Federal court overturns Md. employer mandate

Requiring large employers to provide health coverage violates ERISA law, which allows multistate companies to develop uniform benefits, a judge finds. Maryland appeals the decision.

By Amy Lynn Sorrel, AMNews staff. Aug. 14, 2006.

A federal court decision overturning Maryland's "Wal-Mart law" likely won't stop state legislative efforts to mandate that employers offer health insurance, but it may force a switch in tactics, policy experts predicted.

On July 19, Judge J. Frederick Motz ruled that Maryland's Fair Share Health Care Act is preempted by the federal Employee Retirement Income Security Act. The state law "violates ERISA's fundamental purpose of permitting multistate employers to maintain nationwide health and welfare plans, providing uniform nationwide benefits and permitting uniform national administration," he wrote.

The Maryland statute requires companies with more than 10,000 employees to spend up to 8% of their payroll costs on health benefits or pay the difference into a state fund. The measure, challenged in a lawsuit by the Retail Industry Leaders Assn. in February, singled out Wal-Mart -- the only business in the state that did not meet the requirements.

About 28 other states this year pressed for similar legislation, dubbed "fair share" or "pay or play." The trend was fueled by state lawmakers frustrated by the number of working people on Medicaid and the strain of the cost associated with treating rising numbers of uninsured residents. Backed heavily by organized labor, the laws, supporters say, were designed to create a level playing field and stop profitable companies from shifting the burden of their employees' insurance costs onto taxpayers.

However, in Maryland's case, the court found that the law not only conflicted with ERISA but also unfairly hurt Wal-Mart by making the company report its payroll and benefits expenditures to the state. This requirement did not apply to any other employer in the state.