ERISA Preemption of Chapter 58: The Future of the "Pay or Play" Model of Health Care Legislation

I. INTRODUCTION

The problem of the uninsured in this country continues to grow.1 Over the past five years, proportion of uninsured Americans has risen from 14.6% to 15.9% of the population.2 The statistics show disparities in insurance coverage among the various races, between native-born and

Further exacerbating this problem is the cost of the uninsured and the government-insured to the taxpayers of the country. It is estimated that Medicare and Medicaid, the two largest government financed health care programs, will cost $301.5 and $176 billion respectively.5 These costs are projected to increase at a rate above GDP.6

Since states are partially responsible for Medicaid costs and have a responsibility for the health of their citizenry, many states have taken it upon themselves to try to correct these problems. This concern has caused several states to take initiative to pass legislation with the goal of universal health care in mind.7 Several states have turned to, or have considered turning to, legislation that would require companies to choose between offering a health insurance plan to their employees or contributing to a state fund to offset the cost to the state of uninsured medical expenses.8 These "pay or play" plans have been adopted in Maryland and Massachusetts.9 On April 12, 2006, Massachusetts Governor Mitt Romney signed into law Chapter 58 of the Acts of 2006, titled An Act Providing Access to Affordable, Quality, Accountable Health Care.10 Although Governor Romney line item vetoed portions of the bill, including the "pay or play," sometimes called "fair share," provision, the legislature overrode the veto and set Massachusetts's fair share legislation on the path towards implementation on January 1, 2007.11

Two of the largest problems facing the American health care system are the rising numbers of uninsured and the ballooning costs of health care paid by the government. This Note will discuss one type of reform effort, the "pay or play" system, which is aimed at increasing the number of people covered by health insurance and sharing the government's health care costs with employers who choose not to provide an employee health insurance plan. However, the Employee Retirement Income security Act of 1974 (ERISA)12 seems to be an insurmountable hurdle for states implementing this type of health care reform. This Note will examine Massachusetts's attempt at the "pay or play" system and whether that legislation has solved the riddle of ERISA preemption.

The purpose of this Note is to analyze Massachusetts's law under current ERISA preemption analysis. This Note will discuss the general implications of ERISA preemption on the category of health care legislation known as "pay or play" or "fair share" contribution. Although the Massachusetts legislature followed guidelines developed to avoid ERISA preemption,13 recent litigation14 has demonstrated that the Massachusetts law will be preempted.

This Note will begin by discussing and analyzing the history and interpretation of ERISA since its adoption. In section II, this Note will trace Supreme Court interpretation of ERISA and determine the current standard for ERISA preemption analysis. In section III, this Note will discuss a selection of other states' recent and past forays into universal health care legislation, as well as proposed guidelines for avoiding ERISA preemption. It will briefly discuss the legislation and how the programs it developed works and then will discuss why these laws failed preemption challenges. In section IV, the Note will discuss in-depth the ruling in Retail Industry Leaders Association v. Fielder to show how "fair share" contribution legislation has been analyzed. In section V, this Note will discuss in depth the Massachusetts law. It will incorporate the text, legislative history, governor's veto message, and purpose to understand how the law will operate, and the goal behind the legislation. In section VI, this Note will conclude that the Massachusetts legislation is preempted, that I do not see a way around ERISA preemption for these types of laws, and lastly that ERISA should be amended to allow this beneficial and much needed state legislation.

II. DISCUSSION OF ERISA

ERISA has a significant effect on the states when they attempt to deal with the health care problems associated with uninsured and government costs. ERISA states: "the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan."15 This note will trace ERISA preemption litigation through Alessi v. Raybestos-Manhattan, Inc.,16 Shaw v. Delta Airlines,17 FMC Corp. v. Holliday,18 Mackey v. Lanier Collection Agency,19 and New York Blue Cross Plans v. Travelers Ins. Co.,20 which gives the current Supreme Court ruling for ERISA preemption analysis.

