- BIOETHICS FORUM ESSAY
Does Victory for Wal-Mart Mean Defeat for Health Care?
“Maryland is not a shrinking violet,” exclaimed Maryland State Senator Gloria G. Lawlah in explaining her support for Maryland’s Fair Share Health Care Fund Act, more widely known as the Wal-Mart bill. Neither it turns out is Wal-Mart, which last July, working through the Retail Industry Leaders Association, convinced federal district court Judge Fredrick Motz toenjoin Maryland’s attempt to make Wal-Mart “play or pay” for its employees’ health insurance. While Judge Motz’s ruling may be overturned on appeal, his decision raises issues that extend beyond Maryland.
The Wal-Mart bill was more an expression of populist outrage, a scream in the night, than a serious attempt at health insurance reform. The act applied only to non-governmental employers of 10,000 or more employees. It required for-profit employers of that size either to spend at least 8 percent of total wages paid in the state on health care for employees or to pay to the state “an amount equal to the difference between what the employer spends . . . and an amount equal to 8 percent of the total wages paid to employees in the state.” Non-profit employers of the same size, in contrast, were required in the same way to pay only 6 percent of total wages toward employee health care.
When the act passed, everyone understood that it was aimed at one and only one employer: Wal-Mart. The state has only three other employers with over 10,000 employees. One, Northrop Grumman, benefited from an exclusion of wages in excess of the median family income in the state from the determination of the employer’s payroll. The other large, for-profit employer, Giant Food, already spends more than 8 percent of its wages on employee health insurance. The third large employer, Johns Hopkins University, is a non-profit that meets its 6-percent obligation.
Although Maryland had reasons for concern about Wal-Mart’s health insurance policies, the Fair Share Act was a poor piece of health care reform legislation because it failed to actually address the problems of the state’s uninsured. In contrast to other recently enacted state “play or pay” laws, such as those in Vermont and Massachusetts, Maryland’s law would not have guaranteed anyone insurance. The act did not expand state health insurance programs, nor did it include any provisions designed to enhance the accessibility and affordability of insurance for low-income residents. Indeed, the act was silent about the plight of the workers of employers of less than 10,000 employees. And even with respect to Wal-Mart, the act did not actually require the retail giant to provide health coverage for its workers. Under the act, Wal-Mart, as the state pointed out in defending its legislation, would have been free to spend its 8 percent on building rather plush first-aid facilities. It also could have chosen simply to pay the money to the state.
These shortcomings, however, were not the basis for the court’s injunction. Indeed, Judge Motz rejected the Retail Association’s equal protection claim, which was based partially on the state’s particular targeting of Wal-Mart. As Judge Motz correctly noted, legislatures are generally free to make foolish and even discriminatory decisions that harm those who are neither especially vulnerable nor the victims of historic discrimination. Wal-Mart certainly falls into neither category.
While the court’s rejection of the equal protection claim followed precedent, it was unfortunate because that claim spoke to the uniquely foolish attributes of the Maryland act. Instead of relying on those failings, the court based its decision on grounds with broader implications: the preemptive sweep of the Employee Retirement Income Security Act, or ERISA, a federal law designed to create uniform legal standards between states for the operation of employee benefit plans. By so doing, the court raised pressing questions about the fate of other, more comprehensive and better considered state reform laws that incorporate the concept of employer responsibility.
The story of ERISA preemption of state health insurance reforms is an old one. Enacted in 1974 to safeguard pensions and employee benefits, ERISA preempts or overrides state laws that “relate to” employer-established benefit plans. The statute also creates an exception to that preemption for state laws regulating insurance, but the exemption does not apply to “self-insured” plans — in-house insurance schemes in which the employer pays health care claims directly out of company assets. Hence employers can opt out of state insurance mandates and regulations by creating self-insured plans.
