A Maryland state law aimed at forcing Wal-Mart to boost the amount it spends for employees’ health care insurance impermissibly interferes with federal employee benefit law, according to a divided panel of the U.S. Court of Appeals for the Fourth Circuit. Upholding an earlier decision by a federal district court, the Fourth Circuit held that the Maryland "Fair Share Health Care Fund Act" is preempted by the federal benefits law known as ERISA because it would have required large employers to restructure their employee benefit plans and frustrated "ERISA’s goal of permitting uniform nationwide administration" of those plans. The court’s ruling invalidates the Fair Share Act, unless Maryland successfully appeals the decision. (Click here for the full text of the opinion.)
The Maryland General Assembly enacted the Fair Share Act last year. The Act requires all employers with 10,000 or more Maryland employees to annually spend at least 8 percent of Maryland payroll on "health insurance costs." If the employer spent less than this in a year, it would either have to increase its expenditures to reach the 8 percent threshold, or pay that same amount to a special state trust fund established to offset the rising cost of Medicare and state health insurance programs for children.
After reviewing several U.S. Supreme Court cases on ERISA preemption (which prohibit a state law from containing a "connection with" or "reference to" an ERISA-covered plan), the Fourth Circuit emphasized that one of ERISA’s primary purposes is to create uniform, nationwide regulation of benefit plans. By enacting ERISA with a strong preemption provision, Congress signaled its intention to strike down state laws that interfere with an employer’s ability to maintain a uniform nationwide plan. Adding its own gloss to the those rules, the Fourth Circuit said that an impermissible connection with an ERISA plan will occur if the state law "directly regulates or effectively mandates some element of the structure or administration" of the plan. According to the court, the Fair Share Act was just such a law because it leaves employers covered by it "no reasonable choices except to change how they structure their employee benefit plans."
In a dissenting opinion, Circuit Judge M. Blane Michael disputed the majority’s characterization of the Fair Share Act as a Hobson’s choice. According to Judge Michael’s reading of the Fair Share Act, employers would have the option of either paying an assessment to the state, or spending at least 8 percent of payroll to provide ERISA-covered health plans to their employees. "This choice is real," Judge Michael wrote. "The assessment does not amount to an exorbitant fee that leaves a large employer with no choice but to alter its ERISA plan offerings."
Although the decision applies to states within the Fourth Circuit (Maryland, Virginia, West Virginia, North Carolina, and South Carolina), the court’s analysis could be persuasive in other states that have or are considering similar benefit plan regulations. Late last year, for example, a trade association made up of San Francisco restaurants filed an ERISA lawsuit challenging a city ordinance that requires all employers with more than 20 employees to chip in for their workers’ health care costs. The city program would be financed in part through fees imposed on employers. In addition, the Fourth Circuit noted that there are "similar efforts elsewhere" to pressure large employers, like Wal-Mart, to increase healthcare spending, and citied two New York county ordinances and proposed legislation in Minnesota that would have an impact similar to the Fair Share Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