In Alessi v. Raybestos-Manhattan Inc.,21 the Court found that regardless of the New Jersey legislature's purpose in passing its law, it nevertheless 'relates to' ERISA covered pension plans because it foreclosed "one method for calculating pension benefits-integration-that is permitted by federal law."22 ERISA permits integration.23 The Court did not find it necessary to define "the outer bounds of ERISA's pre-emptive language to find this New Jersey provision an impermissible intrusion on the federal regulatory scheme."24 The Court further stated that "even indirect state action bearing on private pensions" is preempted by ERISA.25

In Shaw v. Delta Airlines, Delta Airlines and other employers sought a declaratory judgment to stop the enforcement of New York's Human Rights Law, which barred employment discrimination on the basis of gender, and Disability Benefits Law, which required employers to offer specific benefits.26 The law was interpreted by New York courts to include "a private employer whose employee benefit plan treats pregnancy differently from other nonoccupational disabilities engages in sex discrimination."27 The Supreme Court concluded that the New York law related to an ERISA plan.28 The Court found that Congress intended "relates to ... in the normal sense of the phrase, if it has a connection with or reference to such a plan."29 Here, both a law that "prohibits employers from structuring their employee benefit plans in a manner that discriminates on the basis of pregnancy, and... [a] [l]aw, which requires employers to pay employees specific benefits, clearly 'relate[s] to' benefit plans."30 The Court further stated that ERISA preempts more than "state laws specifically designed to affect employee benefit plans" and "state laws dealing with the subject matters covered by ERISA."31

In Mackey v. Lanier Collection Agency,32 Georgia enacted a law that disallowed garnishment of ERISA-covered plans.33 The Georgia law applied expressly and only to ERISA-covered plans.34 The Court held that the law was preempted, even though it was possibly "enacted ... to help effectuate ERISA's underlying purposes."35 However, general garnishments ordered by a state court were not preempted by ERISA, even though garnishments of ERISA plans may put a burden on the plan, because "Congress did not intend to preclude state-law attachment of ERISA welfare plan benefits."36 The Court noted that the express language of ERISA allows ERISA-covered plans to be brought to court for various reasons and an appropriate enforcement mechanism, like garnishments, needs to be available to enforce judgments against ERISA plans.37

In FMC Corp. v. Holliday,39 FMC operated a self-funded employee health benefits plan and attempted to use its "subrogation clause under which a Plan member agrees to reimburse the Plan for benefits paid if the member recovers on a claim in a liability action against a third party."39 Pennsylvania state law precluded reimbursement from a claimant's tort recovery for benefit payments by a program, group contract or other arrangement, to employer's self-funded health care plan.40 The Court noted that ERISA's "pre-emption clause is conspicuous for its breadth. It establishes as an area of exclusive federal concern the subject of every state law that 'relate[s] to' an employee benefit plan governed by ERISA."41 ERISA's "saving clause" allows States to "'regulat[e] insurance,' except as provided in the deemer clause. Under the deemer clause, an employee benefit plan governed by ERISA shall not be 'deemed' an insurance company."42 "Pennsylvania's antisubrogation law 'relate[s] to' an employee benefit plan" because, as was held in Shaw, "a law relates to an employee welfare plan if it has 'a connection with or reference to such a plan.'"43 The Court held that the law both referenced and had a connection with ERISA plans.44 Further, "[application of differing state subrogation laws to plans would therefore frustrate plan administrators' continuing obligation to calculate uniform benefit levels nationwide," avoidance of which was the intention of ERISA's preemption clause.45

The Supreme Court built on its analysis of ERISA preemption from previous cases in New York Blue Cross Plans v. Travelers Ins. Co,46 producing a more cohesive standard. In Travelers, Travelers Insurance Company challenged surcharges imposed on its ERISA plans by the New York Public Health Law, which made hospitals collect the surcharges from patients that subscribed to commercial insurance plans but not Blue Cross Plans.47 The surcharges, the district court found, do not have a direct effect on ERISA plan costs or offered benefits, but do have an indirect effect of an increasing ERISA plan costs because "the [s]urcharges at issue will have a significant effect on the commercial insurers and HMOs which do or could provide coverage for ERISA plans."48 The Court of Appeals upheld the District Court's decision because

the surcharges were meant to increase the costs of certain insurance and health care by HMO's, and held that this 'purpose[ful] interfer[ence] with the choices that ERISA plans make for health care coverage ... is sufficient to constitute [a] 'connection with' ERISA plans' triggering pre-emption. The court's conclusion, in sum, was that 'the three surcharges 'relate to' ERISA because they impose a significant economic burden on commercial insurers and HMOs' and therefore Tiave an impermissible impact on ERISA plan structure and administration.'49

