The new Massachusetts health law: preemption and experimentation.

AuthorZelinsky, Edward A.

ABSTRACT

The Employee Retirement Income Security Act of 1974 (ERISA) preempts major features of the new Massachusetts health law. Although regrettable, this conclusion is mandated by ERISA's statutory terminology and the controlling case law. Other states, in fashioning their health care policies, are looking at elements of the new Massachusetts law. Just as ERISA preempts the individual and business contribution mandates of the Massachusetts statute, ERISA will preempt any similar provisions adopted by other states.

Because state experimentation with health care is particularly desirable today, Congress should, at a minimum, amend ERISA to validate the new Massachusetts health law. More comprehensively, Congress should amend ERISA Section 514 to permit all states to experiment with health care reform insofar as such experiments relate to employer-provided health care. Ideally, Congress should repeal section 514 and thus abolish altogether the jurisprudence of ERISA preemption.

TABLE OF CONTENTS INTRODUCTION I. KEY FEATURES OF THE NEW MASSACHUSETTS HEALTH LAW A. The Connector B. The Individual Mandate C. The Employer Mandates D. The Commonwealth Care Health Insurance Program II. THE NEW LAW AS PARTISAN AND IDEOLOGICAL COMPROMISE III. ERISA PREEMPTION AND THE MASSACHUSETTS HEALTH LAW A. ERISA Preemption: An Overview B. The Employer Contribution Mandate C. The Employer Cafeteria Plan Mandate D. The Individual Mandate and the Concept of "Minimum Creditable Coverage" E. Summary IV. THE CASE FOR EXPERIMENTATION CONCLUSION INTRODUCTION

In recent years, many states have, to use Justice Brandeis's celebrated metaphor, (1) acted as laboratories of experiment in the area of health care. Among the recent experiments, two have attracted particular attention: Maryland's Fair Share Health Care Fund Act, commonly known as the "Wal-Mart" Act, (2) and the new Massachusetts health law. (3) Acting as a severe impediment to this experimentation is the Employee Retirement Income Security Act of 1974 (ERISA) (4)--in particular, ERISA's preemption clause, section 514. (5)

I have recently analyzed the legality of Maryland's Wal-Mart Act under ERISA and have concluded that ERISA preempts that Act as a federally forbidden regulation of employer-provided health care. (6) The United States Court of Appeals for the Fourth Circuit, affirming the United States District Court for the District of Maryland, has similarly concluded that Maryland's Wal-Mart Act is ERISA preempted. (7) As a normative matter, this is regrettable because health care is an area in which states should be permitted, indeed encouraged, to explore novel approaches. On the merits, Maryland's Wal-Mart Act is a poorly designed experiment, but the encouragement of experiments includes an acceptance of experiments one thinks will fail.

In substantive terms, the new Massachusetts law is a more ambitious and admirable experiment than Maryland's Wal-Mart Act. Nevertheless, as a matter of ERISA preemption, the two statutes have much in common. In particular, both statutes impact employer-provided health care in a fashion outlawed by ERISA section 514(a). (8) Thus my conclusion: Just as Maryland's Wal-Mart Act is ERISA preempted, so too major features of the Massachusetts law are ERISA preempted as forbidden regulations of employer-provided health care.

This is a regrettable conclusion, but one mandated by the statute and the controlling case law. ERISA preempts the new law's mandate requiring covered Massachusetts employers to sponsor medical plans for their employees and to make "fair and reasonable" contributions to such plans. (9) ERISA also preempts the new law's requirement that Massachusetts residents maintain "minimum creditable coverage" for health care, as that requirement effectively mandates the substantive medical coverage Massachusetts employers must offer their employees. (10)

Other states, in fashioning their health care policies, are looking at elements of the new Massachusetts law. For example, Governor Schwarzenegger has proposed that, as part of a package of health care reforms, California adopt a Massachusetts-style mandate for businesses to provide medical coverage to their employees as well as a Massachusetts-type mandate requiring individuals to obtain medical insurance for themselves. (11) Just as ERISA preempts the individual and business contribution mandates of the Massachusetts law, ERISA will preempt any similar provisions adopted by California or any other state.

