Guest Article

(From the August 9, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Local Employer Pay-or-Play Laws: ERISA Preemption a Moot Issue?

Following the enactment of the Patient Protection and Affordable Care Act (PPACA) and the sweeping changes it is making to the healthcare landscape, it appears the issue of whether existing non-Federal employer "pay-or-play" healthcare mandates are preempted by ERISA has been put on hold. Both Massachusetts and the City and County of San Francisco have laws currently requiring employers to provide minimum healthcare benefits to employees or pay a fee to the government. The Supreme Court recently declined to hear the case involving the San Francisco ordinance, and the Department of Labor withdrew regulations it proposed to address the issue.

Cert Denied in Golden Gate

The United States Supreme Court recently declined to hear a case that challenged a San Francisco Ordinance requiring employers to pay a minimum level of healthcare expenditures per employee - or, alternatively, pay the prescribed amount to the city to fund heath benefits for the uninsured. The Ninth Circuit upheld the ordinance, ruling that it was not preempted by ERISA. The Supreme Court's decision not to hear the case leaves the ruling of the Ninth Circuit in effect.

The Ninth Circuit concluded that the ordinance - because it allows an employer to satisfy the expenditure obligation by paying a tax to the city or by providing healthcare benefits to the employee (i.e., a "pay or play" arrangement) - was not an ERISA plan. Further, because the ordinance does not require an employer to establish a plan or to provide specific benefits under a plan, it does not sufficiently "relate to" an ERISA plan so as to be preempted. The Solicitor General together with the Solicitor of Labor filed an amicus brief with the Supreme Court advising against hearing the case. The Solicitors argued that, because of the sweeping changes made to the healthcare landscape by the PPACA it was unlikely that more such programs would be enacted by state or local governments - and that the new PPACA may affect the question of whether such programs are preempted.

ERISA Plan Regulations Withdrawn

Before the enactment of the PPACA, the Department of Labor announced its intention to address the pay-or-play issue by promulgating amendments to the regulation that defines an ERISA welfare plan. The amendments would clarify when state and local healthcare program constitute an ERISA welfare plan. Following the enactment of the PPACA and the petition for certiorari in the San Francisco case, however, the Labor Department changed its mind. It stated in the Solicitors' amicus brief that it decided not to proceed with the regulation because the PPACA made it unlikely that other state or local governments would enact such laws. In a news release issued July 30, the Department confirmed it was requesting the proposed regulation to be withdrawn.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.