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Divided Fourth Circuit Panel Decides that Maryland "Fair Share" Law Preempted by ERISA

    Client Alerts
  • February 02, 2007

In 2006, the Maryland General Assembly enacted the “Fair Share Health Care Fund Act” legislation requiring employers that spend less than eight percent of wages on health insurance costs to pay the difference to a fund supporting the state’s Medicaid program.  This legislation was designed specifically to address the growing number of the “working poor” covered by state Medicaid by requiring large employers to either provide greater health insurance subsidies or pay an amount into the state’s Medicaid fund.  In operation, the law only applied to Wal-Mart stores operating in Maryland. 


The Retail Industry Leaders Association (“RILA”) sued Maryland in federal court, claiming that the Maryland law was an impermissible infringement on ERISA’s preemption provisions that limit the ability of a state to pass laws that “relate to” ERISA plans.  Maryland argued that their law was not preempted in that it was merely a revenue-raising measure that did not affect whether or how any employer actually established a medical plan (similar to a New York state tax relating to employer-provided health benefits that the U.S. Supreme Court previously found not to be preempted). The huge public significance of this case is shown by the large number of “Friend of the Court” amici briefs filed in support of both positions. 


Last week, two of three justices on a Fourth Circuit Court of Appeals panel determined that the Maryland law went too far in regulating employer medical plans in that employer medical plans would as a practical matter need to be structured to meet Maryland’s minimum eight percent spending threshold.  Another justice dissented on the ground that preemption did not apply when the law was only a means to raise revenue for the state’s Medicaid system and did not act to mandate any particular benefit or even that an employer have a medical plan. 


Especially given the divided court in the RILA case, it is likely that this case will be heard again by the entire Fourth Circuit or even the Supreme Court.  In addition, legislation regarding access to health care coverage is being proposed and enacted in a number of other states and locales, including Massachusetts’ new “Pay or Play” statute.