Today, employer-provided medical coverage is central to health care in the United States. ERISA section 514(a) prevents the states from enacting legislation which "relate[s] to" such employer-provided coverage. (12) ERISA section 514 thereby precludes the states from experimenting with alternative approaches to health care, like the new Massachusetts health law, that impact employer-provided health care.

Because state experimentation with health care is particularly desirable today, Congress should, at a minimum, amend ERISA section 514 to validate the new Massachusetts health law. On the merits, Massachusetts has a compelling argument for congressional protection from ERISA preemption. As a political matter, Massachusetts is also well positioned to seek such protection, given the bipartisan flavor of the new Massachusetts health law.

More comprehensively, Congress should amend section 514 to permit all states to experiment with health care reform insofar as such experiments relate to employer-provided health care. Even those inclined to defend ERISA preemption as we know it should be troubled by section 514's invalidation of key parts of the Massachusetts health law and, by extension, similar features of laws that other states might enact. We do not know if the new Massachusetts law and its novel provisions will succeed, but they, and other similar experiments, should be given the chance.

Ideally, Congress should repeal section 514 and thus abolish altogether the jurisprudence of ERISA preemption. It would improve the status quo decisively to amend section 514 to immunize from ERISA preemption state laws pertaining to employer-provided health care. However, any such amendment of section 514 will entail knotty issues as to the scope of the immunity that the amendment grants. In contrast, abolishing section 514 would eliminate the definitional and borderline questions attendant to a more limited statutory carve out, which validates for ERISA purposes only state laws relating to employer-provided health care.

In the first Part of this Article, I outline the major features of the new Massachusetts health law: the Massachusetts insurance "connector," the coverage mandates the new law imposes on individuals and employers, and the new Commonwealth Care Health Insurance Program to subsidize medical insurance for low-income families and individuals. In the second Part, I examine the bipartisan and eclectic nature of the compromises embodied in the Massachusetts health law. In the third Part, I analyze key features of the new law under ERISA section 514 and find that ERISA preempts three of these: the employer mandate requiring covered employers to offer medical coverage to their employees, the employer mandate requiring covered employers to make fair and reasonable contributions for such coverage, and the individual mandate requiring Massachusetts residents to have individual or group medical coverage that constitutes minimum creditable coverage. All of these features regulate employer-provided health care in ways forbidden by section 514.

In the final Part, I place the new Massachusetts health law in the context of our national debate about health care. In this Part, I argue that state experimentation with health care permits each state's regulation to adapt to local conditions and preferences while generating information and alternatives which can be emulated, adapted, or rejected by other states. Consequently I urge, as a minimum, that Congress amend section 514 to permit the Massachusetts experiment to go forward. Even more desirable would be the amendment of section 514 to permit all states to experiment with the regulation of employer-provided health care. Most desirable would be the total repeal of ERISA section 514.

Given the centrality of employer-provided medical coverage to health care in the United States today, ERISA preemption effectively prevents the states from experimenting in the health care arena by blocking state legislation relating to employer-provided health care. Section 514 should be amended--or, ideally, abolished altogether--so that, in this arena, the states can pursue their roles as laboratories of experimentation.

  1. KEY FEATURES OF THE NEW MASSACHUSETTS HEALTH LAW

    1. The Connector

      Central to the health care structure implemented by the new Massachusetts law is the state's "health insurance connector," (13) a publicly-governed (14) authority (15) which will perform six major functions.

      First, the connector will facilitate the purchase of health insurance by "eligible individuals" (16) and "eligible small groups." (17) An "eligible individual" is a Massachusetts resident other than a resident "offered subsidized health insurance by an employer with more than 50 employees." (18) An "eligible small group" is either a business firm that employs fifty or fewer employees or a "labor union, educational, professional, civic, trade, church, not-for-profit, or social organization." (19) The connector will identify those "health benefit plans" (20) which deserve the connector s seal of approval" (21) by meeting "certain standards regarding quality and value." (22) As to these approved plans, the connector will collect premium payments from eligible individuals and small groups purchasing their health insurance through the connector and will remit these premiums to the insurers. (23)

      Second, the connector will define the criteria that health plans must satisfy to...

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