An Employer's Guide to Health Reform
I expect to be litigating, down the road, issues, complications and conundrums created by health care reform. Let’s be honest - its impossible to imagine any large structural undertaking not generating problems, including unforeseen ones, that will have to be resolved by the courts. For now, though, the issue is more one of planning for changes, and what needs to be done now to accommodate them. My colleague George Chimento, whose paper suggesting that employees should not be given the option of managing their own 401(k) accounts is discussed here, passes along this client advisory on “Baby Steps: an Employer's First Year under Health Reform,” which addresses these changes.
A Parable About the Cable Man
For reasons too obscure and uninteresting to mention, I have had almost nothing to do with the cable tv industry since, well, it was invented. What’s a DVR, anyway, and why would I want one? But yesterday, I had to obtain digital cable from my local cable company, and called them, braced to be gouged. Instead, I was offered a special deal for a year, much less than I was expecting to pay, with stuff I would never pay for thrown in. A few hours later, of course, the reason occurred to me. The cable monopoly I recall from my youth is not what I was dealing with, and I was instead talking to a cable company that had competition from dishes - Dish.com, I guess? - and the local telephone/internet/cable company, so instead of gouging me, they had to offer me a deal they figured would keep me as a customer. Classic economic, legal and antitrust theory holds that there are really just two ways to police pricing - competition or, in its absence, regulation. Competition, of course, is why I got my sweet deal on cable yesterday.
So what does this have to do with the topics of this blog? Seems like plenty, in that it is the absence of above board open competition that is at the root of much of the problems discussed in these pages concerning ERISA governed plans. I have discussed in many posts that the problem with health insurance coverage through employers has much less to do with the question of whether employers want to provide it than it has to do with the ever escalating cost of health insurance and the fact that providing health insurance is a punishing cost. Employers, in my view, are unfairly demonized as trying to avoid providing health insurance, but it is the cost that is driving their increasing balkiness about being, as I have described it in other posts, unofficially deputized as the providers of health insurance in this country. From where I sit, one of the fundamental problems with acts mandating health insurance provision or payments by employers is that they don’t account for this, either by reducing health insurance costs or by recognizing the business costs imposed by these types of statutes. Does anybody really think that the restaurants targeted by the San Francisco statute are swimming in profits? This article here, profiled on the Workplace Prof blog, describes this exact concern about costs as the driving force behind employer, and particularly small employer, health insurance decisions.
And perhaps one solution to the problem of the cost of providing health insurance - perhaps the most important one - is that what is good for the cable industry should also be sauce for the gander, i.e., much greater competition among, and significantly less market control by, health insurers, as pointed out in this op-ed piece here by Robert Reich (when even the archetype liberals are arguing that market competition is the answer to all evils, you know the world has turned upside down).
And the same thought continues across to 401(k) plans, and the ongoing issue of fees and costs in investment options, and how they are disclosed. What if, instead of arguing after the fact about whether the fees in a particular plan were too high, prudent fiduciary practices were deemed to require a competitive process for selecting investment options, in a manner forcing putative vendors to put their lowest cost options forward to win the business? Isn’t that what all the complaining about large asset plans that don’t use their size to win better pricing is about, after all? Instead of just complaining in the abstract that plan sponsors should have acted that way, or engaging in after the fact litigation to try to police how much should have been charged in fees, wouldn’t it make more sense to just require a fully competitive process among vendors for selecting investment options, conducted by fiduciaries - or their delegates - who have the knowledge base to understand the pricing structure of the proposed options?
In that version of the world, it would be a fiduciary obligation to impose a fully competitive, open call for investment options, and to select the best - including on fees, costs, disclosure and performance - from among them, with it being a fiduciary breach for failing to pursue this process (rather than it being a fiduciary breach for ending up with fees that are too high). The focus would return in this way to fiduciary practice, both in terms of judging conduct as meeting or failing to meet the standards of a fiduciary and in terms of whether to impose liability, rather than on an after the fact, necessarily subjective evaluation of the amount of fees, costs, or disclosure in a particular plan that resulted from the fiduciary’s decisions.
Open competition would certainly drive down the fees and costs in plans, while simultaneously giving fiduciaries a clear standard - namely their obligation to decide on the basis of such competition - against which to work. I can’t help but think that, like the cable customer, plan participants will end up with better and cheaper products to pick from, while plans - and their insurers - will spend substantially less on litigation costs.
Preemption, the Supreme Court, and Job Losses
I had two disparate items that I wanted to post on, one of which I didn’t really think had anything to do with the subject matters of this blog but that, nonetheless, was too cool a graphic not to pass on. Sitting here this morning, though, I figured out how to hook them together, so here goes. The first is the report, which many of you have heard by now, that the Supreme Court has sought the government’s views on whether to accept cert with regard to the Ninth Circuit’s ruling on preemption and the San Francisco health insurance mandate. I can throw out two, or actually three, quick thoughts on that one. First, dollars to donuts says the government’s advice is to not grant cert, and to wait and see whether federal health care reform either directly or in a de facto manner moots the entire question. Second, the reality is that, under current doctrines, that statute is preempted; the Supreme Court doesn’t necessarily have to overturn any precedents to find otherwise, but it is going to have to shift the analyses of the preemption case law to find that this statute is not preempted. Third, I can’t say - as one who has watched the questionable implementation in Massachusetts of its state legislated, and presumptively preempted, employer mandate - that I agree with those who think that preemption should be set aside to allow states to become bastions of experimentation on health insurance reform; anyone who has followed my posts on the Massachusetts statute knows I don’t think the states have the pocketbook or the firepower to handle the issue successfully.
What was the second item, the one that wasn’t clearly on point to this blog? Its this graphic representation of job losses and gains throughout the business cycle for different metropolitan locations across the country, a link I have shamelessly pirated this morning from the Workplace Prof blog. My first response to it was that I loved the graphical representation of complex data; it’s the same thing a trial lawyer has to do in a case of any level of complication, which is make the background information understandable, and this graphic does that beautifully. Trial graphics in particular have to serve this purpose, and this graphic could be the exemplar of exactly what computer generated graphics for trial should be: easily understandable and visually interesting representations of what otherwise would be difficult to grasp or, at best, tedious to follow information. But how do I link this graphic to this blog post? Easy, by using it like a trial graphic to make a point. If you move the time line to 2009 on the graphic, you will see the massive amounts of job losses - there is no better illustration of the point I have made time and again about employer mandates, which is that employers have enough on their plates without being made the official provider of health insurance (they have long been the unofficial one, but employer mandates push that responsibility even further). Employers should create jobs, not spend their time worrying about the costs and administrative burdens of legislated mandates such as the San Francisco ordinance or the Massachusetts Health Care Reform Act - this, in fact, may be the most concise justification for preemption of such acts I can think of.