The Court used its holding in Shaw as the basis for its decision here.50 First, the Court noted that ERISA was intended to make the regulation of ERISA plans a solely federal concern.51 Further, the Court found that Congress intended "to ensure that plans and plan sponsors would be subject to a uniform body of benefits law."52 "[T]he goal was to minimize the administrative and financial burden of complying with conflicting directives among States or between States and the Federal Government . . . [and to prevent] the potential for conflict in substantive law . . . requiring the tailoring of plans and employer conduct to the peculiarities of the law of each jurisdiction."53 In prior ERISA cases, the Court held that ERISA has only preempted state laws that "mandated employee benefit structures or their administration" or provide "alternative enforcement mechanisms."54 The only effect the law has on ERISA plans is a possible effect on the cost of insurance.55 The Court found the New York surcharges distinguishable because they only have an indirect economic effect and thus do not

bind plan administrators to any particular choice and ... function as a regulation of an ERISA plan itself. Nor does the indirect influence of the surcharges preclude uniform administrative practice or the provision of a uniform interstate benefit package if a plan wishes to provide one. It simply bears on the costs of benefits and the relative costs of competing insurance to provide them. It is an influence that can affect a plan's shopping decisions, but it does not affect the fact that any plan will shop for the best deal it can get, surcharges or no surcharges.56

The finding that the surcharge is not preempted is supported by the fact that other state laws that impose charges on ERISA plans are not preempted.57

In sum, cost uniformity was almost certainly not an object of preemption, just as laws with only an indirect economic effect on the relative costs of various health insurance packages in a given State are a far cry from those 'conflicting directives' from which Congress meant to insulate ERISA plans. Such state laws leave plan administrators right where they would be in any case, with the responsibility to choose the best overall coverage for the money. We therefore conclude that such state laws do not bear the requisite 'connection with' ERISA plans to trigger preemption.58

"ERISA pre-emption falls short of barring application of a general state garnishment statute to participants' benefits in the hands of an ERISA welfare benefit plan."59 "If a law authorizing an indirect source of administrative cost is not pre-empted, it should follow that a law operating as an indirect source of merely economic influence on administrative decisions, as here, should not suffice to trigger pre-emption either."60

Although even in the absence of mandated coverage there might be a point at which an exorbitant tax leaving consumers with a Hobson's choice would be treated as imposing a substantive mandate, no showing has been made here that the surcharges are so prohibitive as to force all health insurance consumers to contract with the Blues. As they currently stand, the surcharges do not require plans to deal with only one insurer, or to insure against an entire category of illnesses they might otherwise choose to leave without coverage.61

If the Court found ERISA to be as broad as has been suggested, states could never regulate hospital charges and this is clearly not the intention of ERISA as evidenced by the same Congress passing the National Health Planning and Resources Development Act of 1974·.62 However, the Court did not go so far as to say only direct regulation of ERISA plans is preempted.63

[A] state law might produce such acute, albeit indirect, economic effects, by intent or otherwise, as to force an ERISA plan to adopt a certain scheme of substantive coverage or effectively restrict its choice of insurers, and that such a state law might indeed be preempted under § 514. But as we have shown, New York's surcharges do not fall into either category; they affect only indirectly the relative prices of insurance policies, a result no different from myriad state laws in areas traditionally subject to local regulation, which Congress could not possibly have intended to eliminate.64

The Travelers Court held that a state law is preempted by ERISA if it has a connection with or references an ERISA plan.65

In 2003, the Supreme Court decided Kentucky Association of Health Plans v. Miller.66 In this case, a group of Health Maintenance Organizations (HMOs) challenged two Kentucky laws, known as "any willing provider" laws, which prohibited HMO-insurance companies from limiting which health providers, or doctors, would be covered by their plans' networks.67 This case addresses the "savings clause" of ERISA.68 The Kentucky Association argued that because the state law affected not only insurers, but providers, it was preempted by ERISA because it fell outside of the scope of the "savings clause."69 The Court articulated that "a state law must be 'specifically directed toward' the insurance industry in order to fall under ERISA's savings clause; laws of general application that have some bearing on insurers do not qualify."70 However, a state law "specifically directed toward" the insurance industry will not be saved by ERISA's savings clause if the law regulates insurers as opposed to insurance.71 To determine if the law in question regulates insurance the court looks to two factors: (1) "the state law must be specifically directed toward entities engaged in insurance"; (2) "the state law must substantially affect the risk pooling arrangement between the insurer and the insured."72 The Court found that the Kentucky law was covered by ERISA's "savings clause" because it satisfied the requirements of the two-factor test above.73

The discussed case law is important to understand because it provides the framework of ERISA preemption analysis. ERISA preemption analysis has been frequently litigated. Even though the courts have had many opportunities to declare what the law is in the ERISA preemption arena, new methods of state regulation of health insurance have continuously brought up new questions of law regarding the scope of ERISA preemption.

