Circuit Court Backs San Francisco’s Draconian Health Care Mandate

Published May 1, 2008

Businesses and employees in San Francisco are facing higher health costs and likely job losses after a three-judge panel from the Ninth U.S. Circuit Court of Appeals overruled a federal district court judge’s finding that San Francisco’s new health care ordinance violated the 1974 federal Employee Retirement Income Security Act (ERISA).

The San Francisco program requires employers to offer their workers health coverage or help pay for a city health program. (See “Judge: San Francisco ‘Play or Pay’ Measure Violates Federal Law,” Health Care News, March 2008.)

The law was to take effect January 1 of this year, but its implementation was prevented by the federal district court judge on December 26, 2007. The city appealed to the circuit court and requested it be allowed to implement the law until the appeal was fully heard and decided upon.

A three-judge panel of the Ninth Circuit Court on January 9 granted the city’s request and ordered that the law go into effect as scheduled.

‘Draconian’ Mandate

San Francisco’s law is one of the most draconian of its kind. It requires all for-profit employers in the city with more than 20 employees who work at least 10 hours a week to spend at least $1.17 per hour per employee on health benefits (about $200/employee/month). Employers with more than 100 employees must spend $1.76 per hour (about $300/employee/month).

Nonprofit employers are subject to the lower rate if they have 50 or more workers.

These levies are on top of an existing city minimum wage of $9.36/hour, as John R. Graham of the San Francisco-based Pacific Research Institute pointed out.

Also, employers are forbidden to reduce the size of their workforce to avoid compliance with the law, according to Yeshiva University law professor Edward Zelinsky.

Likely to Be Overturned

The three-judge panel’s ruling confirmed the Ninth Circuit’s reputation for inventing law based on its political and social objectives. It is sure to be overturned–yet again.

Even the ultraliberal San Francisco Bay Guardian acknowledged this in a blog posting celebrating the decision, noting “the Ninth Circuit is still a holdout against the federal courts’ shift to the right.”

ERISA was enacted by a strongly Democratic Congress, and every Court in the past 35 years has ruled the same way: that states cannot tell employers what to do when it comes to health benefits.

Despite these facts, Ninth Circuit Judge William A. Fletcher based his decision on the idea that San Francisco has a “strong likelihood” of prevailing when the case is finally heard by the entire Ninth Circuit Court. Actually, it has a likelihood approaching zero of finally being upheld.

Fletcher’s decision is rife with wishful thinking and topsy-turvy analysis.

For instance, Fletcher argues the new law does not “require” employers to provide benefits, which is sophistry of the highest order. Perhaps they are not “required” in the sense that they will not be imprisoned if they fail to comply, but short of criminal sanctions, “requirements” are usually enforced by the assessment of fine. In this case, the fine is onerous indeed–$1.17 per hour for every person employed. Either you provide the coverage or you pay the fine.

More Sophistry

Fletcher further argues ERISA does not apply because the city isn’t telling employers what benefits they should provide. They can provide anything they want so long as they spend $200/month.

This is more sophistry. Requiring a certain amount of money to be spent on benefits is exactly the same as requiring benefits.

The ERISA preemption is not confined to specific benefit mandates, but applies to any laws “relating to” employee benefit plans.

The judge also denies his ruling has any bearing on the purpose of ERISA as cited by the U.S. Supreme Court in the 2004 case Aetna v. Davilia, which is “to provide a uniform regulatory regime over employee benefit plans.”

Fletcher uses a tortuous route to get to that conclusion. He says “the Ordinance preserves ERISA’s uniform regulatory regime” because it doesn’t require the provision of any benefits if the employer pays a fine on top of the benefits. So, an employer could provide nationally consistent benefits worth $100/month and simply pay an additional $100/month to San Francisco.

Fletcher also refuses to stay the implementation of the law because he thinks having some workers continue to be uninsured will cause irreparable harm to San Francisco while causing very little damage to the employers who have to pay the fine. He supposes the specific and direct harm to the employers is less damaging than the hypothetical harm to the city.

Later in the decision Fletcher reasons the prospect of damage to the public of having businesses leave the city to avoid the fine is “highly speculative” and not worthy of consideration.

Creative Interpretation

This is as creative an interpretation as you will ever see. Fletcher likes the San Francisco law, so he will find some rationale for upholding it no matter how tortured and inconsistent. It is like Alice in Wonderland, where words mean exactly whatever the Queen of Hearts thinks they should.

Fortunately, there are some real judges on the U.S. Supreme Court who actually refer to the dictionary for the meaning of words, and to the language of federal statutes and the Constitution for interpreting law.

The Ninth Circuit will continue its unabated record of being the most overturned Court of Appeals in America.

Greg Scandlen ([email protected]) is president of Consumers for Health Care Choices.