San Francisco Appeals Ruling on Health Care Ordinance

The ordinance mandates a certain level of spending for medium-sized and large employers on employee health care benefits beginning January 1, 2008.

In its December 26 ruling, the court said the San Francisco Health Care Security Ordinance’s health care expenditure requirements are preempted because they have an impermissible connection with employee welfare benefit plans. “By mandating employee health benefit structures and administration, those requirements interfere with preserving employer autonomy over whether and how to provide employee health coverage, and ensuring uniform national regulation of such coverage,” the opinion said.

The court pointed out that Section 514(a) of ERISA provides that the Act “supercede[s] any and all State laws insofar as they now or hereafter relate to any employee benefits plan.” Judge Jeffrey S. White explained that the San Francisco rule relates to employee benefit plans because the Ordinance’s provisions “refer to, are designed to act immediately upon, and cannot operate successfully without the existence of employee welfare benefit plans.”

In granting summary judgment for the Golden Gate Restaurant Association, White said, the Supreme Court has regularly stated that the preemption clause of ERISA “indicates Congress’s intent to establish the regulation of employee welfare benefit plans ‘as exclusively a federal concern.'”

Although the city contended that the Ordinance’s health care expenditure requirements do not necessarily affect the levels contributed to any specific private employer’s ERISA plan, the court found the Ordinance affects plan administration. The requirements of the Ordinance impose on employers specific recordkeeping, inspection, and other administrative burdens related to the administration of their private health care expenditures, according to the opinion.

The court also ruled that the Ordinance directly and indirectly affects the structure and administration of ERISA plans by requiring that, in order to comply with the city’s additional requirements, employers either modify the administration of their existing ERISA plans or structure their additional payments with reference to the amounts paid under the existing plans.

The 800-member Golden Gate Restaurant Association brought suit against the city in November 2006 to stop progression of the health plan (See San Francisco Restaurants Rally Against New City Health Plan ).

Lawyers for the San Francisco City Attorney’s Office claimed they found a way to overcome ERISA pre-emption of the health care mandate, saying other mandates were defeated in court because they required businesses to pay the government without the government directly giving them anything in return, whereas the San Francisco law requires employers who do not offer private insurance to pay an amount to the government and in exchange the city would provide their employees discounted health benefits (See San Francisco Claims Solution to ERISA Preemption of Health Care Law ).

The district court’s opinion is  here .