What Goes Up Just Keeps Going Up - Health Costs and Employer Mandates
For a long while, I have felt like a lone voice or (to mix my metaphors) at least the skunk at the garden party, when I have criticized employer mandates and, even more so, the Massachusetts Health Care Reform Act. As I have frequently discussed in various posts, the problem with these statutes is that they don’t target the real problem in the provision of health insurance by employers, which is cost - that is what is driving employers to reduce or not provide such insurance to their employees. Mandating insurance, payments or penalties simply penalizes employers for not being able to afford to do something that, pricing being better, they would have done - and historically did do - on their own, which is provide health insurance as an employee benefit.
Marcia Angell, a prominent Massachusetts physician, made this exact point about the Massachusetts Health Care Reform Act, when she explained that its fundamental flaw is that:
In Massachusetts [which enacted an individual mandate in 2006], there is no real price regulation. Essentially what the mandate does is say to people, you will go into this treacherous market and buy insurance at whatever price the companies choose to charge. In effect, it’s delivering a captive market to these profit-oriented companies. . . . Massachusetts already spends one-third more on health care than other states, and costs are rising at unsustainable rates. As a result, they’re chipping away at benefits, dropping beneficiaries and increasing premiums and co-payments.
Now, the Boston Globe today has an article reiterating and driving home this same point, in which it reports that “[t]he state’s major health insurers plan to raise premiums by about 10 percent next year, prompting many employers to reduce benefits and shift additional costs to workers.” The article goes on to point out that controlling costs was supposed to go hand in hand with the mandate imposed by the state’s reform act, but that obviously has not occurred.
I have said it before and I will say it again - mandating expensive coverage that is only getting more expensive is not a solution, and no state has pockets deep enough to solve this problem on its own.
On Preemption of Pay or Play Acts and the Supreme Court
File this, I suppose, in the department of inevitable events - lawyers representing the restaurant industry have filed to have the Supreme Court review the Ninth Circuit ruling finding that the San Francisco pay or play ordinance is not preempted by ERISA. This is one of those instances where you can bet how the case will come out the same day the Court announces whether it will hear the case; if it does, the statute is going to be found preempted and the Ninth Circuit overruled, for reasons I referenced in passing here.
I do have a reason for posting on this, beyond wanting to get on board early with a prediction for the outcome (even Paul Secunda, back in his days as the Workplace Prof, would never have called a case before it was even accepted for hearing!), and that is this quote from the restaurant group’s lawyer, courtesy of the National Law Journal:
"One of the most important issues that we are debating in the country today is how health care is to be provided," said Jeff Tanenbaum, chairman of the labor and employment group in the San Francisco office of Nixon Peabody, who represents the Golden Gate Restaurant Association, which filed the petition on June 5. Golden Gate Restaurant Association v. City and County of San Francisco, No. 08-1515.
"This case comes down at a time when that debate is the focus of tremendous attention at the federal level. It is an issue that needs to be addressed at the federal level," he said.
I have said it time and time again on this blog, that ERISA preemption serves the admirable, even if perhaps inadvertent, role of forcing health care to be tackled at the only level it can be adequately addressed, the federal one, and not at the level of state governments, which simply don’t have the resources to pull it off, as this article here reminds us yet again (and this one too). I am happy to hear someone else say it as well.
The Massachusetts Health Care Reform Act as a National Model . . .
Maybe of what not to do.
I couldn’t let this go by without noting it - he has a Nobel after all and I, well, I have a sixth man award from a high school basketball team. Paul Krugman on health care reform:
Without an effective public option, the Obama health care reform will be simply a national version of the health care reform in Massachusetts: a system that is a lot better than nothing but has done little to address the fundamental problem of a fragmented system, and as a result has done little to control rising health care costs.
I think I have read that description of the Massachusetts act before. No, wait, I think I wrote it.
The Massachusetts Health Care Reform Act: Demonstrating that ERISA Preemption is Health Care Reform's Best Friend
Well, I have argued more than once on these electronic pages that ERISA preemption, rather than being the whipping boy of choice for people who advocate state level health insurance mandates, should be understood as a key element in bringing about any type of effective change to the health insurance system. Why is that? Because ERISA preemption forbids the states from enacting health insurance reform statues since states cannot enact them without either deliberately or unavoidably rejiggering employer provided - and thus ERISA governed - health plans, meaning that any real change from the current employer provided (and voluntary) health insurance system can only take place on a national level. And why is this in turn good? Because states are kidding themselves if they think that they can, financially, pull off reform of the system on their own, as this article here demonstrates yet again. Although buried behind the praise for the fact that the state reform has increased access by decreasing the numbers of uninsured, the article notes that affordability problems have arisen, which cannot “be blamed on the state's overhaul, but on a much larger and troubling national trend [which is that] [h]ealthcare costs, in general, are increasing faster than inflation.” The city of San Francisco, or the Commonwealth of Massachusetts, cannot solve that problem, and they can’t fund it on their own, either. It’s a national problem, and one that ERISA preemption demands be handled nationally.
Hmm, Maybe I was Right?
I have been accused of being something of a troglodyte for not whole heartedly embracing the Massachusetts Health Care Reform act, including because it puts the cart before the horse in failing to recognize (and address) the fact that rapidly rising health care costs are the real problem driving accessibility and also because the statute is preempted, which matters because the problems it is trying to address can only really be targeted successfully in the long run on a national basis rather than on this type of state by state ad hoc approach, which Congress long ago precluded by means of ERISA preemption. Compare those posts to this and you will see that, yes indeed, it is costs that drive the problem and that the solution to that lies on a national basis, not a state by state one (see for instance, this recent column noting the impact of costs on the implementation of the Massachusetts Health Care Reform act, an issue much better addressed across the entire national pool of the insured).
The Supreme Court, Suffolk Superior Court and Ed Zelinsky, All Commenting on the Breadth of ERISA Preemption
Two interesting things worth passing along this week on the topic of ERISA preemption, both reinforcing its breadth. The first is this well-written analysis of preemption out of the state trial court in Massachusetts, unusual for the reason that, normally, if ERISA preemption exists, the case ends up by original or removal jurisdiction in federal court; you seldom see a state trial judge write extensively on this subject as a result. Moreover, you don’t always see any judge write this well and accurately on the subject:
This Court finds that these claims for contribution are barred under the ERISA preemption provision, 29 U.S.C. §1144(a), which supersedes "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan . . ." 29 U.S.C. §1144(a). "State law" under ERISA is not limited to state statutes; it includes judicial decisions declaring the common law of the state. 29 U.S.C. §1144(c) ("State law" includes "all laws, decisions, rules, regulations or other State action having the effect of law, of any State"). . . . To determine whether State law, namely, the common law of misrepresentation, "relates to" an employee benefit plan and is thus preempted, we must look to Congress's intent. "The purpose of Congress is the ultimate touchstone." Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 138 (1990), quoting Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208, (1985). There can be no doubt that Congress intended that ERISA's preemption provision be broadly construed. See Ingersoll-Rand Co., supra, 498 U.S. at 138; Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 46-47 (1987). The provision's "deliberately expansive" language was "designed to 'establish pension plan regulation as exclusively a federal concern.' " Pilot Life Ins. Co., supra at 46, quoting Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981). See Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98-100 (1983). "A law 'relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Id. at 96-97. "Under this 'broad common-sense meaning,' a state law may 'relate to' a benefit plan, and thereby be preempted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand Co., supra, 498 U.S. at 139, quoting Pilot Life Ins. Co., supra, 481 U.S. at 47.