III. DISCUSSION OF COMPARATIVE STATE HEALTH CARE COVERAGE LAWS AND COMMENTATOR GUIDELINES

This section of the Note will discuss a selection of "pay or play" health care legislation and other universal health care legislation that has been enacted in light of ERISA preemption. The Note will then further discuss why these plans were or will be preempted by ERISA. Several states have attempted to implement universal health care legislation. The most notable attempts were in California, Hawaii, and Oregon. These laws faced ERISA preemption challenges and all were found to be preempted.

A. STATE MANDATES

In 1975, California passed the Knox-Keene Health Care Service Plan Act of 1975.74 The Act faced an ERISA preemption challenge in Hewlett-Packard Co. v. Barnes.75 The Act was designed to regulate the health care services in California for participants in health care service plans.76 The purpose of the law was "to promote the delivery of low cost, quality health care through financially sound plans to participants well informed of the benefits of various available plans."77 To achieve these goals, the Act "regulate[d] such areas as funding, disclosure, sales practices, and quality of services, and require[d] that any such plan be licensed by the state Commissioner of Corporations."78 The Knox-Keene Act governed "entities, plans, or contracts which directly deliver health care services, ... as well [as] those which provide insurancetype coverage, including self-funded plans such as those maintained by plaintiffs."79

The Ninth Circuit found this law preempted by ERISA in Hewlett Packard Co. v. Barnes.80 "The clear wording of section 514 [of ERISA] and the relevant legislative history show that Congress unmistakably intended ERISA to preempt a state law such as Knox-Keene that directly regulates employee benefit plans."81 California's attempt to regulate ERISA plans was preempted because it explicitly violated the language of ERISA.82

In 1974, Hawaii passed the Hawaii Prepaid Health Plan Act of 1974.83 This law was held to be preempted by ERISA in Standard oil Co. of California v. Agsalud.84 The Ninth Circuit again addressed a state law regulating employee benefit plans and found the law preempted.85 The Hawaii Prepaid Health Care Act mandated employers to provide employee health coverage.86 "The Act was initially adopted in 1974, shortly after ERISA was enacted, and apparently no other state has adopted similar legislation."87

In analyzing the Hawaii law, the Ninth Circuit affirmed the lower court's ruling and held that the "[a]ct directly and expressly regulates employers and the type of benefits they provide employees. It must 'relate to' employee benefit plans within the meaning of ERISA's broad preemption provision."88

Hawaii, however, successfully lobbied for an exemption from ERISA preemption.89 "It is important to note that Hawaii's exemption is not based on the substance of the HPHCA, but on the determination by Congress that post-September 1974 amendments to the HPHCA related back to the original Act which pre-dated ERISA and was therefore exempt from preemption."90

One other state has lobbied for an ERISA preemption exemption, but the attempt was unsuccessful. In 1989, Oregon passed a "pay or play" provision.91 In 1994, Oregon requested a premption exemption for its provision from Congress, but its request was denied and Oregon was forced to repeal the provision.92 Oregon was not trying to exempt a plan that was developed before ERISA was enacted.93

B. REPEALED STATE "PAY OR PLAY" PROVISIONS

Massachusetts and California have attempted to adopt "pay or play" legislation, but repealed their respective laws before ERISA litigation arose. In 1988, Massachusetts passed the Health security Act of 1988.94 This act required employers who employed more than five employees to pay a medical security contribution into a state fund equal to 12% of its employees' wages.95 The fund was to be used to pay for the medical costs of the uninsured.96 The act allowed an employer to deduct from the employer's medical security contribution the cost of providing employees with health insurance.97 This law would have implemented a type of "pay or play" provision similar to a tax and tax credit, where the employer pays the tax and if the employer plays by providing health insurance to its employees, the employer gets a tax credit against the tax imposed by the provision.98 This law never faced an ERISA preemption challenge because it was significantly amended in 1996.99 The amendment removed the tax and tax credit feature.100

