COVERAGE: Healthy San Francisco Lives... For Now

Diners in San Francisco are finding something new on the menu of local eateries—health care—as some restaurants are charging customers a bit extra so restaurant employees can access health care services. At least three of those potential diners—Ninth Circuit Judges Goodwin, Reinhardt and Fletcher—decided that a law that forces restaurants (and other employers) to help pay for employee health care is perfectly legal. Many supporters of the San Francisco law are eating up this news—at least until the U.S. Supreme Court induces indigestion (if the high court decides to consider the inevitable appeal).

Yesterday, the Ninth Circuit Court of Appeals issued a decision that allows San Francisco to continue its health care coverage initiative: "Healthy San Francisco." The program is financed in part by an ordinance that requires private employers with more than 20 employees to contribute to the cost of providing health care services to San Franciscans. They can do so in a variety of ways, including offering insurance to their employees or paying a fee to the city for the cost of accessing the city's health care program. According to the Court, San Francisco's version of the "pay-or-play" employer mandate does not run afoul of ERISA—the federal law that regulates employee benefit plans.

Since its launch in 2007, Healthy San Francisco has enrolled more than 30,000 of the city's 60,000+ uninsured residents. The program is not "insurance" exactly, but is a collaboration between San Francisco and four hospitals, 28 health care centers, and many physician groups to provide preventive care and other services to program participants. To pay for it, many financing sources are being tapped by the city— including federal funds, city and county contributions, and the employer "pay or play" ordinance.

After nearly two years in the courts, San Francisco won the right to keep enforcing the mandate on employers. The Court upheld the ordinance primarily because the law only dictates the amount employers must pay toward their employees' health benefits. It does not require employers to establish their own ERISA plans nor does it dictate specific benefits that employers must offer. The Court emphasized that employers could satisfy their obligation in several ways: 1) paying the city a fee; 2) funding exclusively preventive care; 3) setting up an on-site clinic and reimbursing employees for over-the-counter medications; or 4) funding a traditional ERISA plan. In short, the ordinance "does not look beyond the dollar spent" and therefore does not "create a plan" as defined by ERISA or impermissibly "relate to" an ERISA plan.

Prior to this ruling, most ERISA-benefit lawyers assumed that a positive ruling for San Francisco would create a "split in the circuits" on whether states and local governments could enforce an employer mandate to pay for health benefits, and lead to a U.S. Supreme Court hearing. The Ninth Circuit addresses this possibility head-on, denying that its decision is contrary to the Fourth Circuit's decision in the Wal-Mart case. In the Wal-Mart case, a Maryland law required employers with 10,000 or more Maryland employees to spend at least 8 percent of their employees' payrolls on health insurance coverage or pay the difference to the state. Wal-Mart was the only affected employer in the state. Maryland offered no health care program like San Francisco's and left Wal-Mart with no meaningful alternative but to increase its employee coverage. The Maryland law, according to the Ninth Circuit, forced a change to the existing ERISA plan structure, whereas the San Francisco plan does not encourage or discourage offering or altering an ERISA plan. Despite the Court's strenuous defensive stance that San Francisco is not in the same boat as Maryland, it seems likely that the San Francisco employer associations will try to appeal this decision either to the full Ninth Circuit (rather than the three-judge panel) or the U.S. Supreme Court.

So, where does that leave state and local health care reform? This ruling will likely embolden Massachusetts, which has a pay-or-play employer mandate to support its universal coverage program. It may also encourage Governor Schwarzenegger to try again for comprehensive health care reform at the state level. In terms of what's on the menu for our nation as it continues to seek a more sustainable health care system, the San Francisco case can serve as appetizer for reform (an amuse bouche of shared responsiblity, if you will), but it's far from a main course. As UC Berkeley's Ken Jacobs, who consulted on the program, told the San Jose Mercury News: "No one thinks that San Francisco on its own is going to solve the health care problem in the city or the nation. What San Francisco has shown, however, is that it's a matter of will, it can be done."