Last week, a federal district judge in Baltimore struck down Maryland’s so-called “Wal-Mart tax” on the basis that it violates a federal law called ERISA. Folks who have been in state health policy for a while are quite familiar with this law and its relationship to state health reform. I assume many are not. And because this case and ERISA have real consequence for health reform in Massachusetts, let’s a take a moment to review ERISA. (Click here for an excellent summary piece by Pat Butler for the National Academy for State Health Policy.
The Employee Retirement Income Security Act of 1974 is the living legacy of late Sen. Jacob Javits of New York. Prior to ERISA, the US had a patchwork quilt of state laws — effective and ineffective — to regulate private, employer provided pension plans. A series of pension scandals led Congress to pass ERISA in September 1974 to provide uniform federal protections for these plans and the workers who rely on them. In passing ERISA, Congress also pre-empted all existing state laws governing employer pension plans — a rational thing to do.
In the ERISA legislation conference committee, national employers and labor unions convinced conferees to expand the scope of pre-emption to pre-empt any state laws regulating employer-provided health and welfare benefit plans. This was not so rational, because Congress did not set up any standards for health plans, they just pre-empted existing and future state regulation. National corporations and labor liked pre-emption so they didn’t have to deal with a patchwork of state laws regulating their worker health benefits.
ERISA has had lots of effects on insurance laws everywhere. One effect involves so-called “mandated benefits” passed by states to require health insurance policies to include specific benefits such as mental health, infertility, or more. If an employer buys a state-regulated insurance product from, say, Blue Cross or Harvard Pilgrim, that policy must include all mandated benefits. If the employer self-insures and uses, say, Blue Cross or Harvard Pilgrim, for administrative services only, they are free to ignore state benefit mandates. Self-funded plans also escape state premium taxes. So it’s popular for businesses to self insure — though they have to be large enough to make it sensible. So small businesses almost never self-insure.
Earlier in 1974, Hawaii had passed a law to require all employers to provide health insurance to all employees who work 20 or more hours per week. In 1976, the US Supreme Court struck down the Hawaii law as a violation of ERISA. In 1983, Hawaii legislators got a special law permitting them to implement their 1974 mandate, and Congress has indicated no desire to help any other state in this way. So state employer mandate laws (except in Hawaii) are illegal under ERISA.
Nonetheless, states have a constitutional right to levy taxes, assessments, and fees of all sorts. That’s what Maryland, Massachusetts, and Vermont have done this year, passing new assessments/taxes onto businesses — MD just on Wal-Mart, MA and VT on some businesses that don’t provide health insurance to their workers. Section 514 of ERISA voids all state regulation to the extend it they “relate to” employer-sponsored health plans.
And there’s the rub. To what extent do these new laws “relate to” so-called ERISA plans. This past week, the Maryland judge said “too much” in relation to the MD law. There’s a similar lawsuit on track against a Wal-Mart law passed in Suffolk County, New York that’s also on track. So far, no ERISA suits against the MA or VT laws. But there can be no confident predictions about the future, and the ERISA suit in MD may be important consequences to attempt to strengthen the MA and VT laws in the future.
Check out Pat’s paper – the best and most accessible overview around.