In 2003, California passed the Health Insurance Act of 2003.101 Similar to the 1988 Massachusetts law this law required employers to pay a fee to the state for the state to provide health insurance coverage for the working uninsured.102 "[I]f the employer voluntarily provides proof of health care coverage, that employer is to be exempted from payment of the fee."103 This "pay or play" provision also used a fee and credit approach.104 The act's provisions would have begun being implemented on January 1, 2006, but the law was repealed by 50.9% of California voters in a November 2004 referendum.105

The Massachusetts and California statutes were similar in design and substance to the Maryland law at issue in Retail Industry Leaders Association v. Fielder.106 These laws likely would have been analyzed and found preempted by the reasoning from the Maryland decision.

C. MODEL PROPOSALS FOR TAY OR PLAY" LEGISLATION

In response to the growing cost of health care to state governments, the growing number of uninsured, and the above mentioned failed attempts to address theses problems through state legislation, several commentators have developed guidelines for state governments to use when they develop "pay or play" health care legislation."107 Patricia Butler addressed ERISA preemption concerns in her briefing paper to the National Academy for State Health Policy, an organization that proposes health legislation to the states.108 First, she recommends that states "[d]o not require employers to offer health insurance to their workers."109 Next, she recommends that states a[e]stablish a universal coverage program funded in part with employer taxes." Third, she advises states "not refer to ERISA plans."110 Fourth, Butler advises that states "[remain neutral regarding whether employers offer health coverage or pay the tax."111 Fifth, she suggests that states "[i]mpose no conditions on employer coverage to qualify for the tax credit."112 Finally, Butler recommends that a state law "[minimize administrative impacts on ERISA plans."113 These recommendations came before Retail Industry Leaders Association v. Fielder and admittedly may not solve the ERISA preemption problem.114

Similarly, Rebecca O'Reilly, Judicial Clerk to the Honorable John D. Rainey of the United States District Court for the Southern District of Texas, has developed a set of guidelines for state laws to avoid ERISA preemption.115 First, a state law cannot refer to an ERISA plan by "imposing obligations on them or treating them differently."116 Next, the guideline asks if the state law has a direct connection with an ERISA plan by "regulating the same areas as ERISA or mandating benefits, structure, [or] administration."117 If it does, the law might be saved by ERISA's savings clause which allows states to regulate insurance.118 If the state law does not have a direct or indirect connection with an ERISA plan, then it is not preempted.119 If the state law does not have a direct connection, but does have an indirect connection, preemption will turn on the type of impact the law has on ERISA plans.120 If the impact is tenuous, then the state law will not be preempted.121 If the impact is "substantial enough to have a significant economic impact on ERISA plan[s],"m then the state statute will be preempted unless it falls under the savings clause.123

These guidelines are similar to each other. Both suggest that states do not refer to ERISA plans in the legislation.124 Both suggest that by not explicitly mandating employer-provided health care insurance coverage that the law will survive preemption.125 This Note argues against these suggestions and instead argues that "pay or play" provisions in general will cause state health care legislation to be preempted by ERISA. The guidelines do not explain why giving a choice that puts employers between the rock of providing employee health insurance coverage and the hard place of paying a state fund to provide health insurance coverage saves the legislation from being called a mandate. As the Travelers Court decision suggests, an indirect economic effect on ERISA plans may be enough to trigger ERISA preemption.126 "Pay or play" provisions, as will be discussed in the following sections, are, and will be, regarded by the courts as mandates on employers to provide health care insurance. The indirect mandate is where state "pay or play" provisions fail to pass ERISA preemption.

Several states currently have health care reform legislation pending at various stages of the legislative process.127 Although a discussion of them would be duplicative of the state health care legislation discussion above, it is valuable to see how other states are responding to the health care problems and trying to adopt legislation that will survive an ERISA preemption challenge.128

IV. AN IN-DEPTH LOOK AT RETAIL INDUSTRY LEADERS ASSOCIATION V. FIELDER

Several questions of law concerning "pay or play" or "fair share" contribution plans were answered by the United States District Court for the District of Maryland in Retail Industry Leaders Association v. Fielder.*13 A lengthy discussion of the rationale behind this ruling is necessary because this is the most recent, and most applicable, lawsuit concerning "pay or play" and ERISA preemption. It will likely be highly persuasive in other jurisdictions and a preview of rulings to come.