In spite of its undeniable breadth, ERISA's preemption provision does not apply to every State action that affects an employee benefit plan. "Some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, supra, 463 U.S. at 100 n. 21. . . .Here, the alleged claim under the common law of negligence would directly relate to an ERISA plan because it would require a state court to determine the duty owed by these fiduciaries to an ERISA plan with respect to their investment of Plan monies. See Zipperer v. Raytheon Co., Inc., 493 F.3d 50, 53-54 (1st Cir. 2007) (finding that a negligence claim was preempted because it was based on the defendant's record-keeping responsibilities under an ERISA plan); Donavan v. Robbins, 752 F.2d 1170, 1180 (7th Cir. 1985) (declaring it "extremely unlikely that Congress would have wanted ERISA fiduciaries to be subject to the vagaries of state contribution law"). Even if the Massachusetts common law of negligence were to mirror precisely the fiduciary duty owed under federal ERISA law governing the investment of ERISA funds, the mere possibility that it would differ and be in conflict with ERISA's objectives is sufficient to require this state court to forbear from touching the contribution claim.
The case is Edward Marram as Trustee of the Geo-Centers, Inc. Profit Sharing Plan & Trust v. Kobrick Offshore Fund, Ltd. et al., out of Suffolk Superior Court, and you can find it at 2009 Mass. Super. LEXIS 85.
The second is Edward Zelinsky’s detailed analysis of the Ninth Circuit’s decision on the San Francisco health insurance ordinance, in which he lays out, in formal, analytical fashion, what many of us already concluded on a gut level - that the statute is a preempted invasion of rights controlled only by ERISA, no matter the false distinctions created by the Ninth Circuit in an attempt to avoid that conclusion. Writes Professor Zelinsky (courtesy of the Workplace Prof blog):
An exploration of the most recent decision of the U.S. Court of Appeals for the Ninth Circuit in Golden Gate Restaurant Association v. City and County of San Francisco (Golden Gate III) indicates that ERISA Section 514(a) preempts the San Francisco Health Care Security Ordinance. Two premises guide this exploration of Golden Gate III. First, employers’ ongoing payments to health care administrators, such as insurance companies, constitute employee benefit “plans” for ERISA purposes. Second, employers’ contributions are central features of their employee plans.
This first premise indicates that a San Francisco employer which regularly contributes to San Francisco pursuant to that City’s health ordinance thereby creates a “plan” for ERISA purposes. The ERISA status of this plan purchasing municipally-administered medical services is the same as the ERISA status of an analogous employer-financed plan paying a private administrator for comparable health care: As to all of these plans, ERISA Section 514(a) preempts state and local regulation.
Moreover, it is not persuasive for purposes of ERISA Section 514 to say (as does the Ninth Circuit) that San Francisco, by its health care ordinance, regulates employers’ health care contributions, but not employers’ health care plans. Contributions are central features of employers’ health care plans for their employees. By regulating employers’ contributions, San Francisco regulates employers’ plans.
Frankly, I thought the Supreme Court made clear in an offhand comment in Kennedy v. Dupont that the San Francisco statute, were it to come before it, would be found preempted, when the Court, in a gratuitous aside completely unnecessary to decide the issue before it, commented that a state law is preempted when it would “undermine the congressional goal of ‘minimiz[ing] the administrative and financial burden[s]’ on plan administrators.” Can you think of a better description of what the Rube Goldberg contraption that is the San Francisco ordinance does than that? And the same, by the way, holds true for the equally Rube Goldbergesque Massachusetts health care reform act as well.
Look, once again, many people may want these types of health insurance expanding statutes to exist, and the political consensus in Massachusetts means that such a statute is operating without court challenge, but that doesn’t mean they are not, in fact, preempted. They are, absent an actual change in the scope of preemption by the Supreme Court.
Some Notes on Fair Share Acts and the Economics of Health Insurance
I have argued many times on these - virtual - pages that fair share acts, and their backers’ obsession with trying to circumvent ERISA preemption, puts the cart before the horse, in that they focus on putting more health insurance obligations on employers without addressing the real reasons that employers struggle to provide health insurance, which is its ever expanding cost. Stories like this one here make me think that I have understated the case, and that demanding more insurance out of employers, without tackling the cost problem first, isn’t just putting the cart before the horse, but is actually just plain wrong headed, and bordering on the willfully obtuse (not to put too fine a point on it). It is all well and good to insist that everyone should have health insurance and access to health care, but simply blindly assuming that employers can pay for it is a mistaken premise that sits at the base of all fair share acts. It is cost that is driving the access and uninsured problem, an issue that is not addressed to any real degree by fair share acts, including the one in Massachusetts and the San Francisco version that has so far managed to survive preemption challenges.
A Random Walk Through the Ninth Circuit's Preemption Ruling
Disparate thoughts. Connect the dots. Or maybe more unintended consequences. Take your pick. While many advocates of health care reform cheer the Ninth Circuit’s conclusion that ERISA does not preempt all state pay or play laws, I am a little dubious as to whether this represents anything more than a Pyrrhic victory for anyone actually interested in ensuring that everyone is insured. Report after report, many of them credible, tell us that employers, who provide most of the country’s health insurance, are aghast at the idea of losing ERISA preemption, and would consider it one more reason not to continue to provide health insurance to employees and to instead pull back from that role. I am hardly inclined to think that, should employers relinquish that role, state or federal governments are prepared fiscally or intellectually to step into the breach and effectively fill that hole well. I thought this before, in the past, and wrote about it in a number of postings (such as here), when we saw the financial costs of Massachusetts’ reform plan balloon, supposedly unexpectedly; I thought it again when we saw the effectiveness of federal government regulation of Wall Street; and I thought it for sure when I read Paul Krugman this morning.
Perhaps this obsession among health reform advocates with defeating ERISA preemption is a case of putting the cart before the horse; maybe we should first have effective non-employer health insurance structures in place, before we go trying to dismantle the preemption structures on which employers rely in choosing to provide health insurance to their employees.
Is ERISA Preemption Coming to the Massachusetts Health Care Reform Act?
You know that theme music from the movie Jaws? Cue it up - the sharks are circling the Massachusetts Health Care Reform Act. Hard on the heels of the recent reports that the state is going to have to increase the financial obligations of employers to maintain the near universal coverage called for by the act comes this story noting the same thing I said yesterday, that increasing the obligations the act imposes on employers will likely provoke a preemption challenge. The story quotes a D.C. lawyer, Kevin Wrege, who says that several law firms there are getting ready to file suit over this and that "[a]ll they are lacking is a paying client and a green light." (I think that quote is what started the Jaws theme playing in the juke box of my mind.)
