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State and city healthcare reforms collide with a U.S. law

Many efforts to expand coverage have been blocked in court. More legal tests are likely, starting in San Francisco.

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The biggest name in healthcare reform isn't Hillary, or Mitt, or Arnold – it's ERISA. That's the name of a federal law that could invalidate many of the budding efforts by states and cities to expand access to healthcare.

ERISA, which stands for the Employee Retirement Income Security Act, shields businesses from state and local regulation of the benefits they offer workers, including health insurance. Without the law, national companies in particular could achieve little uniformity in their benefit plans.

But that uniformity comes at a cost: The law limits the abilities of state legislatures to serve as laboratories for healthcare solutions. Courts have already applied ERISA to strike down efforts in Maryland and Suffolk County, N.Y., that would compel employers to cover more people.

In coming weeks, San Francisco will have its go in court over ERISA. And if the California legislature and Gov. Arnold Schwarzenegger (R) can seal a much-anticipated healthcare deal, they, too, will be girding for a legal challenge.

The healthcare plans in California and Massachusetts have been crafted with an eye to previous ERISA rulings, and other states are watching to see if the innovations will hit upon a legally acceptable formula – or hit another brick wall in court.

"Many states are watching ... to see how this is panning out," says Joel Miller with the National Coalition on Health Care in Washington. "What a lot of ... people who follow this hope for is that the states will try to thread this needle."

Twenty-one states have put forth universal coverage bills this year, according to the National Conference of State Legislatures (NCSL). But Maryland's court losses dealt a blow to these efforts. The state's plan targeted large employers – in effect, Wal-Mart only – and stipulated that their employees must be given health insurance or the state would assess a fee per worker.

A federal appeals court found early this year that this so-called "play or pay" approach constituted a benefit mandate by the state of the sort outlawed by ERISA. Because Wal-Mart would be the only company in Maryland affected, the court found that the state was not really offering the company a choice to pay; it was simply creating a mechanism to force the retailer to extend health benefits.

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