On January 12, 2006, the Maryland General Assembly passed the Maryland Fair Share Health Care Fund Act (FSHCFA).130 The FSHCFA applies to non-governmental employers with 10,000 or more employees in Maryland.131 The law requires a for-profit employer that spends less than "8% of the total wages paid to employees in the State on health insurance costs [to pay] an amount equal to the difference between what the employer spends for health insurance costs and an amount equal to 8% of the total wages paid to employees in the State."132 The act defines health insurance costs as "the amount paid by an employer to provide health care or health insurance to employees in the State to the extent the costs may be deductible by an employer under federal tax law."133

In this lawsuit, the Retail Industry Leaders Association (RILA) sought a declaratory judgment and an injunction against Fielder, the Maryland Secretary of Labor, Licensing, and Regulation, from enforcing the FSHCFA.134 The RILA contended that the FSHCFA was preempted by ERISA135 and violated the Equal Protection Clause.136 First, the court found that the RILA has associational standing and thus could bring the suit.137

Next, the court addressed the secretary's argument that the Tax Injunction Act138 takes this case out of federal court's jurisdiction.139 To determine whether the court had jurisdiction, the court made a two-step analysis.140 The first step asked, "do the state courts provide a 'plain, speedy and efficient' remedy?"141 Because the RIIA admitted Maryland has courts well equipped to hear its case,142 the second step, whether it is a tax or a regulatory fee, was the only step at issue.143 To determine whether a particular charge is a 'fee' or a 'tax,' the general inquiry is to assess whether the charge is for revenue raising purposes, making it a 'tax,' or for regulatory or punitive purposes, making it a 'fee.'"144 The Court looks at three factors in this step of the analysis: "(1) what entity imposes the charge; (2) what population is subject to the charge; and (3) what purposes are served by the use of the monies obtained by the charge."145 The court found that this was a regulatory fee because an agency and not the general tax collector was responsible for collecting the fee,146 it applied to a small group,147 and the purpose of the act is not to raise revenue for the general fund.148

The court then addressed the ERISA preemption argument and found that the FSHCFA is preempted.149 ERISA preemption is expansive, but the phrase "relates to" does not get its most expansive interpretation.150 The law must have a "reference to" or "a connection with" an ERISA plan.151 The district court determined that a proper place to begin its ERISA analysis was with the purposes of ERISA itself,152 which includes "avoiding a multiplicity of regulation in order to permit the nationally uniform administration of employee benefit plans."153 The court found that the FSHCFA imposed a standard on large employers not applicable in most jurisdictions and contradictory to other jurisdictions' current standards.154 The second part of this analysis is to look at "the nature of the effect of the state law on ERISA plans."158 The court found that "the intended effect of the Act is to force Wal-Mart to increase its contribution to its health benefit plan, which is an ERISA plan, and the actual effect of the Act will be to coerce Wal-Mart into doing so."156 The court then found that the FSHCFA is distinguishable from Travelers and its progeny, because here the legislation has a direct effect on ERISA plans.157

The court addressed the Secretary's argument that the FSHCFA does not mandate an employer to spend anything on an ERISA plan.158 The court dismissed the Secretary's argument that employers have a choice:

If employers are faced with the choice of paying a sum of money to the State or offering an equal sum of money to their employees in the form of health care, no rational employer would choose to pay the State. While repeatedly emphasizing that employers have a 'choice,' the Secretary does not offer a single reason why an employer would pay the State rather than generate good will with its work force by increasing its employees' benefits. The 'choice' here is a Hobson's choice.159

A Hobson's choice is a choice that is not really a choice at all, but instead operates essentially as a mandate.160 Further, the evidence demonstrated that the mandate was "precisely the result the [Maryland] General Assembly expected and intended."161 The court finally determined that the law did not violate the Equal Protection Clause because there was a rational reason for the state to treat employers of varying sizes differently because of their varying economic ability.162 The Secretary unsuccessfully appealed the decision.163

