State Based Health Care Reform-Getting Out from Under Preemption

 In January the Fourth Circuit decided RILA v. Fielder, 39 EBCases 2217, 2007 U.S. App. LEXIS 920 (4th Cir. 2007) holding, in a split decision, that Maryland's law requiring certain large employers (most notably Wal-Mart) to spend 8% of payroll on healthcare for their employees or pay the difference to the state to defray the cost of Medicaid. According to the court, such a law is preempted because it "effectively requires employers in Maryland covered by the Act to restructure their employee health plans."

The preemption test is fair enough, but the law does no such thing. It gives employers a choice between increasing health care spending to a certain level or paying the state--a real choice as far as the dissent was concerned--hardly a "requirement." In any event, contrary to what the court thought there are ways to spend money on health care for employees without establishing a plan--all that's required is that employers avoid promising a particular level of benefits, i.e. decide what to pay for as an act of genuine discretion. Oddly, this concept horrifies every defender of free enterprise I meet. But the law is pretty clear; absent a specifically identified benefit--i.e. something definite enough that you know a promise has been broken when it doesn't get paid, there is no employee benefit plan. A discretionary bonus payment is not an ERISA plan.

But I don't want to belabor the point. The law shouldn't have been held preempted, but the Maryland Fair Share Health Care Fund Act was hardly comprehensive health care reform.

I write to suggest that there are other ways to skin this cat (and irritate fellow Advisory Board member Frank Cummings). The outlines of one approach can be found in a proposal that was before the Wisconsin Legislature last year. See which contains a summary and text of the bill.

I'll omit details, but the basic approach is simple. Employers pay a per capita assessment to the state which some state agency decides is about equal to the cost of coverage. The state provides coverage. Employees in the state get the coverage whether the employer actually pays or not--so the employer payments are in the nature of a tax, not the payment of a premium without which no coverage is provided. The employer doesn't establish or maintain the plan--the state does. No employee benefit plan, no preemption. It's a miracle. ERISA doesn't preempt everything.

If the employer wants to provide more (e.g. a smaller co-pay for his employees), he's free to do so or not, so everyone is not reduced to the least common denominator; employers who want to use richer coverage to attract employees are free to do so.

The success of this scheme is based on the notion that the state, with all employee in the system, can provide health care more cheaply than the hodge podge of employer and individual arrangements that we now have, and cover at least all employees and their families to boot. Large employers with older workforces stop paying more than their fair share--there's a real risk pool-no opting out for the young and the healthy, and no skimming the cream by hiring and providing coverage to just the kids in their twenties.

I'm a lawyer, not a health care economist. The plan makes sense to me, but maybe it won't work. But suppose it does. Wouldn't that be grand (for everyone but health care insurers)? Shouldn't at least one state give it shot so we'll finally know the answer? Must we try this only on the national level, or not at all? The states should be laboratories to try out new ideas. It's time to set them free. End the tyranny of ERISA preemption. If it works, the federal government can incentivize other states to do the same thing, and our long national health care nightmare will be over.