Judge Gives Wal-Mart
Reprieve on Benefits
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William Thomas Cain/Getty Images
Wal-Mart was the target of a Maryland law requiring
large companies to spend 8 percent of their payrolls on employee
health benefits. |
By REED ABELSON and
MICHAEL BARBARO, NYTimes on the Web, July 20, 2006
In a setback to state efforts to
force employers to provide more generous health benefits, a federal judge
yesterday struck down a Maryland law that was aimed at the nation’s largest
retailer, Wal-Mart Stores.
The judge ruled that the federal law governing employer-provided health benefits
takes precedence over the state law, which would have required companies with
10,000 or more workers to spend at least 8 percent of their payrolls on health
insurance, or pay the difference into a state Medicaid fund.
Only Wal-Mart, which has been thrust into the center of the national debate over
who should pay for health care, would have been affected by the law.
The decision yesterday is likely to derail efforts to pass similar laws in
states where organized labor leaders and lawmakers have criticized companies for
shirking their responsibility to provide adequate health insurance for their
employees.
“The bad news is that this will discourage a lot of states who are moving
forward with these bills from doing so,” said Naomi Walker, the director of
state legislative programs at the A.F.L.-C.I.O., which lobbied for the Maryland
law.
Sandy Kennedy, the president of the Retail Industry Leaders Association, a trade
group in Arlington, Va., that had challenged the law, said the ruling “was a
victory for all business,” adding that she hoped other states would “heed the
decision.”
States are increasingly grappling with rising health care costs and the growing
numbers of uninsured and have been looking for ways to require employers to
shoulder more of the costs. While yesterday’s decision may weaken the
ability of states to force employers to provide coverage, policy experts say
states are likely to try different legislative approaches, like the one in
Massachusetts, where the burden falls on both individuals and companies.
In yesterday’s decision, Judge J. Frederick Motz of Federal District Court,
ruled that the Maryland law, which was overwhelming passed by the
Democrat-controlled state legislature in January, was pre-empted by the federal
Employee Retirement Income Security Act, or Erisa.
The act sets out a national standard for company benefit plans, replacing what
would otherwise be a patchwork of state regulations.
The 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 in the
decision.
In an interview on a New York radio program, Wal-Mart’s chief executive, H. Lee
Scott Jr., called the court’s ruling “encouraging.” He said it signaled
that the federal government, rather than individual states, would be “the
control point for these kinds of issues so that commercial interests, businesses
will be able to have one standard to work against.”
While Maryland’s state attorney general said he expected to appeal the decision,
the ruling was viewed by both opponents and supporters as a defeat for states
trying to govern corporate behavior.
Similar laws are vulnerable to the same challenge, said J. D. Piro, an attorney
and principal at Hewitt Associates, a consulting firm. Yesterday’s decision “is
an impediment to this kind of legislation,” he said.
In his decision, Judge Motz emphasized that his ruling only applied to the
Maryland law, and it was unclear exactly how the decision might affect the laws
that have already passed in Massachusetts and Vermont.
The Massachusetts law “addresses health care issues comprehensively and in a
manner that arguably has only incidental effects upon Erisa plans,” the judge
wrote. He noted that “it is strongly in the public interest to permit
states to perform their traditional role of serving as laboratories for
experiment in controlling the costs and increasing the quality of health care
for all citizens.”
Unlike the Maryland bill, which was passed over the veto of the Republican
governor, Robert L. Ehrlich Jr., the Massachusetts law was also viewed as a
ground-breaking political compromise, requiring individuals to buy coverage if
they have the means and companies to pay a fee if they did not offer insurance.
But any state law, including the one in Massachusetts, could be challenged on
similar grounds since the ruling finds that the federal law pre-empts any state
efforts. While the courts may well draw distinctions between different
laws, the question, Mr. Piro said, is “how much room to do you have to
experiment?”
Some policy experts say states are already looking more to the Massachusetts
model than the one in Maryland in thinking about how to expand health insurance
for their residents. “What happened in Massachusetts is going to be far
more instructive to other states than what happened in Maryland,” said Ronald
Pollack, executive director of Families USA, a health advocacy group that
supported the Maryland bill.
In Maryland, Governor Ehrlich issued a statement after the ruling praising it
but legislators said they would try to draft a new law if the state loses its
appeal. “We will not abandon this,” said Thomas V. Mike Miller Jr., the
Democratic president of the Maryland Senate.
“To continue to allow this huge corporation to take profits out of the state
without providing adequate health care coverage would be wrong,” he said.
And proponents said the law had already influenced Wal-Mart’s health insurance
policies. Since it was passed, the retailer has announced that it will
permit part-time employees to enroll their children in the health plan and that
it will reduce by a year the waiting period before a new part-time employee is
eligible for benefits.
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