Legislators Reconsider Health Care Mandates After Wal-Mart Bill Is Dismissed

The failure of Maryland’s Fair Share Health Care Fund Act to pass judicial muster means legislators in Maryland, and across the country, will have to address rising health care costs with policies that go beyond targeting one segment of the business community.

A federal judge in Baltimore ruled July 19 that the Maryland bill violated federal ERISA laws. Most health care experts agree that the state’s Fair Share Health Care Fund Act, would have done little but take a few thousand people off Medicaid rolls while shifting the cost of their health care to their private-sector employers. In this case, Wal-Mart was the only company that met the bill’s criteria that employers with 10,000 or more employees in the state contribute 8 percent of their payroll costs toward health care benefits.

But in its narrow focus, the bill did little to address rising health care costs, the stated reason why the world’s largest retailer does not offer health benefits to all of its 1.2 million employees, health care experts say.

As an attack against an unpopular company, the law proved to be politically expedient. A similar Maryland bill, called “son of Wal-Mart” because it would have required all businesses in the state to pay 4.5 percent of its payroll costs toward health care benefits, died an early legislative death because it would have affected all businesses, many of them small.

“The legislation was anti-Wal-Mart legislation,” says Jon Gabel, vice president for the Center for Studying Health System Change. “I don’t think it was a serious attempt to reduce the number of uninsured.”

In his 32-page opinion, Judge J. Frederick Motz wrote that the Wal-Mart act “violates ERISA’s fundamental purpose of permitting multistate employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration.”

The judge went so far as to say that the state’s evidence represented the “active imagination” of its lawyers and was “utterly out of touch with reality.”

Maryland Attorney General J. Joseph Curran Jr. is appealing the decision, making it likely that political momentum will carry the issue to the Supreme Court. It remains to be seen how the ruling will affect similar bills that have been introduced in at least 30 state legislatures.

In Maryland, the group that helped to write the Wal-Mart bill, Maryland Citizens’ Health Initiative, vowed not to redraft the legislation until the appeals process ran its course.

“This is only one step in the process,” says Vinny DeMarco, the group’s executive director. “Other states should not be deterred.”

But legal observers say the judge’s ruling is on firm ground.

“I don’t know how [proponents of the bill] are going to get around ERISA,” says Jim Hendricks, a labor and employment attorney with the Chicago office of Fisher & Phillips, a firm that represents employers in labor disputes. A similar bill is to be voted on in Chicago. “Each state and municipality will have to go to the drawing board to see how they can get around this decision.”

In an important footnote, the judge hinted that Massachusetts health care reform mandating all individual residents to obtain health insurance and passed in April would not violate ERISA law. The Massachusetts effort was an important step because it would “permit states to perform their traditional role of serving as laboratories for experiments in controlling the costs and increasing the quality of health care for all citizens,” Motz wrote.

“We can expect that some of the energy that has gone into Wal-Mart type proposals around the country may now be transferred into supporting individual mandates instead,” Greg Scandlen, an advocate of consumer-driven health care, wrote in an e-mail.

Critics of the Massachusetts law say it won’t succeed in bringing down health care expenses unless doctors and hospitals and other medical providers are rated based on quality of care and costs, thereby creating a competitive and transparent market for health care services.

But where the Wal-Mart law fails legally, in its singularity of scope, the Massachusetts law succeeds because it seeks to cover all individuals without mandating how multistate companies administer benefits.

“This ruling will ground new efforts in a little more legal reality,” says Brian Klepper, president of the Center for Practical Health Reform, a nonpartisan group. “Whatever you do, it has to have broad application. It can’t only apply to a certain class of employer or citizen.”

The individual mandate has support on both sides of the issue, though in varying degrees. Observers say the legal ruling July 19 will push such a model on the state level and possibly the federal level, too, as rising health care costs begin to elicit concerns from CEOs that American competitiveness is at stake.

Wal-Mart CEO H. Lee Scott has hinted at his desire to see a federal effort, raising the prospect that the company may use its political clout to dive into the national debate with possible solutions to the health care crisis, rather than defensive posturing. In his corporate blog, Scott wrote in April that “what we’d like to see is a national program or at least state programs that are reasonably consistent that impact everyone equally.”

–Jeremy Smerd