ERISA-roni, that San Francisco treat!

[Welcome Industry Radar and Kaiser Network readers!]

This article from the WSJ Health Blog reports the progress of Golden Gate Restaurant Association v. City of San Francisco. The Supreme Court has now agreed to hear an appeal from the judgment of the Ninth Circuit Court of Appeals, which reversed the original trial court’s decision.

IMO, Golden Gate Restaurant Association wins in the Supreme Court, and the City loses. The Ninth Circuit is frequently reversed.

The WSJ article fails to clarify a frequent misrepresentation in the media about the fundamental legal issue in this case. Specifically, the fundamental issue is regulation of “insurance plans” vs the regulation of "ERISA plans”. This distinction is essential to understand.

An insurance plan operates under a contract of insurance issued by an insurance company. The States are authorized to regulate insurers and the business of insurance. In contrast, an ERISA benefit plan is provided under a contract of administrative services only. In an ERISA plan, there is is no contract of insurance, no insurance company, and no insurance premiums. These plans are called ERISA plans because they are regulated by the Federal law called ERISA.

Most of the largest employers/plan sponsors, nationally and in San Francisco, manage their employee benefits thru ERISA plans. I think the Restaurant Association does the same and therefore the fundamental premise of their objection is that their plan is not subject to regulation by the City or the State. (If otherwise, I doubt the Association would have chosen to incur the expense of a trial and, now, two appeals. I also believe the Supreme Court would not waste its time if this were about an insurance plan – which the States have clear authority to regulate.)

I believe the City attorneys understand the law - but the City went ahead anyway. Why? I think because, if ERISA plans are ruled exempt from the requirements and tax the City wants to impose, then the City’s ability to manage its scheme of insurance for the uninsured would be greatly diminished. I understand the City's motivation. I just think the City is wrong on the law.