In the 1980s, the federal courts read ERISA’s preemption provision broadly and literally, leading most ERISA experts to conclude that states could not require employers to provide health insurance, nor could states assess employers for not doing so. Then, in 1995, in New York State Conference of Blue Cross & Blue Shield v. Travelers, the Supreme Court introduced a new pragmatism into its ERISA analysis, declaring that the statute should not be read literally to apply to any state law that “relates to” an employer benefit plan. Instead, the high court explained, ERISA preemption should be understood in relationship to Congress’s desire to free interstate employers from conflicting and burdensome state regulations. Hence, a state law would be preempted only if it either made a reference to an employee benefit plan or had a connection to the plan such that it placed direct, and not merely incidental, burdens on the plan.
Since Travelers, health care reform advocates have reconsidered the use of “play or pay” plans, arguing that such plans, because they do not require employers to actually provide any specific benefits, neither reference nor have a connection to an ERISA plan. Indeed, the pithiness and lack of detail in the Maryland plan was due, in part, to an effort to avoid ERISA preemption. As some ERISA experts saw it, the less the state regulated employers or defined what they were expected to do, the less likely was ERISA preemption.
Judge Motz was not persuaded. After finding that the Retail Industry Leaders Association had standing to represent Wal-Mart, he found that the Fair Share Act did relate to an ERISA plan for several reasons. According to Judge Motz, the act effectively created health care spending requirements that were inapplicable in other jurisdictions, thereby burdening interstate employers such as Wal-Mart. Moreover, in order to reach the 8 percent target, Wal-Mart would be required to account for its health care spending in Maryland separately, creating an administrative burden contrary to ERISA. As to Maryland’s contention that the act created no mandate because Wal-Mart was free to “pay” rather than “play,” Judge Motz asserted that “the ‘choice’ here is a Hobson’s choice.” Any employer, the judge declared, would prefer to pay for a benefit for its employees rather than write a check to the state.
Although the Maryland act was unique, unless Judge Motz’s decision is reversed by the Fourth Circuit Court of Appeals it may be used to mount challenges beyond the boundaries of Maryland. As Judge Motz noted, other states and localities have laws that include some type of “play or pay” scheme. While most of these laws, particularly those in Vermont and Massachusetts, are far more complex and comprehensive than was the Wal-Mart law, spreading the obligation to support health insurance more broadly across the community, they share with Maryland’s act the idea that employers have a responsibility to share the burden of providing health insurance. As a result, to the extent that Judge Motz’s opinion can be read to suggest that states can neither use financial pressure to induce employers to provide health care benefits nor impose administrative obligations on employers to keep track of what employers pay for that purpose, other states’ “play or pay” plans may be vulnerable.
Importantly, it is possible to distinguish the Massachusetts and Vermont laws from Maryland’s by noting that the costs they impose on employers for failing to “play” are far less than Maryland would have exacted from Wal-Mart. Massachusetts and Vermont give employers more than a Hobson’s choice between “playing” and “paying.” In the end, though, the most salient distinction may not be legal, but political. For example, in contrast to the Fair Share Act, Massachusetts’s recent reform law represented a political compromise that providers, consumers, and employers broadly supported. With no single employer targeted, and with employers generally supporting the plan, there has been no rush to the courthouse.
The problem remains that unless the highly conservative Fourth Circuit overturns Judge Motz’s decision by appreciating the degree to which it undermines the authority and leeway of states to solve their most pressing problem, the Wal-Mart case will stand as an open invitation to those who refuse to be a shrinking violet and are unwilling to accept compromises that place some burden upon them. When it comes to health and health care, we cannot act as if we were alone. By viewing ERISA as giving employers just such a right, Judge Motz’s opinion revives the “my way or the highway” mentality that is corrosive to the nation’s health care system.
Bad statutes lead to bad precedent. Carefully drawn statutes, like those in Massachusetts and Vermont, deserve a better fate. Let’s hope that one bad precedent doesn’t make our nation’s health care problems tomorrow even more intractable than they seemed to be yesterday.
Wendy E. Parmet
This commentary appears by arrangement with the American Society for Law, Medicine, and Ethics.