More substantively, here is an interesting survey piece from the Congressional Research Service (really, one of the jewels of the federal government, a source of generally thoughtful non-partisan analysis, in my experience) on ERISA preemption and its application to “pay or play statutes.” In particular, the piece focuses on the Massachusetts statute, and on the question of whether the First Circuit will find it preempted if it is challenged. In essence, and not too surprisingly, the author finds that the statute will likely be found preempted if the First Circuit follows the reasoning of the Fourth Circuit in Fielder (concerning the Wal-Mart Act in Maryland), but not if the First Circuit follows the reasoning to date of the Ninth Circuit in the on-going litigation over the San Francisco ordinance.
The piece also provides an interesting and detailed explanation of the provisions of the Massachusetts statute, and how it operates. The article parrots something I have said often on this blog, which is that it is likely that the low burdens at this point placed on employers by these provisions of the act is the likely reason no one has challenged it to date as preempted. When you read the piece, you will see pretty clearly both how low those burdens are at this point (it is hard, for instance, to imagine any major employer not already being in compliance just as a matter of course with the “play” requirements of the statute as they are described in the article, thus precluding the statute from significantly affecting them or their bottom lines) but also the avenues for those burdens to be increased.
Thanks is due to BenefitsLink, by the way, for passing the report along.
Massachusetts' Pay or Play Act: The Triumph of Hope Over Experience?
I have said it before and I will say it again: the day they fess up to the real costs of insuring the uninsured in Massachusetts and admit they need to pass that cost onto employers is the day before someone files a lawsuit asserting that the Massachusetts Health Care Reform Act is preempted. Take a look at this, and this.
Understanding ERISA Preemption as a Legitimate Congressional Policy Determination
Permalink | Many, many people object to ERISA preemption, viewing it as some sort of nasty trick that defendants use to avoid liability in ERISA related cases. Do a quick search for ERISA and preemption on Google Blog and you will find that out pretty quick. But to me, they misunderstand preemption, which was a legitimate policy choice by the Congress that passed ERISA to maintain one consistent federal policy and body of law for purposes of employee benefits. It is worth noting that, some thirty years, countless judicial decisions enforcing preemption, and even more countless numbers of critics later, Congress still has never acted to change that - to, in effect, preempt preemption. Stories like this one here, about the funding problems with Massachusetts’ much lauded - and legally questionable under preemption standards - pay or play law validate Congress’ decision in this regard, as it demonstrates the sheer impossibility of executing effective major change in any significant area of employee benefit law - in this instance with regard to health insurance and health care - on a state by state level. As the article discusses, Massachusetts finds itself unable to fund the universal health care initiative it passed, to much self-congratulation, recently, and is now forced to change the financing structure that it originally relied upon and which was the basis for the law’s enaction and lack of preemption challenge; as I have discussed in the past on this blog, the Massachusetts act, unlike pay or play statutes and ordinances in virtually every other instance, has not been challenged in court as preempted simply because the direct financial burden on the business community was, as enacted, minimal, but I have predicted before that: (1) the statute will inevitably result in an increase of the costs passed onto the business community; and (2) a preemption challenge will come not long after that occurs. As the article reflects, the first one of those events is knocking at the door right now; the second one won’t be long behind it.
Back From Trial, But the World Kept Spinning In the Interim
Permalink | My trial finally concluded late yesterday after two weeks, with the jury returning a verdict in favor of my client (pause here for self-congratulatory pat on the back). While I was able to get some posts up last week, during the first week of trial, events during trial this past week left me with no time to post. A lot went on during that week that would be of interest to readers of this blog, running from the almost certain ERISA litigation that will follow from the Bear Stearns collapse, to further Department of Labor attempts to mandate transparency, to the Commonwealth of Massachusetts’ continuing efforts to single handedly prove that state regulation of employer provided health insurance benefits should, in fact, be preempted. We’ll return to these themes, and other topics, next week, now that we have time to get the printing press rolling again here.
Money Talks, Even About the Massachusetts Health Care Reform Act
Permalink | A number of different things I want to talk about, including an interesting decision discussing the obligations of plan sponsors when it comes to selecting advisors and some interesting thoughts on QDROs. I will sprinkle those in later, but for now I thought I would pass along Steve Bailey of the Boston Globe’s column today on the issues raised by the Massachusetts Health Care Reform Act, which basically mirrors what I have said in prior posts, such as my last one, about the statute and issues with its implementation. A couple of interesting tidbits to point out though, from his column. First note his reference to the fact that the statute effectively left the business community off the hook (in truth, this is only true financially, and even then only partly so; they still bear some administrative headaches, and some currently modest financial exposures), which fits exactly with my explanation in the past as to why the statute has not faced a preemption challenge in court to date. Second note his reference to the idea that the political and legislative will to continue with the program is strong. All well and good, but the issue now is the plan’s escalating costs, which are going to have to be borne by taxpayers or else by the business community; one wonders about the commitment of those who will actually have to pay the bill for this program. Anyone going to ask them?
The Massachusetts Health Care Reform Act as Evidence of the Need for Preemption
Permalink | Stories like this make clear that advocates of state fair share plans who like to point to the Massachusetts Health Care Reform Act as a shining exemplar of what could be accomplished if only ERISA preemption would go away are barking up the wrong tree. Rather, the article, with its discussion of spiraling costs to the state and the state’s need for federal funding to remedy the resulting shortfalls demonstrates the opposite, namely that, as I have argued in other posts, there is real reason to doubt whether the problem of the uninsured is one that can be cured on a state by state basis. Indeed, the fact that the Commonwealth needs significant - but as yet unpromised - infusions of federal money to effectuate coverage of the uninsured suggests that this problem cannot be solved by states and instead can only be solved on a larger playing field, namely at the federal level with the type of resources that only the federal government can commit to the issue. And if the issue can only be solved on a national level, and not on a state by state level, then isn’t that an argument for preemption? I hate to be a cynic, and prefer the title of skeptic, but there are a lot of reasons that ERISA preemption both exists and is valuable, and it is not the bogeyman preventing health insurance in this country that many of its critics make it out to be. There are real, fundamental problems in trying to increase health insurance coverage in this country, ones that are not solved by these state acts, which, as I have discussed before, basically play at the margins without addressing the real problem - cost - that is handicapping both the ability of employers to continue to provide health insurance to their employees and the ability of Massachusetts to actually successfully pull off its health insurance experiment.
And Still Another View on Preemption and the Massachusetts Health Care Reform Act
Permalink | I’ve noted in the past that the problem with state health care reform acts mandating health insurance is that they don’t tackle the issue that is deterring employers from providing broader health insurance benefits, namely the ever increasing and rapidly escalating cost of health insurance. In response, Massachusetts lawyer David Harlow argues on his blog that incremental steps towards resolving this problem are moving forward on their own schedule, separate from state legislation mandating employer provided health benefits, and cost control will come in time. Personally, I am skeptical that governments can actually control these costs, or even significantly reduce their annual rate of increase, but I would be happy to be wrong.
