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Thursday, December 27, 2007

What? The city's health care plan is illegal? How does that work?

Posted By on Thu, Dec 27, 2007 at 12:59 PM

An explanation by Benjamin Wachs

Since both doctors and lawyers operate by billable hours, asking a lawyer how the city should pay for doctors is like making a mobius strip out of invoices. You could go round and round this thing forever.

Yesterday U.S. District Judge Jeffery White started that infinite loop when he ruled against the city’s health care plan because he said it can’t force local businesses to chip in. Today City Attorney Dennis Herrera is in front of the Ninth Circuit Court of Appeals taking it around the next curve by saying “yes it can.”

Here’s the argument:

The city, Judge White said, is entitled to offer health care to whomever it wants … but trying to get businesses to pay for it is strictly verboten by the 1974 regulation “ERISA” (“Employee Retirement Income Security Act”). That act makes employee benefits like health care strictly accountable to federal standards so that they’ll be uniform across all 50 states. You can’t tell an employer to offer benefits in ways that aren’t covered by ERISA.

Which is what the city is doing. Or … is it?

Technically, the city isn’t asking employers to adopt any plans at all: the city is only asking businesses of over 20 employees that don’t already provide employee health care coverage to pay (up to $1.76 per employee per hour) for the city’s program. Any business that can demonstrate it’s already providing insurance for its employees is considered to be doing its part and owes nothing.

And that’s the essence of Herrera’s appeal: the city isn’t violating ERISA because it’s not forcing anybody to get a new plan or change their existing plan: it’s only leveling a tax in order to support the general health of the city … which it’s within its right to do.

That’s a compelling argument, as Judge White admits in his ruling – and the Supreme Court precedent is far from clear.

“The task of developing a clear rule to identify whether ERISA preempts a particular state law ‘has bedeviled the Supreme Court,’” White wrote in his opinion, citing several previous cases.

So how does White decide the city’s plan doesn’t fit? He adopted a four part test created by the Ninth Circuit court:

(1) Does the law regulate the type of benefits employee benefit plans offer;

(2) Does the law require employers to create a separate employee benefit plan in order to comply?

(3) Does the law impose reporting, disclosure, funding, or vesting requirements for benefit plans?

(4) Does the law change the relationship between the employer or employee and the benefit plan?

San Francisco’s plan, White said, violates rules 1, 3, and 4.

It’s hard to understand where White’s coming from on some of this, and Herrera can likely win on points 1 and 4: San Francisco’s plan doesn’t touch employers who already offer health benefits (or who get an ERISA sanctioned plan), and so it neither regulates the type of benefits plans offer nor change the relationship between the plan, the employer, and the employee.

Herrera’s going to have a much tougher time on 3, though, because the city’s plan unquestionably imposes new reporting and disclosure requirements – employers have to prove to the city that they already have health care plans and, yes, there’s paperwork involved.

So if the Ninth Circuit Court of Appeals adopts Judge White’s standards, the city’s method of paying for its plan is sunk. But that’s no guarantee the city will lose: asking “is the city’s health care plan legal” is a lot more like asking “how many angels can dance on the head of a pin” than it is a simple question of fact.

The Ninth Circuit Court of Appeals could adopt White’s test but decide that the reporting requirements in 3 are trivial, or don’t violate the spirit of the law. It could also scrap White’s test and decide that the city’s plan doesn’t violate ERISA as congress intended it – because the city providing health care in no way impacts the national uniformity of private benefit plans.

So while the city’s taken a hit, the issue is far from settled. As they say in the insurance biz: “it ain’t over ‘till the lady with hypertension and type II adult-onset diabetes sings.”

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Benjamin Wachs


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