V. DISCUSSION OF MASSACHUSETTS LAW

On April 12, 2006, Massachusetts Governor Mitt Romney signed into law Chapter 58 of the Acts of 2006, titled An Act Providing Access to Affordable, Quality, Accountable Health Care. Here, the pertinent part of this law is Section 47, which the legislature passed overriding Governor Romney's veto. Section 47 adds section 188(b) to Massachusetts General Laws Chapter 149, which in part reads:

For the purpose of more equitably distributing the costs of health care provided to uninsured residents of the commonwealth, each employer that (i) employs 11 or more full-time equivalent employees in the commonwealth and (ii) is not a contributing employer shall pay a per-employee contribution at a time and in a manner prescribed by the director of the department of labor, in this section called the fair share employer contribution.164

The Massachusetts law essentially requires employers to pay a "fair share" of employee health care insurance.165 If the employer does not contribute "fair share" of employee health care coverage, then the state requires the employer to pay a contribution to the state based on the number of employees employed.166

The Massachusetts law defines a "contributing employer" as "an employer that offers a group health plan ... to which the employer makes a fair and reasonable premium contribution."167 The Massachusetts Health and Human Services Division of Health Care Finance and Policy (DHCFP) has determined that an employer will meet the

'Fair and reasonable [premium contribution]' test if at least 25 percent of those [employer's] employees are enrolled in that business's group health plan and the company is making a contribution toward it. A business that fails that test may still be deemed to offer a 'fair and reasonable' contribution if the company offers to pay at least 33 percent of an individual's health insurance premium.168

Employees that opt out of health insurance coverage due to religious reasons are not counted.169

If an employer is determined to not make a fair and reasonable premium contribution, then the Director of Labor shall collect from those employers a "fair share contribution," not exceeding $295 per employee per year, and deposit it in the Commonwealth Care Trust Fund.170 The money held in the Commonwealth Care Trust Fund is used for health care payments.171 Further, there is an additional Free Rider Surcharge that can be assessed to the employer based on the employees that receive health care through Massachusetts's uncompensated care pool,172 but the formula for determining this surcharge has not yet been established.173

As the statute's title suggests, the purpose of this law is to provide affordable and quality health care, while holding everyone accountable for getting or providing health care coverage.174 The purpose of the bill is to have every Massachusetts resident insured.175 The bill is being championed as the first workable method to provide universal health coverage. Governor Romney's veto message concerning section 47 did not suggest the veto was made over an ERISA preemption concern, but over concerns over the cost to employers of the "pay or play" provision.176

VI. ERISA AND THE MASSACHUSETTS LAW

Maryland's experience with ERJSA preemption may be indicative of the Massachusetts law's future. Both laws apply to employers.177 Both laws look to how much money an employer spends on employee health plans.178 Both laws require an employer which does not meet the statutory requirements regarding employee health plans to pay into a fund, which is designed to pay for health care received by uninsured health care recipients.179 At first blush, these laws are designed similarly and attempt to accomplish a similar objective through similar means. Thus, it would appear that if RILA was rightly decided, then Massachusetts's An Act Providing Access to Affordable, Quality, Accountable Health Care would also be preempted by ERISA.

First, RILA was decided on the principles of Travelers.180 The Travelers Court determined that Congress intended ERISA preemption to arise from section 514 and its language "relates to ... in the normal sense of the phrase, if it has a connection with or reference to such a plan."181 The Court did not discuss what a 'reference to such a plan' is, but did suggest that a law has a connection with an ERISA plan when it runs afoul of the rationale behind ERISA, which is to "avoid a multiplicity of regulation . . . [and] permit the nationally uniform administration of employee benefit plans."182 In RILA, the court determined that the FSHCFA was designed to mandate employers, including national employers, to provide a certain level of benefits in an ERISA plan.183 The "mandate" was not technically a mandate but the court found that it was a Hobson's choice.184 This, however, is exactly what ERISA intended to avoid.