Someone Else's Thoughts On Preemption and the Massachusetts Health Care Reform Act
Permalink | People with thin skins - or who can’t laugh at themselves - shouldn’t write blogs. I got a good chuckle out of this over my morning coffee this morning.
The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall
Permalink | There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.
California, Fair Share Acts and Preemption: Have We Learned Anything At All?
Permalink | I’ve got a few things lined up this week to talk about, running from long term disability benefits litigation to avoiding ERISA litigation to subprime mortgages, but first I am going to veer off of my planned course to pass along and comment on a pair of interesting posts that showed up in my in-box today. They are both on the subject of California’s interest in trying to enact a fair share type statute imposing employer mandates and requiring the provision of health insurance, and you can find them here and here. I have talked before about the fact that California, like other state and local governments who tread this path, are likely walking right smack into the buzz saw of ERISA preemption, and much like the legislature of Maryland did in enacting its fair share act that was struck down by the courts, appear to be simply sticking their heads in the sand when it comes to this issue. That’s really the point of the two posts, which ask why the state government in California is moving in this direction without anyone even addressing this issue or trying to resolve it preemptively, before enacting a law that parallels laws that have been struck down from coast to coast (see this post here and here, for instance) as preempted. I asked the question before about the Maryland statute, the so-called Wal-Mart act, as to how the Maryland legislature could have gone down this road without having considered the ERISA preemption problem in advance, and these posts suggest that California is doing the same. Perhaps I need to create a category over on the left side of this blog titled “those who ignore the past are condemned to repeat it,” for the sole purpose of covering the seemingly endless examples in the area of health insurance of one state after another repeating the earlier mistakes of other state governments.
One of the posts on California’s efforts in this regard, namely this one here, suggests that some elements of the state government effort believe that the state can craft a statute that will not run afoul of ERISA or be preempted by ERISA. I am pretty skeptical that this is anything more than whistling past the graveyard. The closest I can come to an example of a state fair share type act that has not yet been found preempted is the Massachusetts health care reform act, and in my view, the only reason that hasn’t been declared preempted yet is that its burdens on employers are sufficiently limited at this point that no one has been motivated to challenge it in court. If anyone thinks that the entire business community (who, in the clever words of the New Yorker, have been unofficially deputized to carry the costs of health insurance in this country) would take a pass on this as well and allow a bellwether state like California to enact such a statute without it being challenged, I’ve got a bridge in Brooklyn that I’d like to sell you.
State Mandates and Health Insurance Pricing
Permalink | Well now, this morning I came across this interesting post here, on the State Policy Blog, comparing health insurance pricing in one semi-unregulated state insurance market (Colorado) and in a state, Massachusetts, with a state mandate requiring health insurance. As you can see from the post, the numbers show pricing is significantly higher in Massachusetts, which obviously now has a health care reform act in place that effectively requires employers and individuals to purchase health insurance, than it is in the unregulated portion of the Colorado market. The author’s intent is to demonstrate that state mandates and state regulation drive up pricing, but I am not convinced that the simple comparison of pricing demonstrates this at all. Initially, I can’t vouch for the actual data, or for the author’s characterization of the Colorado market in comparison to the Massachusetts market. But even if you take the numbers at face value, they threaten to prove nothing more than the truth of the old saying that there are three kinds of lies - lies, darn' lies and statistics. This is because, as discussed in prior posts such as this one, Massachusetts has very high costs of actual medical care compared to other regions of the country, for reasons that may very well be unique to Massachusetts and possibly as well to the few other areas of the country that, like Massachusetts, have a particularly high concentration of major teaching hospitals. Its been years since I have been to Colorado, but I don’t think, to my recollection and on my general reading, that it’s health care and health insurance market fits that description. As a result, comparing Colorado health insurance pricing to Massachusetts’ health insurance pricing is simply comparing apples to oranges - or maybe, given the states we are talking about, to cranberries - and tells you nothing about the effect on pricing of state mandates such as the one recently enacted in Massachusetts. That said though, it’s an interesting question how state mandates impact pricing compared to markets without state mandates in place, and I would love to see a carefully constructed economic study on the subject. Anyone seen any? If so, I’d love to see it.
High Health Care Costs and the Impact on Fair Share Acts
Permalink | Okay, I mentioned on Friday that I had come across some other interesting blogs and sites over the last few weeks that I wanted to pass along, and that I would do so over the next few days. I jumped off track on doing that right off the bat with this morning’s post on insurance and prior knowledge issues, but now I will return to one of those other blogs I wanted to pass along.
I have talked a lot about the Massachusetts Health Care Reform Act, and one of the things I discussed recently was Professor David Hyman’s article in which he pointed out that the "Massachusetts Health Care Reform Act has problems [unique to it] that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country.” On this point, John Aloysius Cogan Jr., the Executive Assistant for Policy and Program Review for the Rhode Island Office of the Health Insurance Commissioner, recently had a terrific post on his Regulating Health Insurance blog that breaks down the component costs of health insurance and analyzes what elements are driving the high cost of health insurance. Echoing Professor Hyman’s point that it is the high cost of the health care itself that is problematic, John carefully documents that the high cost of health insurance is in fact driven by the cost of medical care itself and not, as is frequently argued and assumed by critics, by insurer profits. It’s an interesting analysis that fits well in any consideration of the merits and problems of state health insurance reform acts. Of course, the willingness of the public and the political class to accept John’s assertion that the driving factors in high health premiums are the costs of medical care itself isn’t helped by stories like this one here.
Pay or Play Acts: There's No Free Lunch
Permalink | I have written before that the underlying structural problem with fair share and similar acts, like the Massachusetts Health Care Reform Act, that seek to mandate the provision of health insurance by employers is twofold: first, they play at the margins of a problem that is fundamentally about the base economics of health care costs and, second, they are walking advertisements for the law of unexpected consequences. Two stories that showed up on my (electronic) doorstep yesterday illustrate this beautifully. In the first, Healthcare Reform: The Economics of Pay or Play Employer Mandates, two Cornell University economists explain that, as expected, mandating the provision of health insurance will reduce employment levels among the exact population of lower waged - and presumably lower benefitted - workers that the statutes are intended to help by mandating that health insurance be added to their employment compensation. The authors further argue, however, that the statutes are “blunt instruments” for targeting the problem of the uninsured, as they have negative impacts on employees who already have health insurance through other sources, including by reducing employment levels of such employees. The point, in many ways, of this and other criticism of these statutes is that they look good on the surface, and certainly score political points in some instances for those who have championed them, but in practice they are nowhere near a panacea for the growing problem of the uninsured, a problem I have explained in past posts is one of fundamental economics related to the extraordinary costs that providing health insurance imposes on employers. And that leads directly to the second story of interest, from yesterday’s New York Times, explaining how Wal-Mart, the direct target of some of the pay or play mandates, such as the one enacted in Maryland, having defeated in court statutory attempts to force it to increase its health insurance spending, is beefing up the level of health benefits provided to its employees on its own as being good business and sound economics. The problem with health insurance and the issue of the uninsured is about fundamental economics, and these pay or play mandates, because they can’t repeal whatever laws exist in the dismal science, can’t strike at the root causes of the issue.
