When You Got Nothing, You Got Nothing To Lose: Fair Share and ERISA

One of the key arguments against adjusting the fair share assessment is that it would invite a court challenge on ERISA grounds. This was a key point in the testimony of many of the business groups opposing the Patrick administration proposal at last Friday’s hearing. We think there are lots of solid reasons to support changing the assessment criteria (see ours and other testimony from Friday). Moreover, we’d suggest that fear of an ERISA challenge is no reason to keep the current assessment.

ERISA is the federal law that, among other things, prohibits states from regulating employer health coverage. We wrote an ERISA primer over two years ago, and a few weeks ago, the Library of Congress’ Congressional Research Service wrote a report on ERISA preemption of state “fair share,” laws, including a detailed discussion of Massachusetts health reform. The report, available here, doesn’t reach any conclusions but clearly lays out the arguments one would use to both overturn or uphold our fair share assessment.

Employer health coverage assessments were immediately challenged in Maryland and San Francisco when they were enacted. We and others have speculated why no one has brought a Massachusetts case so far. We called it the dog that has yet to bark (see this, too). Several theories are prevalent. One theory is that the Massachusetts business community consensus around health reform has inhibited any potential employer plaintiff. Another idea is that potential plaintiffs fear losing a case, thus establishing a precedent in favor of employer assessments. We’ve also heard that given the small amount of money raised by the current assessment, it’s not worth it to any potential plaintiff to spend the amounts necessary to challenge the law.

This last theory informs our thinking as well. Here’s our thought: Given the very small amount of money raised by the current assessment, it’s not worth it to leave the assessment as is. Adjusting the formula to increase the assessment could lead to a challenge, or it could not. The challenge could be successful, or it could fail. If the challenge is successful, a Democratic President or Congress could change the ERISA law to allow the Massachusetts assessment (as they did for Hawaii). But without trying, we’re stuck with a fairly insignificant source of revenue.

(By the way, a successful fair share challenge would only invalidate the employer assessment; the rest of the law would stand.)

The current assessment raises a bit over $5 million. It’s supposed to be tied to the Pool costs due to employers who provide inadequate coverage. Yet the Pool costs of employees of just those firms with 50 or more workers getting public health benefits was over $98 million in FY 2007.

We think there are very strong legal arguments as to why the proposed fair share definition could survive an ERISA challenge (see this law review article for example, which argues that the $295 assessment is so low it can’t be seen as impacting employer coverage decisions). Winning a case would send a signal to many other states thinking about employer assessments of their own. We of course can’t know for sure whether or not a challenge would succeed. But we do know that the current assessment doesn’t live up to the public expectations of shared responsibility. We think that amending the regulation is worth any ERISA risk.

PS: ERISA came up again today, at the Connector’s Minimum Creditable Coverage (MCC) hearing. Kevin Wrege, representing the Council for Affordable Health Insurance (an insurer group supporting high-deductible plans, opposing minimum benefit laws, and supporting higher premiums for sick people) testified that several Washington law firms are prepared to file suit against Massachusetts based on the MCC rules. “All they’re lacking is a paying client and a green light.” We think that’s bluster. Most lawyers we’ve talked to are quite confident that the MCC regulations would survive an ERISA challenge, because they impose obligations on individuals, not employers.
Brian Rosman

PPS: Dr. Michael Miller has just posted a valuable essay on ERISA, MA and national reform, here.