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Maryland: Pay or Play for Large Businesses

Maryland's General Assembly voted to require large firms to provide adequate health care coverage for their employees, or contribute to the state's health programs for the poor. In January 2006, the Senate and House overrode Governor Ehrlich's veto of the Fair Share Health Act, which mandates that businesses with more than 10,000 employees spend at least 8 percent of their payroll on health benefits for their employees or pay the state the difference between what they currently pay and 8 percent. [1] This legislation will have a major impact on one employer, Wal-Mart, which is the only large business in the state that spends less than 8 percent of its payroll on health benefits.

Similar "Wal-Mart" bills have been proposed in about 30 states, but this is the first to have passed. Many consumer and labor leaders assert that the bill is important for setting industry standards and reducing the number of workers enrolled in Medicaid or without insurance. Others, particularly business groups, claim that it unfairly targets Wal-Mart, and that it violates federal law. The Retail Industry Leaders Association filed a federal lawsuit in early February 2006, contesting that the Fair Share Health Act is in violation of the Employee Retirement Income Security Act (ERISA) and, by singling out a specific company, the Equal Protection Clause of the Constitution. [2]

Other states are closely watching developments in Maryland. The key issue is whether the Fair Share Health Act is indeed preempted (and thus invalidated) by ERISA—a question on which there are divergent views. Legal experts who believe the bill will hold up in court cite several points: first, its carefully worded text gives employers a choice through a "payment option" instead of a coverage "mandate," which would violate ERISA. Employers are not mandated under the bill to have a health plan or to cover their employees; they can simply pay the assessment, or cut overall payroll costs to lower their expenses so that whatever health services or insurance they do provide accounts for at least 8 percent of their payroll (which, ironically, might result in lower wages). Also, the bill might be interpreted not as regulating plans offered by large employers, but instead as raising revenue. Since it doesn't bind employers to a particular plan, or impede statewide uniform administrative procedures for coverage, the Fair Share Health Act might not "relate" to a health plan at all, making ERISA irrelevant.[3] Also, the 8 percent does not have to be spent on insurance, but can be spent on any health services, including direct clinical care, screening, or other services.

It is possible, however, that the courts will find that the bill does relate to an employee benefit plan, thus invoking ERISA. Some experts suspect that courts will see the bill's spending requirement as an attempt to mandate employee benefits. That is, courts might see the 8 percent rule as a means to require employers to alter their benefit plans directly by providing greater coverage, or indirectly by supplementing their plans with additional payments to the state.

Peter Jacobson, a national ERISA expert and professor in the Department of Health Management and Policy at the University of Michigan, notes that, as with most complex ERISA cases, both sides present reasonable arguments to support why the Maryland law either avoids ERISA preemption or should be preempted. "Because of the incoherence of judicial interpretations of ERISA preemption, the decision could go either way." [4]

Wal-Mart, in response to increasing public and media scrutiny, has announced some major changes to their health care coverage nationwide. The company said it would "significantly" reduce the 180-day waiting period for full-time employees to purchase health insurance, though it did not specify the time period. It also said it would allow part-time employees to enroll their children in the company health plan. Currently, only full-time employees are allowed to enroll their children into such coverage. Finally, Wal-Mart plans to introduce a bare-bones health plan with lower premiums to half of their employees in the next year. The company has not announced any efforts to lower premiums and deductibles for their standard health plans.

[1] For large private firms, the law requires that 8 percent of payroll costs be spent on health. It requires nonprofits to spend 6 percent.
[2] ERISA is "a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans." (Department of Labor, While setting minimum standards, it also generally prevents state laws from directly regulating ERISA health plans. Although Wal-Mart has not contested the law through the courts, an executive from the company sits on the Retail Industry Leaders Association board.
[3] ERISA supersedes any and all state laws that may "relate" to employee benefit plans. See 29 U.S.C. � 1144(a).
[4] Jacobson notes that a recent U.S. Supreme Court case, Aetna Health Inc. vs. Davila, suggests that the courts might return to a more expansive definition of preemption, changing course from recent years. If this occurs, "the Maryland law will probably be read as 'relating to' the administration of a health benefit plan, and will be preempted." He also points out the two new Supreme Court Justices, Roberts and Alito, as important players. "I'm not clear as to their views on ERISA interpretation, but it seems likely that both will be skeptical of Maryland's attempt to compel Wal-Mart to provide additional health benefits." (Personal communication, March 2006).

For More Information
Visit: Maryland Health Care For All Coalition, Retail Industry Leaders Association, or Maryland General Assembly Site

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