Permalink | If, like me, you are fascinated not just by ERISA but by history and politics, this two part law review article, by James Wooten at the University at Buffalo Law School, on how ERISA preemption came to be, looks to be a must read. Here’s the abridged version of the story detailed in his articles:
[The first of his two articles] recounts the key role of preemption issues in Congress's decision to pass ERISA. Until shortly before ERISA's enactment, employers and the AFL-CIO opposed comprehensive pension reform legislation. When states threatened to regulate private pension and welfare plans, however, the business community's and the AFL-CIO's strong desire for preemption all but forced them to support a federal pension reform law. Their support made passage of such legislation a virtual certainty. [The second of his two articles continues the story, explaining] how preemption issues led Congress to pass a broader pension reform law than it might otherwise have done. Business groups and the Nixon Administration hoped the congressional tax committees would limit the scope of federal regulation of pension plans. The congressional rules, however, gave jurisdiction over Congress's power to preempt state employment laws to the labor committees. Their control over preemption allowed the labor committees to bargain for broader regulation than business groups and the Administration preferred.
Some twenty years or so ago, the historian Arthur Schlesinger published his book The Cycles of American History, on the idea that certain themes in American political life rise, fall, and then rise again over predictable periods of time. In much the same way, you can see, in the current rush by states to enact fair share and other health insurance reform laws, a rebirth of the same urge to regulate that, as Professor Wooten points out, gave rise to ERISA preemption in the first place, some thirty years ago.
You can download Professor Wooten’s articles detailing this history here (the first article) and here (the second).
One View on What's Wrong With the Massachusetts Health Care Reform Act
Permalink | In yesterday’s post on Darren Abernethy’s paper on Fair Share statutes, I ended up riffing on the question of whether the Maryland legislature, by putting before the courts a particularly bad version of such a statute, had distorted the development of the law of ERISA preemption in a manner that would only hurt the cause of those who favor state health insurance mandates. I wondered whether the case law would develop differently if more balanced statutes, like the Massachusetts Health Care Reform Act, were analyzed by courts without the landscape of ERISA preemption having already been filled in by the decision holding the Maryland act to be preempted.
Critics of the Massachusetts act would likely argue that the Massachusetts version is so rife with problems that it is just as well if the legal environment, now that the Fourth Circuit has found the Maryland version of these types of laws to be preempted, is not too welcoming to such acts. That seems like a fair conclusion after reading law professor David Hyman’s piece on the “good, the bad and the ugly” in the Massachusetts statute, in which he pretty much takes the statute to task for being a poorly designed piece of state law. The Workplace Prof passed the article along, and you can find it here.
To the extent that the author’s analysis of the statute is right - that as economics and policy it just doesn’t work - it seems to support two points I have raised before on this blog concerning the Massachusetts act. First, that the questionable elements of the various acts enacted by the states suggest that federal preemption is a good thing, as a bulwark against what may be ill-conceived ideas by state governments when it comes to the topic of health insurance reform. And second, that the problem with these types of acts is that they play at the margins, and neither can nor do address the real cause of the problem of the uninsured, namely the incredible - and ever increasing - costs to employers of subsidizing health insurance in this country. This second point is one that appears to animate Professor Hyman’s piece, as he reflects on the fact that the Massachusetts statute has problems that stem from the particularly high cost of health care in Massachusetts relative to the rest of the country, as well as on the fact that the statute’s mandates are distorted by the high rate of health care inflation.
Preemption of Fair Share Acts: Did the Maryland Legislature Manage to Set The Whole Issue Back a Thousand Years?
Permalink | Here is Darren Abernethy’s law review note on preemption of state fair share acts that mandate that employers provide certain levels of health insurance. His note, which I have discussed before, is very well done, and Darren has generously allowed me to share it here in full. As readers may recall from earlier posts, Darren discusses the fact that the Maryland Fair Share Act, which as he points out in his note targeted Wal-Mart, was found by the Fourth Circuit to be preempted, and Darren proposes ways to create statutes of this type that might avoid preemption. It’s a terrific note, and in particular his history of the preemption jurisprudence is an excellent tutorial on that particular issue, and I myself will be quick to cite it on that point when briefing the issue in the future.
One particular aspect of Darren’s note struck a chord with me, and provoked a somewhat chilling thought. In discussing ways to craft these types of legislation that might avoid the preemption problem, he recommends - in essence - that such legislation be broad based, which is the opposite, in many ways, of the Maryland Fair Share Act, which I have argued before can be seen almost as a punitive statute aimed at only one employer. We all know the old saying that bad facts make bad law (or is it hard cases make bad law?), and the question that arises is whether that is a fair understanding of the Fourth Circuit’s Fielder decision that found Maryland’s Fair Share Act to be preempted. The Maryland statute clearly aimed at only one employer and was drafted to avoid implicating favored large Maryland employers such as Johns Hopkins Hospital, and that aspect of the statute can be seen in the district court and Fourth Circuit rulings as at least influencing, and possibly animating, the holdings by those courts that the statute was preempted. Might things have come out differently in the district court and the Fourth Circuit absent that factor? The statute might still have been found to be preempted, but it seems to me that those courts may at the least have been more open - even if still finding the act to be preempted - to nudging the law of preemption along in a way more favorable to these types of statutes had the courts been presented with a better and fairer looking attempt to mandate health insurance benefits. In essence, would the development of this area of the law be a little different if the leading court of appeals analysis of such a statute were, for example, of Massachusetts’ somewhat problematic but nonetheless broader health care reform act, than it will be given that the Fielder decision striking down the Maryland act now holds place of pride in that area of the law? Did the Maryland legislature, by putting one of the worst possible versions of such a statute before the courts, prevent the law from moving in a direction that might have helped such statutes avoid preemption?
Complying with the Massachusetts Health Care Reform Act
Permalink | I have written a fair amount about whether the Massachusetts Health Care Reform Act is preempted by ERISA, but not too much about the practicalities of complying with the act for as long as it remains unchallenged and unpreempted. This despite the fact that I have been asked a lot of questions about compliance by companies trying to understand their obligations under the act and who are trying to structure their operations to abide by it. An excellent website discussing the practicalities of the act and compliance crossed my desk the other day, maintained and made available by the Massachusetts Association of Health Underwriters (geez, there’s an association for everything these days). For those of you interested in the practicalities of the act, its an excellent resource. This link will take you right to it.
One Proposal for Enacting Fair Share Legislation While Simultaneously Avoiding ERISA Preemption
Permalink | We previously mentioned William and Mary law student Darren Abernethy’s upcoming law review note presenting ideas on how to enact so-called fair share legislation - which attempts to obligate employers to provide certain levels of health insurance coverage - without running afoul of ERISA preemption. His note is now out, and those of you who, like me, don’t subscribe to the William and Mary Law Review, can access it right here. Here’s his abstract on what the note argues:
This Note examines Maryland's preempted statute and the United States District Court case that granted its opponents declaratory relief. After reviewing the Fair Share Act, the federal ERISA statute, and the significant changes in Supreme Court jurisprudence towards ERISA preemption in the past decade, this Note will offer new approaches through which states can modify the analytical framework outlined by the Fair Share Act to achieve improvements in the state-financing of Medicaid through large private employers. The goal of this Note is to analyze ways to fit future "fair share" legislation within the non-preempted confines of ERISA.
