American Journal of Law & Medicine

ERISA preemption of Chapter 58: the future of the "pay or play" model of health care legislation.


The problem of the uninsured in this country continues to grow. (1) Over the past five years, proportion of uninsured Americans has risen from 14.6% to 15.9% of the population. (2) The statistics show disparities in insurance coverage among the various races, between native-born and non native-born citizens, and between other groups. (3) The Center on Budget and Policy Priorities partially links this change to the continuous decline in employer sponsored health insurance plans. (4) This is a problem that needs to be addressed and addressed quickly.

Further exacerbating this problem is the cost of the uninsured and the government-insured to the taxpayers of the country. It is estimated that Medicare and Medicaid, the two largest government financed health care programs, will cost $301.5 and $176 billion respectively. (5) These costs are projected to increase at a rate above GDP. (6)

Since states are partially responsible for Medicaid costs and have a responsibility for the health of their citizenry, many states have taken it upon themselves to try to correct these problems. This concern has caused several states to take initiative to pass legislation with the goal of universal health care in mind. (7) Several states have turned to, or have considered turning to, legislation that would require companies to choose between offering a health insurance plan to their employees or contributing to a state fund to offset the cost to the state of uninsured medical expenses. (8) These "pay or play" plans have been adopted in Maryland and Massachusetts. (9) On April 12, 2006, Massachusetts Governor Mitt Romney signed into law Chapter 58 of the Acts of 2006, titled An Act Providing Access to Affordable, Quality, Accountable Health Care. (10) Although Governor Romney line item vetoed portions of the bill, including the "pay or play," sometimes called "fair share," provision, the legislature overrode the veto and set Massachusetts's fair share legislation on the path towards implementation on January 1, 2007. (11)

Two of the largest problems facing the American health care system are the rising numbers of uninsured and the ballooning costs of health care paid by the government. This Note will discuss one type of reform effort, the "pay or play" system, which is aimed at increasing the number of people covered by health insurance and sharing the government's health care costs with employers who choose not to provide an employee health insurance plan. However, the Employee Retirement Income Security Act of 1974 (ERISA) (12) seems to be an insurmountable hurdle for states implementing this type of health care reform. This Note will examine Massachusetts's attempt at the "pay or play" system and whether that legislation has solved the riddle of ERISA preemption.

The purpose of this Note is to analyze Massachusetts's law under current ERISA preemption analysis. This Note will discuss the general implications of ERISA preemption on the category of health care legislation known as "pay or play" or "fair share" contribution. Although the Massachusetts legislature followed guidelines developed to avoid ERISA preemption, (13) recent litigation (14) has demonstrated that the Massachusetts law will be preempted.

This Note will begin by discussing and analyzing the history and interpretation of ERISA since its adoption. In section II, this Note will trace Supreme Court interpretation of ERISA and determine the current standard for ERISA preemption analysis. In section III, this Note will discuss a selection of other states' recent and past forays into universal health care legislation, as well as proposed guidelines for avoiding ERISA preemption. It will briefly discuss the legislation and how the programs it developed works and then will discuss why these laws failed preemption challenges. In section IV, the Note will discuss in-depth the ruling in Retail Industry Leaders Association v. Fielder to show how "fair share" contribution legislation has been analyzed. In section V, this Note will discuss in depth the Massachusetts law. It will incorporate the text, legislative history, governor's veto message, and purpose to understand how the law will operate, and the goal behind the legislation. In section VI, this Note will conclude that the Massachusetts legislation is preempted, that I do not see a way around ERISA preemption for these types of laws, and lastly that ERISA should be amended to allow this beneficial and much needed state legislation.


ERISA has a significant effect on the states when they attempt to deal with the health care problems associated with uninsured and government costs. ERISA states: "the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." (15) This note will trace ERISA preemption litigation through Alessi v. Raybestos-Manhattan, Inc., (16) Shaw v. Delta Airlines, (17) FMC Corp. v. Holliday, (18) Mackey v. Lanier Collection Agency, (19) and New York Blue Cross Plans v. Travelers Ins. Co., (20) which gives the current Supreme Court ruling for ERISA preemption analysis.

In Alessi v. Raybestos-Manhattan Inc., (21) the Court found that regardless of the New Jersey legislature's purpose in passing its law, it nevertheless 'relates to' ERISA covered pension plans because it foreclosed "one method for calculating pension benefits--integration--that is permitted by federal law." (22) ERISA permits integration. (23) The Court did not find it necessary to define "the outer bounds of ERISA's pre-emptive language to find this New Jersey provision an impermissible intrusion on the federal regulatory scheme." (24) The Court further stated that "even indirect state action bearing on private pensions" is preempted by ERISA. (25)

In Shaw v. Delta Airlines, Delta Airlines and other employers sought a declaratory judgment to stop the enforcement of New York's Human Rights Law, which barred employment discrimination on the basis of gender, and Disability Benefits Law, which required employers to offer specific benefits. (26) The law was interpreted by New York courts to include "a private employer whose employee benefit plan treats pregnancy differently from other non-occupational disabilities engages in sex discrimination." (27) The Supreme Court concluded that the New York law related to an ERISA plan. (28) The Court found that Congress intended "relates to ... in the normal sense of the phrase, if it has a connection with or reference to such a plan." (29) Here, both a law that "prohibits employers from structuring their employee benefit plans in a manner that discriminates on the basis of pregnancy, and ... [a] [l]aw, which requires employers to pay employees specific benefits, clearly 'relate[s] to' benefit plans." (30) The Court further stated that ERISA preempts more than "state laws specifically designed to affect employee benefit plans" and "state laws dealing with the subject matters covered by ERISA." (31)

In Mackey v. Lanier Collection Agency, (32) Georgia enacted a law that disallowed garnishment of ERISA-covered plans. (33) The Georgia law applied expressly and only to ERISA-covered plans. (34) The Court held that the law was preempted, even though it was possibly "enacted ... to help effectuate ERISA's underlying purposes." (35) However, general garnishments ordered by a state court were not preempted by ERISA, even though garnishments of ERISA plans may put a burden on the plan, because "Congress did not intend to preclude state-law attachment of ERISA welfare plan benefits." (36) The Court noted that the express language of ERISA allows ERISA-covered plans to be brought to court for various reasons and an appropriate enforcement mechanism, like garnishments, needs to be available to enforce judgments against ERISA plans. (37)

In FMC Corp. v. Holliday, (38) FMC operated a self-funded employee health benefits plan and attempted to use its "subrogation clause under which a Plan member agrees to reimburse the Plan for benefits paid if the member recovers on a claim in a liability action against a third party." (39) Pennsylvania state law precluded reimbursement from a claimant's tort recovery for benefit payments by a program, group contract or other arrangement, to employer's self-funded health care plan. (40) The Court noted that ERISA's "pre-emption clause is conspicuous for its breadth. It establishes as an area of exclusive federal concern the subject of every state law that 'relate[s] to' an employee benefit plan governed by ERISA." (41) ERISA's "saving clause" allows States to "'regulat[e] insurance,' except as provided in the deemer clause. Under the deemer clause, an employee benefit plan governed by ERISA shall not be 'deemed' an insurance company." (42) "Pennsylvania's antisubrogation law 'relate[s] to' an employee benefit plan" because, as was held in Shaw, "a law relates to an employee welfare plan if it has 'a connection with or reference to such a plan. …

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