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In recent years, some states and municipalities have become policy laboratories for experiments in mandating that businesses provide health coverage for uninsured employees at affordable rates. But employers facing required contributions for coverage have decried the results as more akin to Frankenstein’s monster � and they’re fighting in court. At the core of each challenge: whether the local attempts to force employers to extend health coverage are pre-empted by federal law, the Employee Retirement Income Security Act. ERISA establishes guidelines for self-insured benefit plans and bars states from meddling in them. Now California is about to debate a massive overhaul of its health care system that could emerge as a national trendsetter for health care reform � but it, too, must navigate ERISA’s rocky shoals. Businesses and consumers are already lining up on opposing sides of the debate. “We’re keeping our options open, but [legal action] is being heavily considered,” said Michael Shaw, legislative director of the National Federation of Independent Business, which opposed Maryland’s health insurance mandate. “California is a bellwether state. If this gets on the books in California, we could see a trend across the country,” Shaw said. Jay E. Sushelsky, benefits attorney with AARP said the organization’s position is that states are laboratories for experimentation on controlling health care costs. “They should be allowed to do it.” Headed to court Meanwhile, a local San Francisco ordinance enacted last year is headed for a federal court challenge on Aug. 31. Golden Gate Restaurant Assoc. v. San Francisco, No. C06-6997JSW. It would require employers who don’t offer private insurance to pay into a city-run health plan, and the company employees would get discounted health benefits from the city in exchange. A business trade group successfully used ERISA pre-emption claims to defeat a Maryland law last year in the 4th U.S. Circuit Court of Appeals. Retail Industry Leaders Assoc. v. Fielder, 475 F.3d 180 (2006). That law targeted Wal-Mart Stores Inc. by requiring employers with 10,000 workers in the state that contribute less than 8% of total wages on health insurance to pay the difference to the state. In a split 2-1 decision, the 4th Circuit held that ERISA pre-empted the state law because the law’s goal of forcing Wal-Mart to increase its health care benefits clashed with the federal goal of consistent national administration of plans. And a federal judge struck down a nearly identical measure in Suffolk County, N.Y., in July. Massachusetts and Vermont also have plans that mandate various employer contributions toward health insurance premiums. California’s 6.7 million uninsured residents would benefit from tentative proposals, in a Democrat-sponsored Assembly Bill 8 and another from Governor Arnold Schwarzenegger. Both would require employers to spend a percentage of their payroll on workers’ health care and, in exchange, California will subsidize insurance for the poor. “When a state mandates rules for employers to live up to in one state that are not in others, you can’t have uniform administration of a health plan,” said William Kilberg of Gibson, Dunn & Crutcher’s Washington office, who represented the retail association in Maryland. “Any tax on an employee plan would be pre-empted” by ERISA, he said. What is clear in the ERISA law is that states cannot act through the workplace. They can regulate insurance or provide state benefits. “What they can’t do is interfere with decisions of employers to have, or not have, an ERISA plan,” he said. San Francisco Deputy City Attorney Vince Chhabria disagreed, saying there are fundamental differences between the Maryland and San Francisco plans. The city allows employers who do not offer insurance either to create an ERISA plan or pay the city so workers can enroll in a city-subsidized health care network. Maryland gave employers no real choice, he said. “It is true that San Francisco is not allowed to regulate health plans, but if local law allows an employer to comply without disturbing an ERISA plan, then it is not pre-empted,” Chhabria said. He noted the city had the benefit of the 4th Circuit’s Maryland ruling and took its reasoning into account for the city plan. He pointed to a 1993 U.S. Supreme Court decision that ERISA pre-emption does not refer to state law benefits, but to benefit plans.

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