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San Francisco health care mandate violates federal law, District Judge says

January 6, 2008

A US District Judge has ruled that a controversial city health care plan expansion violates a federal law regarding government regulation of employee benefit plans. Judge Jeffrey White’s ruling halted the city of San Francisco’s attempt to expand its public health care program by preventing a mandate from going into effect that would have required employers to offer their employees health coverage or pay to support the city program. The city is appealing the ruling to the 9th Circuit Court of Appeals. Analysts say the mandate, if implemented, would have a negative effect on 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, is the city’s attempt at gradually providing universal health care coverage to San Franciscans. The program is built around public clinics where citizens can obtain regular medical care. The majority of funding for the program’s current annual budget of approximately $23 million currently comes from federal tax dollars, via the California state Health Care Coverage Initiative (HCCI).

The mandate struck down by Judge 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 to spend $1.76 per hour, either on their own plan or in payments to the city. Newsom had planned to use the revenue from this tax increase to expand the Health San Francisco program to include all of the city’s 82,000 uninsured residents, as well as to make switching from private insurance to taxpayer-funded health care a viable option for San Franciscans who already possess coverage. 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 website (www.HealthySanFrancisco.org), 3,969 people were enrolled at last count.

White ruled that the directive violates the 1974 Employee Retirement Income Security Act (ERISA), a federal law which, in part, governs employer-sponsored health benefits. City Attorney Dennis Herrera filed an appeal with California’s 9th US Circuit Court of Appeals. A three-judge panel from the 9th Circuit, the most overturned Circuit Court of Appeals in the country, held a preliminary telephone hearing January 3, during which Judge William Fletcher intimated that there could be grounds for overturning White’s ruling that the San Francisco plan violated ERISA.

Herrera also filed a motion requesting that the 9th 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 time of printing the court had not yet decided whether to hold a full hearing to evaluate the appeal.

White’s ruling has implications beyond the city of San Francisco. Concerns have now been raised about the viability of similar health care programs under consideration by city and county governments across California, as well as the statewide health care coverage expansion being pushed by Gov. Arnold Schwarzenegger (R) and Assembly Speaker Fabian Núñez (D).

Sally Pipes, CEO of the Pacific Research Institute (PRI), a free market public policy institute based in San Francisco, 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,” she said, adding that the Healthy San Francisco expansion was “another prohibitive program” that would “[increase] the cost of doing business” in the city, and would further result in “chas[ing] business out.”

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

Devon Herrick, a senior fellow at the National Center for Policy Analysis, said, "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,” he said, “which is a codeword for enacting laws that violate ERISA. However, this has not occurred yet.”

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, he said. “In 1974, one in fifty Hawaiians were uninsured. Today, after more than three decades of mandatory insurance, that number stands at one in ten. 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.”

The solution, according to Graham? “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 is The Heartland Institute’s Research Fellow for health care policy and is managing editor of Health Care News.

Internet Info:
“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



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