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.
Wal-Mart, Maryland and the Fair Share Act
The United States District Court for the District of Maryland issued its opinion yesterday on the legal challenge to the Fair Share Act, the Maryland statute recently enacted for the purpose of forcing Wal-Mart, and only Wal-Mart, to increase its health care spending for its employees. Major media accounts of the ruling are here, here and here. There is a tremendous amount of grist for the mill in this decision, which ranges logically and fluidly across issues of standing, ERISA preemption, the Tax Injunction Act and the Equal Protection Clause of the United States Constitution.
What jumps out at me today though, on a first reading, is its central ruling, the holding that ERISA preempts the Act. ERISA preemption is typically litigated in the context of a plan or a fiduciary defending itself against an action seeking to impose liability on it beyond that allowed by ERISA; it usually involves attempts by plaintiffs to add liability (and greater damages than could be recovered under ERISA) by means of state statutory and common law causes of action that, while generally available in actions against most types of defendants, are precluded by ERISA preemption from being brought against an ERISA governed entity.
Here, though, what we see is a much rarer creature, the affirmative use of preemption by an ERISA governed entity for the purpose of precluding the application to it of a state law enacted for the express purpose of modifying the operation of a benefit plan. The District Court concluded that because the Act strikes directly at an ERISA plan and its operations, it is preempted by ERISA. Both in the use of the preemption doctrine as a sword here by the plaintiff and in the court's analysis and application of the doctrine, we end up with something far removed from the tactical litigation use of preemption we find in most reported decisions on the issue, and with something that is instead closer to the pure core and heart of the doctrine and its purpose, which is, as the court framed it, protecting "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."
Part D, Medicare and Economic Distortions
The New York Times provides an excellent report today on the impact of Medicare Part D and the unintended - maybe(?) - result of moving millions of lower income patients from Medicaid to Medicare. The article points out that drug company profits will increase significantly because the patients are moved from Medicaid, which has certain price restrictions, to Part D, which lacks those same restrictions. In the article, A Windfall from Shifts to Medicare, the author sums up:
The windfall, which by some estimates could be $2 billion or more this year, is a result of the transfer of millions of low-income people into the new Medicare Part D drug program that went into effect in January. Under that program, as it turns out, the prices paid by insurers, and eventually the taxpayer, for the medications given to those transferred are likely to be higher than what was paid under the federal-state Medicaid programs for the poor.
About 6.5 million low-income elderly people or younger disabled poor people were automatically transferred into the Part D program for drug coverage. . . .
Drugs tend to be cheaper under the Medicaid programs because the states are the buyers and by law they receive the lowest available prices for drugs.
But in creating the federal Part D program, Congress - in what critics saw as a sop to the drug industry - barred the government from having a negotiating role. Instead, prices are worked out between drug makers and the dozens of large and small Part D drug plans run by commercial insurers.
The article provides a thorough summary of a complex problem. Beyond the problem, though, is a question. Is this an economic distortion flowing from the structure of the industry, of the type discussed in an earlier post on such distortions? Or was the original cheaper structure the distortion?