There are several differences between the two laws that may play a key role in litigation that will inevitably arise from the Massachusetts law. The biggest potential difference concerns the choice that employers will have to make between playing and paying. As discussed above, the court in RILA dismissed the secretary's argument that employers have a choice between paying the tax and offering its employees health insurance as a "Hobson's choice."185 The 'Hobson's choice' language comes from the Travelers discussion of indirect economic effects on ERISA plans and the end of the opinion in Travelers.186 Further, the evidence demonstrates that this mandate "is precisely the result the General Assembly expected and intended."187 Maryland's law required a for-profit employer to pay "8% of the total wages paid to employees in the State" in health insurance or pay the difference between the actual spending and the 8% threshold to the state.188 By contrast, Massachusetts's law requires an employer that does not make a fair and reasonable premium contribution to an employee health plan to pay a maximum of $295 per employee per year to the Commonwealth Care Trust Fund.189

The average cost of health insurance for a single person in the country is $335 per month and in the Northeastern U.S. the cost is $346 per month.190 Further, the Massachusetts Health and Human Services Division of Health Care Finance and Policy (DHCFP) has determined that an employer will meet the 'fair and reasonable [premium contribution]' test when 25 percent of employees participate in the employer's health insurance plan and the employer contributes to the premiums.191 "A business that fails that test may still be deemed to offer a 'fair and reasonable' contribution if the company offers to pay at least 33 percent of an individual's health insurance premium."192

Using the 33% of an individual's health insurance premium, it would seem that an employer in Massachusetts would be faced with paying around $115 per employee per month.193 This figure would appear to make the choice employers in Massachusetts face less of a "Hobson's choice" than Wal-Mart faced in Maryland. The Maryland choice was to pay employees in health benefits or to pay the state an equal amount to what should have been paid to the employees. The Massachusetts choice is to pay the employees more hi health benefits or to pay the state less. This may be enough to save Massachusetts's law from ERISA preemption.

However, the above discussion does not foreclose the preemption of Massachusetts's law. Courts will consider the indirect impact on ERISA plans.194 A close mandate may not matter, however, because "any employer would give additional benefits to its own employees rather than paying money to the State."195 Perhaps some Massachusetts employers will choose to pay the state as opposed to their employees, but ERISA preemption will be activated when the Massachusetts law effectively mandates one employer to provide employee health insurance plans.

Further, the Massachusetts law frustrates the purpose of ERISA to avoid a multiplicity of health care insurance regulation laws in the various states.196 The Massachusetts law will serve as a jurisdictional obstacle for multi-state employers. The Massachusetts law specifically conflicts with the laws of other jurisdictions, just as the district court found in Fielder.197

From this discussion, it seems that the biggest difference is the mechanism the state used to "mandate" employers to offer ERISA plans. This difference is not enough to save the Massachusetts law from the fate of the Maryland law.

VII. CONCLUSION

Massachusetts's law will likely be preempted by ERISA. As this note has discussed, the only universal health care legislation to successfully survive an ERISA preemption challenge has been in Hawaii. This was accomplished by legislative grant of an exemption and not by designing a health care statute that moved closer to universal coverage and still survived an ERISA preemption challenge.

What did Maryland's preemption battle teach us about "pay or play" health care legislation? Maryland's law was found to be a "Hobson's Choice." The "pay or play" provision was doomed in Maryland because it was essentially a mandate. Is it possible to have a "pay or play" provision that is not a mandate? No, because the economic reality of the situation is that employers will give a benefit to their employees - to foster goodwill and for other reasons - before they give a benefit to the state. This is what makes the "pay or play" provision a mandate. Further, the fact that the Massachusetts law directly conflicts with other state laws will favor its preemption as it frustrates ERISA's purpose.

What does this mean to the state effort to enact legislation that improves the number of residents with health insurance coverage? As this note has summarized, commentators have developed guidelines to avoid ERISA preemption.198 Those guidelines recommend that states enact "pay or play" health care legislation.199 The guidelines essentially argue that a "pay or play" provision will survive ERISA preemption because they do not call themselves a mandate. However, the indirect economic effect of a "pay or play" legislative provision makes the law a mandate. As Maryland's experience demonstrates, "pay or play" provisions do not survive ERISA preemption.200

The only solution to the states health care problem is for the federal government to amend ERISA to allow for "pay or play" legislation or for states that have new ideas to lobby congress, as Hawaii did, to be granted an exemption to ERISA. Unfortunately, Oregon's lobbying experience in 1994 demonstrates Congress's unwillingness to allow an ERISA exemption to the states. If ERISA is not changed, the states will have a difficult time implementing new ideas like "pay or play" to fix the problems with health care costs and the uninsured. Perhaps states can try variations of the "pay or play" method, such as a tax credit to employers for providing health insurance or using the general tax pool to finance the uninsured fund.