Benefits & ERISA Law

The Lessons of the Massachusetts Health Care Reform Act's $400 Million Shortfall

There’s a lot to be said about the preemption issues raised by state health insurance mandates and the assumptions that underlie the beliefs of those who argue that ERISA preemption should not be allowed to prevent states from experimenting with acts intended to remedy the problem of the uninsured. Articles like this one here, however, suggest the naivety of some of those assumptions, such as the idea that states are likely to really manage the problem in a more effective way than employers, operating under ERISA preemption, have managed to do so to date. Moreover, the article, in its discussion of the huge and apparently unexpected, or at least unplanned for, increase in the cost of insuring the uninsured under the Massachusetts Health Care Reform Act, really drives home a point I have made in other posts, that the problem with these statutes is that they do nothing to address the real problem affecting employer provision of health benefits, namely the extraordinary cost of providing those benefits; as the article reflects, Massachusetts’ much lauded experiment doesn’t target that at all, but simply shifts the pockets that will have to fund those extraordinary and ever increasing costs. And finally, if you look closely at some of the numbers discussed in the article, you come to understand the answer I have given to people who have wanted to know why no one has yet challenged the Massachusetts act as preempted; as I have told people, it’s not because the act isn’t preempted, it is instead because the financial costs to employers have yet to warrant such a challenge. The article explains that the state is anticipating some 400 million dollars in additional costs to provide health insurance under the statute to the uninsured, costs to be assumed by the taxpayers rather than by businesses through any obligation under the mandate to provide insurance; in this way, the Massachusetts statute is much more a mechanism - Trojan horse, some might say - to transfer the costs of the uninsured onto the tax rolls, rather than, by employer mandates, onto the business community. I think it is a safe bet that, had the act been drafted to transfer more of the health insurance costs onto the business community rather than onto the state taxpayers, you would have quickly seen a preemption challenge mounted. And finally in this regard, note the article’s reference to the amount of money that employers have paid to date for not providing the health insurance required by the statute, which is the underwhelming amount of 5 million dollars. I suspect Wal-Mart spent not too much less in legal fees to get the Maryland Fair Share Act overturned, and those aren’t numbers, spread across an entire business community, that are likely to provoke any economically rational business person to want to fund litigation over the act. Start to see those numbers creep up substantially, however, and you can safely plan for a preemption challenge.

Full post as published by Boston ERISA Law Blog on January 25, 2008 (boomark / email).