Judge: San Francisco ‘Play or Pay’ Measure Violates Federal Law

Published March 1, 2008

A U.S. district judge has ruled a controversial expansion of a city health care plan violates a federal law addressing government regulation of employee benefit plans.

Judge Jeffrey White’s ruling halted the city of San Francisco’s attempt to expand its government health care program through a mandate requiring employers to offer their employees health coverage or pay to support the city program.

The city is appealing the ruling to the Ninth U.S. Circuit Court of Appeals. Analysts say the mandate, if implemented, would harm San Francisco’s economy while doing very little to ease the plight of the uninsured.

“Healthy San Francisco,” established in 2005 by Mayor Gavin Newsom (D), is the city’s attempt to become, over time, the single provider of health care for San Franciscans. The program is built around public clinics where citizens can obtain regular medical care. Most of the funding for the program’s current annual budget of approximately $23 million comes from federal tax dollars, through the California state Health Care Coverage Initiative (HCCI).

Mandate Struck Down

The mandate struck down by White in his December 26 ruling would have required businesses with between 20 and 99 workers to spend $1.17 per employee per hour, and those with more than 100 employees to spend $1.76 per employee per hour, either on their own health insurance plan or in payments to the city.

Newsom had planned to use the revenue from the tax increase to expand the Healthy San Francisco program to include all of the city’s 82,000 uninsured residents.

Until the end of 2007, Healthy San Francisco catered exclusively to individuals whose income was at or below the poverty line. According to the program’s Web site, only 3,969 people were enrolled at last count. Proponents still hope to expand the program to thousands of people this year by imposing the mandate.

Appeal Filed

White ruled the directive violates the 1974 Employee Retirement Income Security Act (ERISA), a federal law regulating employer-sponsored health benefits. Shortly after the ruling, San Francisco City Attorney Dennis Herrera filed an appeal with California’s Ninth U.S. Circuit Court of Appeals.

A three-judge panel from the Ninth Circuit, the most-overturned appellate circuit court in the country, held a preliminary telephone hearing January 3, during which Judge William Fletcher intimated there could be grounds for overturning White’s ruling.

Herrera also filed a motion requesting the Ninth Circuit grant an emergency stay to allow the mandate to take effect as scheduled, pending an official hearing on the matter. The motion was not immediately granted, and at press time the court had not decided whether to hold a full hearing to evaluate the appeal.

Analysts Skeptical

Sally Pipes, president of the Pacific Research Institute (PRI), a San Francisco-based think tank, called the mandate “very bad” for the city.

“There is a reason companies like Chevron [and] Bank of America … are no longer headquartered in San Francisco,” Pipes said. The Healthy San Francisco expansion is “another prohibitive program” that would “[increase] the cost of doing business” in the city and would “chase business out,” she added.

John Graham, PRI’s director of health care studies, agreed, calling the city’s appeal of White’s ruling, which was “in line with a judgment against Maryland in January 2007,” a waste of taxpayers’ money.

Devon Herrick, Ph.D., a senior fellow at the National Center for Policy Analysis, agreed, saying, “The authority to regulate employer benefits rests with the federal government, not the states–and definitely not a city.” However, Herrick warned, some legislators might not be willing to accept ERISA as a check on state and local governments’ legislative power.

“There has been talk among some politicians about allowing states to experiment,” Herrick said, “which is a codeword for enacting laws that violate ERISA. However, this has not occurred yet.”

Hawaiian Version Failed

Said Graham, “The only jurisdiction to legally succeed in forcing so-called ‘universal’ health care on its residents in the face of an ERISA lawsuit is Hawaii, because it passed its law before ERISA came into force in 1974.”

The lesson to be learned from this one exception is clear, Graham said.

“In 1974, one in 50 Hawaiians were uninsured. Today, after more than three decades of mandatory insurance, that number stands at one in 10,” Graham noted.

“The number of uninsured in this country has nothing to do with having a law ordering people to buy health insurance. Instead, it has to do with too much government control of health insurance already,” Graham said.

Graham says the solution is to give consumers more power over their health care dollars. “Instead of wasting San Francisco taxpayers’ dollars on legal fees in a futile appeal of Judge White’s decision, San Francisco should advocate tax reform that gives health care money back to the people, not government agencies.”

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

For more information …

Healthy San Francisco: http://www.HealthySanFrancisco.org

“Status report on the implementation of the San Francisco Health Care Security Ordinance”: http://www.sfhp.org/files/PDF/SFHAP/HSF_Implementation_Status_07_07.pdf