The proposed modifications include: (1) rewriting "fair share" laws as unequivocal, non-regulatory Medicaid taxes from which compliant employers may become exempt; (2) dulling the sharp edge of the FSA's punitive texture through decreasing the 100% shortfall tax to 35-50%; (3) expanding the options that employers have as "outlets" for meeting the 8% health expenditure benchmark, such as through an increase in non-medical fringe benefits, thus giving the statute a less coercive feel; (4) a "total package" benefits approach analogous to unpreempted ERISA prevailing wage cases; and (5) a state-initiated higher minimum wage for very large employers, with an incentivized exemption provision stating that an employer can revert back to the state or federal government's general minimum wage if the employer spends a certain percentage of payroll wages on employee health insurance.
Some Interesting Papers on the Issue of State Health Reform Mandates
Permalink | I have posted a fair amount on the impact of what are becoming known generically as “Fair Share” statutes, which are attempts to “reform” health insurance on a state level by means of mandating that employers provide health insurance benefits. I have talked about three main themes in my various posts on this topic, all of which stem from a certain skepticism as to whether these types of legislative responses to the problem of the uninsured are as well thought out as they are well intended. The first is the question of whether they are preempted by ERISA, and whether the rush by many states into this topic is a waste of resources, on the thesis that these state initiatives are likely to be found preempted, under the current state of the law. The second is the question of intended and unintended outcomes, and whether many of these state laws are really well thought out, or, two, whether the legislatures enacting them really know what they are getting into (for instance, just think of the Maryland legislature naively believing it could enact a statute that only mandated health insurance for Wal-Mart employees without running afoul of ERISA preemption, which of course ended in the federal courts striking the act down as preempted). And the third, finally, is the fact that these acts don’t target the real problem underlying the high rates of the uninsured, namely the ever increasing costs of health insurance. I have talked about all of these quite a bit, and you can find posts on them by clicking on the preemption, health insurance, or Massachusetts Health Care Reform Act headings over on the left hand side of this blog.
Here’s a couple of interesting articles I wanted to pass along that hit on at least two, and maybe three, of these themes. The first is this article here, titled “Labor Market Effects of Employer Provided Health Insurance,” which explores the question of how mandating that employers provide health insurance, as many of these state reform acts do, impacts employment. One of its findings? That mandating health insurance for all workers does in fact distort the labor market, but that even more interestingly, although perhaps as one would expect, “mandating the insurance only for full-time workers leads to higher [rates of] coverage than [without a mandate, but also to] an increased number of part-time workers.” If, as one would expect and this article suggests, there is a trade off between employment and the extent to which state laws mandate health insurance coverage, one would hope that state legislatures carefully analyze this issue before joining the current rush to mandate health insurance coverage.
Now, I am beginning to feel obliged by the tenor of my posts on this issue to note that I don’t disagree that the rate of the uninsured in this country is a real problem, and that my skepticism really runs to whether the increasing number of state attempts to address the problem - something they are probably foreclosed from doing by ERISA preemption anyway - represents the most thoughtful and effective way to tackle this problem. And this thought leads to the second paper I wanted to mention, which is law student Darren Abernathy’s upcoming law review note addressing the question of how to draft these types of laws to avoid ERISA preemption. This, at least, is a thoughtful attempt to get around some of the problems that arise when states target the problem of the uninsured by means of health insurance reform statutes. We need more of that type of forward looking and proactive analysis, and less of the willy nilly charge into the issue we are seeing by many state and local governments, who, having apparently learned nothing from Maryland’s experience, just keep enacting legislation on the slim hope that it won’t be preempted, rather than on an analysis and strategy that might place the statutes they enact outside the scope of ERISA preemption.
Bowater, Preemption, the Wall Street Journal Law Blog, Massachusetts Health Care Costs, and Whatever Else Is On My Mind This Morning
If David Rossmiller can do a potpourri to avoid writing a full fledged blog post then, by gosh, so can I. Conveniently enough, I had some three small items on my mind this morning anyway, all of which I will mention here in one fell swoop:
? More on Bowater: For those of you who were interested in yesterday’s post about the First Circuit’s ruling in Bowater, concerning termination of a benefit plan and a foul up in executing it as part of a corporate acquisition, the ever watchful S.Cotus, who never misses anything on any subject at the First Circuit over at Appellate Law & Practice, has this in-depth review of the Bowater decision. S.Cotus delves into the labor law issues that were also at play in the case, in addition to the ERISA issue that I commented on yesterday.
? I posted earlier in the week on the question of rising health insurance costs and how that was the elephant in the room that all of these state based attempts to reform health insurance were avoiding, and how that justified the preemption of those state acts in favor of a federalized and consistent nationwide approach to the problem. The Boston Globe has a detailed article today laying out the extent of the increase in health insurance costs just here in Massachusetts. The essence of the article is in the opening paragraph: “Massachusetts health insurers are predicting their rates will increase by about 10 percent next year for most residents covered through employer health plans, marking the eighth consecutive year of double-digit premium hikes.” Funny, but Massachusetts just implemented health reform legislation, so how can this be? The answer, I suspect, is in this post here.
? And finally, on a sillier note, the Wall Street Journal Law Blog is fascinated right now with preemption, posting several times on various applications of the doctrine in the last few days. Yet despite the fixation on preemption, they omit entirely what we all know is the most important and interesting application of preemption, namely ERISA preemption. While I write slightly tounge in cheek on this point, the truth is that, as we see with the attempts of states to legislate health insurance coverage in the face of ERISA preemption, this is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people, as opposed to the smaller subset of directly affected businesses involved in the preemption cases discussed by the Wall Street Journal Law Blog over the last couple of days.
Why Health Care Inflation Numbers Justify ERISA Preemption of State Health Care Reform Legislation
Permalink | Someone once said that Marx was wrong about a lot of things, but he was right that everything is economics. Nothing illustrates this maxim more than the various attempts by states to get around ERISA preemption - such as discussed here and here - and mandate health insurance coverage in one manner or another. These attempts by states - which are simply doomed to eventual court declarations that they are preempted- seek to force employers to expand health care availability and, in some cases such as Massachusetts, to get those who fall outside of the employer provided health insurance system to buy their own coverage. The problem is that these legislative attempts don’t affect the real problem, which is that the costs of providing health insurance has escalated to the point where employers face huge financial disincentives to expand their offerings of health insurance and uncovered employees cannot afford their own policies. Here it is in stark black and white (literally, since it comes from the NY Times, rather than from the USA Today, where I guess it would be in stark color): “[t]he cost of employer-sponsored health insurance premiums has increased 6.1 percent this year, well ahead of wage trends and consumer price inflation, but below the 7.7 percent increase in 2006, the Kaiser Family Foundation reported today.” Beyond that, the article points out that “health costs had increased 78 percent since 2001, more than four times as fast as prices and wages.”
