Pay or Play Programs and ERISA Section 514: Proposals for Amending the Statutory Scheme

Abstract

Forty-seven million Americans lack health insurance, and public opinion polls demonstrate that the electorate is increasingly interested in government action to expand access to health care. Much of the debate has focused on comprehensive national legislation to reform our health care system, but over the last five years state and local governments have taken important steps to ensure that their own citizens can obtain needed health care services. One type of state law, "pay or play" health care reform, places burdens on employers in order to expand the number of adults that receive health care through their workplace. In particular, seven state and local governments have adopted laws that require employers to either "pay" a tax that is used to provide public health care services or "play" by providing health insurance for their employees. These state and local reform projects from Massachusetts to San Francisco stand out as examples of at least potential success in a broken and deeply fractured health care system. As national leaders work to craft a federal reform project, the Massachusetts experiment is frequently cited as an example from which important lessons can be drawn. Reformers across the country continue to point to these efforts in their attempts to expand coverage in new places. But, at the same time, a largely unrelated federal statute places enormous obstacles in front of this major strategy toward achieving universal health insurance. These state and local programs are threatened by federal preemption under section 514 of the Employee Retirement Income Security Act (ERISA). The language of ERISA explicitly disallows a broad cross-section of state law affecting employer-provided benefits, which affects state pay or play laws in profound ways. Indeed, since its enactment in 1974, section 514-which contains ERISA's broad preemption clause and complicated savings language-has become a case study in unintended legislative consequences. In 2006, courts concluded that a Maryland pay or play law was preempted by ERISA. Today, states continue to experiment with pay or play schemes designed to avoid ERISA preemption, and lawsuits that threaten their viability continue to make their way through the federal courts.