Employer Mandate in Massachusetts Could Spark Federal Lawsuit

Published November 1, 2008

The Commonwealth of Massachusetts could be facing a federal lawsuit if it implements a proposal that would force companies with more than 10 employees to increase contributions to workers’ health care policies.

Matt Fishman, vice president for community health at Partners HealthCare, the Bay State’s largest employer, warned the state government in a September 5 press conference a lawsuit was likely if the regulation went into effect on October 1 as scheduled.

ERISA Rears Head Again

Courts have thrown out state laws directly imposing requirements on employer-sponsored health benefits, Fishman noted. In addition, he said, such a finding “could prompt a federal court ruling that would eliminate a portion of the state’s health insurance [mandate] law.”

“States may not pass laws that ‘relate to’ employee benefit welfare plans,” said Greg Scandlen, director of Consumers for Health Care Choices at The Heartland Institute, referring to limitations on states made by the Employee Retirement Income Security Act (ERISA), the 1974 federal law under which the Massachusetts regulation would likely be challenged.

“They may mandate that individuals purchase health insurance,” Scandlen continued. “They may tax employers, providers, insurance companies, and individuals to pay for state programs. However, they cannot dictate an employer’s welfare benefit program, including not only the specific benefits but also whether an employer provides benefits at all and how much it must pay if it does.”

A federal court striking down portions of existing Massachusetts law “would say to the nation that Massachusetts’ health reform law is perhaps not as successful as many thought, even though the coverage numbers are so strong,” Fishman said.

Removing Employer Choice

Massachusetts law currently requires businesses with more than 10 full-time employees to offer health insurance or pay an annual penalty of $295 per worker. The same law requires employers to choose either to cover at least 33 percent of their workers’ premiums within the first 90 days of employment, regardless of where those employees’ health insurance is coming from, or to ensure at least 25 percent of their full-time workers are enrolled in an employer-sponsored insurance plan.

The new regulation would take away that choice, requiring businesses to meet both the 33 percent and 25 percent figures or be forced to pay the $295 per employee penalty.

“Current Massachusetts law is already a violation of ERISA, and it would be thrown out if Massachusetts’ employers challenged it in federal court. But it is expensive to bring an ERISA suit, and the cost of compliance doesn’t justify the cost of litigation,” said Scandlen.

“Employers in Massachusetts have been trying to score political points by cooperating with the law,” Scandlen continued. “However, I’ve said before that if Massachusetts kept pushing—by, for example, raising the assessment to $2,400 per employee per year, as San Francisco did earlier this year—the business community would change its mind in a heartbeat about challenging the law.”

Suit More Likely

State budget analysts expect the new rule to generate up to $45 million this fiscal year alone, a number arrived at by assuming 10 percent or more of the state’s employers would be unable or unwilling to meet the requirement in time to avoid the fine.

“We heard many concerns expressed, as well as support by many parties, all of which we will take under advisement as we move forward,” said Sarah Iselin, commissioner of the state’s Division of Health Care Finance and Policy, in a press release.

“The agency carefully considered the legal risks before proposing the rule and that an estimated 90 percent of affected companies are expected to comply with the regulation,” Iselin added.

“This new regulation pushes employers that much closer to a point where it is economically feasible for them to file suit to get these laws repealed,” Scandlen concluded.

Jeff Emanuel ([email protected]) is research fellow for health care policy at The Heartland Institute and managing editor of Health Care News.