The ever increasing impact on the bottom line of providing health insurance is why the employer provided system isn’t expanding to cover more people, and why the uninsured cannot insure themselves. Although the Massachusetts reform act takes some steps towards altering that dynamic, at least with regards to those not covered by employer provided plans and who must instead insure themselves, the simple fact is the various state reform acts aren’t really directed at fixing this fundamental base line problem (and they probably can’t attack this problem effectively on a state by state basis, just further driving home a point I have made previously, that the availability of health insurance coverage probably should not be addressed on a state by state basis, should be addressed on a national basis, and that ERISA preemption of these types of state acts is a good thing as a result). Unless and until the base problem of the economic numbers is tackled, these reform acts aren’t targeting the actual disease, just some of the symptoms of it.
More on Preemption and Health Care Reform in California
Permalink | I posted a couple of days back about California’s interest in enacting a state health care reform law that, like the current law in Massachusetts and the Maryland Fair Share Act that was struck down by the courts, operates at least in part by imposing new obligations on employers who provide health insurance to their employees. In the post, I noted my skepticism that the state could pull this off without running afoul of ERISA preemption. The National Law Journal has an interesting article, available here, on the same subject, from which I took away two thoughts. The first is that the consensus opinion is exactly the one I voiced earlier this week, that California’s attempt is almost certain to be subject to preemption if challenged in court. The second is that any statutory enactment of this nature in California is, in fact, certain to be challenged in court, and quickly, if only because of California’s bellwether status in American economic and political culture, and the possible influence on other states if such a statute is allowed to stand in California.
California, Health Insurance and ERISA Preemption
Permalink | There’s an entertaining little story today in the Boston Globe on the question of whether, in the next few weeks, the California legislature and the Governor will roll out a state plan to reform health insurance by adding fees and other obligations to the employer provided health care system with the intent of providing universal health insurance, similar in some ways to what Massachusetts has done. I have talked frequently here about Massachusetts’ plan, which is in its earliest stages of implementation, with some concomitant glitches. Readers of this blog know I am highly skeptical of the ability of states to fashion these types of plans without running afoul of ERISA preemption, and, without knowing the details of the California plan, I am pretty skeptical they can pull it off either. In a nice little juxtaposition, for those of you who are interested in the question of how ERISA preemption impacts these types of attempts by states to change the health insurance paradigm, Sharon Reece out of the University of Maryland Law School has a very timely paper that is just out addressing the barrier posed by ERISA preemption to these types of state laws. The paper itself is available here, and the post from Richard Bales at Workplace Prof that brought it to my attention a few weeks back is here.
Patricia McGovern, the Beth Israel Deaconess Medical Center and the Massachusetts Health Care Reform Act
Permalink | There’s a nice interview today on the Massachusetts Lawyers Weekly website with the general counsel of Boston’s Beth Israel Deaconess Medical Center, Patricia McGovern. While the story is interesting enough in and of itself on the subject of the structure of a major hospital law department, I took particular note of Ms. McGovern’s comment that the hospital will be impacted by the Massachusetts Health Care Reform Act because of its expected effect on the state’s subsidized care pool. I have generally focused on that statute from the point of view of its impact on the business community and in particular on multi-state employers, and this was an excellent reminder that the statute is of concern to other affected parties for reasons unique to them.
Another Local Health Care Initiative Preempted, and What It Foretells for the Massachusetts Health Care Reform Act
Permalink | Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.
First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue - that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.
Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion - that ERISA preempts the act - when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.
More Thoughts on Whether the Massachusetts Health Care Reform Act is Preempted
Permalink | Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based - but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.
Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.
Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.
The Massachusetts Health Care Reform Act and the Purposes of Preemption
Permalink | I have been meaning to come back to some issues concerning the Massachusetts Health Care Reform Act, the state’s potentially groundbreaking attempt to combine individual, employer and government roles to provide health insurance coverage for most of the Commonwealth’s uninsured, and now seems like a good time to do so, with its effective date coming up right around the corner. I have discussed before the question of whether the Act may be preempted by ERISA, and, if challenged, it would not surprise me if the employer obligations under the Act are struck as preempted. At the same time, it is important to bear in mind that the requirements imposed on employers by this particular statute are relatively benign, and this Act is nowhere near being the sort of heavy handed smackdown of particular targeted employers that was the now preempted and not particularly lamented law passed by the Maryland legislature that targeted Wal-Mart.
At the same time, the underlying issue with regard to preemption of state regulation of employer provided health insurance has to do with whether we should insist upon maintaining one consistent overlay of federal law and regulation on the subject, as is the case if state acts of this nature are consistently preempted, or whether we should instead, as the old saying goes, allow “a thousand flowers to bloom,” in the guise of allowing multiple different state experiments to address the problem of the uninsured. If the latter is to be the case, then that is where you really begin to run into problems of the type that underlie the preemption debate. It is one thing to say that the Massachusetts Act imposes only the most benign of record keeping and costs on nationwide employers, so perhaps preemption should not apply to it. But the issue becomes something entirely different when you instead consider having 30 or 40 or 50 states come up with their own experiments that likewise impose only minimal obligations on employers, each one so relatively benign, standing alone, that it is hard to justify declaring it preempted; when you combine all of those different regulatory regimes, however, then you start to get into the kind of conflicting and burdensome web of state actions that can become a real and legitimate burden to a nationwide employer. It is that ultimate result, that web of inconsistent state by state mandates, that the preemption requirement under ERISA is intended to guard against.
And a couple of other points on this question beg to be mentioned, although I don’t feel like I have seen them anywhere with regard to the preemption question. First, if you take away consistent overarching federal control of the question and allow state by state regulation of employer provided health insurance, how quick will we start to see a “race to the bottom” mentality, with at least some states looking to impose the least health care requirements possible on nationwide employers so as to attract businesses to relocate or at least site facilities there? We have seen it in the past with other subject areas that states pitch as competitive advantages over other states; I see no reason why health insurance should be one that is immune from such economic pressures and realities. There are certainly aspects of the Massachusetts Health Care Reform Act that I can think of right off the top of my head that a competing state could leave out, while incorporating in their own statutes all the other aspects of the Massachusetts Act, that might well tilt the balance - in at least a close case - for an employer deciding where to site its business.
Second, the idea of preferring state regulation of a health insurance marketplace that is predominately an employer provided product is premised, at heart, on the assumption that the state approaches will be an improvement over what could be done under the sort of federalized employer provided system we currently have. How confident really are we about this? It is probably fair to say we really won't know until at least some state - here Massachusetts - is allowed to impose its own regime and we wait and see how well it works out.
And when you consider all of these issues, this is when you start to get an inkling of why solving the uninsured problem on a federal level, rather than on a state by state level, with a consistent overall approach structured on the already existing infrastructure of the employer provided, ERISA governed model, may actually be the better approach.