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Preempting Reform

Brad Cain, Senior Editor-Managed Care, January 2, 2008

An ambitious plan to offer universal access to affordable healthcare services for every resident in San Francisco is now in jeopardy due to a ruling in a federal lawsuit. That lawsuit is challenging the legality of a fee the city plans to impose on employers who do not offer healthcare coverage to their workers.

During its first six months of limited operation, the program enrolled over 6,500 residents and city officials planned to begin rolling out the program for all 73,000 uninsured residents beginning in 2008. That plan, however, has been preempted by the successful challenge launched by the Golden Gate Restaurant Association.

Championed by Mayor Gavin Newsom and supported by the Board of Supervisors, the Healthy San Francisco program was the first of its kind in the nation. The novel program is not insurance because its coverage exists only within the confines of the city, but it does offer beneficiaries access to a full range of in-patient and outpatient care through a network of contracted providers and city-run clinics, as well as prescription drug coverage and mental health services.

Enrollees pay for access based on a sliding scale. Residents earning up to 100 percent of the federal poverty level would be eligible for free coverage, while those earning between 200 and 300 percent of the FPL would pay $150 per quarter for coverage. The program would top out at $2,700 a year for those earning at least 500 percent of the FPL.

The troublesome part is that the act also requires medium- and large-sized employers to spend between $1.17 and $1.76 per hour, per employee on comprehensive health benefits, or contribute an equivalent amount to the city to pay for employee access to the Healthy San Francisco program. The employer assessments, along with member premiums, are the linchpins to funding the full expansion of the program, and now that funding is in doubt.

Federal Judge Jeffrey White ruled December 26 that the employer assessment is an improper intrusion into the federal domain. While he found that the assessment is preempted by the federal Employee Retirement Income Security Act, White maintained that there may be other alternatives to fund the expansion such as a general fee to support a public healthcare system or an increased tax on employers that is offset to some extent in the form of tax credits for healthcare expenditures.

While the ruling is preventing a full expansion, city officials say they are committed to the program and as of yesterday have expanded access to all residents earning up to 300 percent of the federal poverty level. "Despite today's ruling, we are undeterred," Mayor Newsom said after the judge's order came down. "We will move forward with this innovative program. We are working with the City Attorney to appeal the ruling, and we will win."

In spite of Newsom's confidence, the issue of ERISA preemption is a daunting challenge to would-be reformers. ERISA preemption is what doomed a 2006 Maryland law aimed at forcing large employers like Wal-Mart to spend more on employee health benefits. And ERISA preemption is expected to raise its head again in the Golden State if a plan to cover nearly every Californian is ultimately passed.

There is one wild card in the mix, however. San Francisco's appeal is pending before the Ninth Circuit Court of Appeal, which is generally considered to be the most liberal in the federal system. A ruling in favor of San Francisco could prompt a broader examination of the respective roles of federal, state and local governments in healthcare policy . . . but I wouldn't bet on this leading to a change in federal policy any time soon.


Brad Cain is editor of California Healthfax and executive editor for managed care with HealthLeaders Media. He may be reached at bcain@healthleadersmedia.com.

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