Illegal Health Care January 23, 2007; Page A18
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 known by the acronym Erisa.
In this case, Maryland had sought to require all companies with 10,000 or more employees to spend at least 8% of their payroll on employee health care or pay the state the difference. Wal-Mart happened to be the only employer in Maryland large enough to fit that precise definition. But it joined with other firms under the Retail Industry Leaders Association to challenge the law, which was first struck down by a district court last summer.
Judge J. Frederick Motz wrote for that court that "The Act violates Erisa's fundamental purpose of permitting multi-state employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration." Last week's Fourth Circuit ruling affirmed that decision, and it could spell trouble for the California and Massachusetts schemes.
Leave aside that the plan muscled into law by Maryland's Democratic legislature was far less ambitious. The basic similarity is that all three plans feature employer mandates or taxes aimed at changing employee-benefit plans -- in this case by requiring employers to provide health insurance.
Like the Maryland law, the California plan is explicit on the point, and would require all firms with 10 or more employers to provide health care or pay a 4% tax. This would seem clearly illegal according to the reasoning of the Fourth Circuit, which also said that the ostensibly "voluntary" nature of the Maryland tax was irrelevant from the standpoint of Erisa. No reasonable firm, it said, could be expected to choose to pay money to the state to avoid changing its employee-benefit plan.
Mr. Romney's Massachusetts scheme is slightly different, since it doesn't feature the same kind of percentage tax. But not only would Massachusetts charge a $295-a-head fee to employers that don't provide insurance, it would also make them liable for the catastrophic medical costs of uninsured employees. Again this is likely to fall afoul of Erisa, says one legal expert with whom we spoke, because these penalties are aimed at changing employee-benefit plans that are supposed to be voluntary according to federal law.
There were sound reasons that Congress decided to create a uniform national regulatory framework when it wrote the Erisa law way back in 1974. To wit: Freeing employers from the administrative burden of having to comply with a multitude of state and local requirements leaves them with more money to spend on actual health care and other benefits. It doesn't speak well of Messrs. Schwarzenegger and Romney and their staffs that they didn't seem to have given this well-known legislation much, if any, thought when crafting their reforms.
This week brings one other piece of bad news for proponents of the Massachusetts model, by the way. Early bids suggest the soon-to-be compulsory insurance policies that will pass muster under the scheme will be expensive -- starting at a whopping $380 per month, or $4,560 a year, for an individual. That's hardly surprising when you look at costs in other states that overregulate their insurance markets, such as New York. But it's more evidence that the better way to get people covered is to mimic the practices of less-regulated states such as Connecticut, where a 35-year-old man can get covered for as little as $50 per month.
We're all for state policy experiments, but these ballyhooed health care reforms are policy blunders that won't stand scrutiny in court, much less in the marketplace.
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