between 0 and infinity.

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            So, consumers pick up some of the cost, and producers pick up some (in the form of lower profits).

    • agreed with the 4th circuit’s opinion (which I doubt it will for the reasons given above), it’s easy to distinguish the MA law from the MD law.  As noted above, the 4th Cir said the law was in effect an illegal “mandate” because no rational employer would choose to pay the tax, and instead, would have to restructure their benefits.  But obviously, providing health coverage costs a lot more than $295 a year, so many — I’d wager, most — rational employers who don’t want to provide health coverage will simply fork over the $295 rather than spend a pile of money on health care.  The point of the MD law was that it was supposed to be economically neutral to the company — you have to spend 8% of your revenue on health care, whether it’s in the form of benefits to your employees, or a check to the state.  The MA is assuredly not economically neutral — it’s still a lot cheaper not to provide benefits and instead to pay the assessment.

      • It isn’t the amount of the mandate, it is the mandate which may make the MA plan illegal.

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        $1 per employee or $10,000, it’s the same.

      • An interesting question then would be, where do you draw the line?

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        Take bostonshepherd’s example in his comment above, that a $1 mandate would still be illegal. Well, I don’t know about that — you clearly think a $1 mandate is fine. And so is a $295 mandate… these mandates are OK as long as they are cheaper than the actual cost of the healthcare?

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        What if the Maryland law were restructured to say that these companies would have to pay the state 50% of the shortfall? Or 75%? 90%? 99%? At what point would this ERISA argument come into effect?

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        (N.B. I’m not arguing any point — this is just a question, albeit an interesting one, I think.)

  2. It only started as a dodge during WWII – to get around wage and price controls to attract employees, businesses offred health insurance.  Before that, you bought your own policy, just like you do with a car or house.

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    There is NO rational basis for employers being the providers of health insurance, expecially since Kennedy-Kassebaum eliminated pre-exisiting condition exclusions.

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    Let people purchase the plan they want!  why should they be limited to the plan/s their employer offers?

        • Social Security reform, I see nothing, but there’s some support on each side for this health reform proposal. Seriously: business, middle class, mod Dem and Rep.

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          Besides, he’s stickin’ it to the rich fat cats who have the $15K health plans.  Isn’t that like a Dem Platform or Plank or something? 

          • Put a fork in him: he’s done. He’s not going to get anything significant through Congress, in MHO, so long as he has Iraq around his neck. At the same time, the would-be successors in the Republican Party are going to start gunning for him as they try to establish position. Tough times ahead for W.

          • You willing to put your money where your mouth is? Since I doubt it, how’s this for an offer — if it passes this session, I’ll give you $200; if it doesn’t, give me $100. If you really think it’s 50-50 then this should be a no-brainer for you.

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            We’ll exchange info if you’re interested, which you won’t be because you know as well as I do it’s not 50:50.

            • Sure, I’d put $100 at 2:1 that President Bush will sign Health Care tax reform in 2007 that in principal allows nondeductibility of medical insurance, for couple filing jointly, in excess of $15000 and allowing full deductibility for amounts below that threshold. Easy bet.  Thanks.

                • The reason it will pass: (1) it’s a good idea (2) enjoys some bi-partisan support (3) addresses a large and well-publicized problem. (4) A Tax Act is due because of all the 2008 sunsetting provisions that should be addressed in 2007. (5) no other solutions are on table. (6) tax cut for bottom 4 quintiles; tax increase for top quintile.

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                  Washington Post-But the most surprising and encouraging development is that a president who for six years has only nibbled around the edges of health-care issues has weighed in with some bold ideas to expand coverage, rein in costs and bring some fairness to the tax code. And get this: It actually involves raising taxes on the rich and lavishly insured and giving the money to the working poor and the uninsured.

                  Given that, you’d think Democrats would have welcomed a politically courageous proposal to put a cap on one of the biggest and most regressive features of the individual income-tax code. But instead, they’ve shifted reflexively into partisan attack mode, mischaracterizing the impacts of the proposal and shamelessly parroting the propaganda from the labor dinosaurs at the AFL-CIO.

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                  Urban Institute– “The innovative plan is a major step toward improving the efficiency of the market for health insurance. By severing the link between work and insurance, it would offer everyone the same tax incentives to obtain insurance coverage and limit spending on health care.”

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                  WSJ – Now we’re getting somewhere. The U.S. has long needed a debate over health care and tax subsidies, and President Bush got ready to rumble last night with his proposal to make insurance more affordable for most Americans.

                  For all the griping about our system, Americans have the most advanced health care in the world in part because we still have something resembling a private market for insurance. But it is not a truly efficient market because current tax policy lets businesses–but not individuals–deduct the cost of health expenditures. Thus most Americans with private insurance get it from their employers, which leads to inequities and insulates individuals from the real cost of their treatment decisions.

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                  Ruth Marcus of Washington Post – It’s too bad, because the president’s proposal to cap the deductibility of employer-sponsored health insurance deserves more of a chance than Democrats, from their initial reactions, seem inclined to give.

                  Instead of the irrational current system, in which all employer-sponsored health-care costs are deductible, Bush would create a standard deduction that would replace existing deductions for health insurance, both employer-sponsored and privately purchased, and other medical costs.

                  The deduction would be $15,000 for a family policy, leaving 80 percent of those with employer-sponsored coverage unaffected.

                  Yes, the plan should be more progressive, structured with refundable tax credits rather than a deduction, so that all can share equally in the benefit.

  3. like to get back to it.  The WSJ is pretty good usually in reporting although completely biased editorially.  I have not been following the Mass Hlth plan I should have been.  I have passively been waiting for them to work out the bugs before reading anything more than the basics. 

      • but they usually don’t make up facts for the editorial page.  Only the New York Times does that.

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        The WSJ takes advantage of the huge amount of usually accurate economic and business news they report each day.  Sure, their opinion is still opinion, but the facts therein are reliably accurate (this includes attributions and even name spelling.)

        • With respect, BS, just look at their ridiculous make-believe on Iraq before the war. I subscribe to the WSJ, and I agree it has a lot of excellent information, but the opinion pages are not a reality-based source of information.

  4. and surely there’s another 100 hours sitting around somewhere.  Surely CA+MA+MD have enough juice to get the legislature moving.  Just 6% of the Senators, but 16% of the House.

    • For what, to disembowel ERISA? It’d be like untangling the world’s biggest ball of twine.

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      Appelate mavins will have a more knowledgeable opinion  than me, but this case with any of its relatives in CA or MA will take some time to play out. 

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      AND, IMHO, should rightfully play themselves out in the Courts and States, rather than have an “all knowing” Congress try to fix what may not be broke, or what may not be fixable (i.e. Chapter 58).

      • and I’m not arguing that Pelosi should spend the House’s next 100 hours working on this.  I’m simply pointing out that if the MA and CA legislature doesn’t make it through the courts then it’s up to the Congress to change the laws should the MA/CA/et al plans ever be legal.

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        The Congress we have now is far more likely to do this than the Congress we had three months ago.

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        As an aside, I find tons of irony in the idea that it’s illegal for the government to require businesses to pay in, but not illegal for the government to require citizens to enter into contracts with businesses.  So much for a government of the people and/or for the people…

  6. is sometimes a little out there– to the far right I mean.  At least, that has been my impression in the past. I know I should have something to back this statement up, but I don’t have time right now to link. So sorry. 

  7. FYI to all – If you do not have a subscription, you can access the Wall street Journal article for free with a netpass plugin: http://www.congoo.co…

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    Was featured on Mad Money!  Booooyahh!

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