Court gives temporary OK to San Francisco "pay or play" law

The ruling differs from decisions in other states striking down employer health spending mandates for violating federal standards on health plan administration.

By Amy Lynn Sorrel, AMNews staff. Feb. 4, 2008.

In what may prove to be a bellwether for the viability of employer-mandated health insurance, a federal appeals court allowed San Francisco's plan requiring businesses to provide benefits or pitch in for uninsured coverage to remain in place -- for now.

The city ordinance, which took effect Jan. 1, requires employers with 20 or more workers to spend a certain amount on health coverage or put that money into a city fund for "Healthy San Francisco." The program offers primary and preventive care to the city's estimated 82,000 uninsured residents through a system of clinics. Businesses with 20 to 99 workers must spend $1.17 per hour per employee, while those with 100 or more employees must pitch in $1.76 per hour per worker.

The Jan. 9 decision by the 9th U.S. Circuit Court of Appeals comes on the heels of a trial court ruling striking down the employer-spending provision. The trial judge, on Dec. 26, 2007, said the mandate is preempted by the federal Employee Retirement Income Security Act because it interferes with employers' ability to provide and maintain uniform health benefits without facing a patchwork of regulations within each state.

However, the three-judge appeals panel disagreed with that interpretation and issued an emergency order keeping the program in full effect while the city appeals the trial court decision. Siding with the city, the 9th Circuit said an ERISA violation is unlikely because the ordinance gives businesses the option of how to comply without making any changes, whether by paying into an existing health plan or the city fund.