Lead Opinion
Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge TRAXLER joined. Judge MICHAEL wrote a dissenting opinion.
OPINION
On January 12, 2006, the Maryland General Assembly enacted the Fair Share Health Care Fund Act, which requires employers with 10,000 or more Maryland employees to spend at least 8% of their total payrolls on employees’ health insurance costs or pay the amount their spending falls short to the State of Maryland. Resulting from a nationwide campaign to force Wal-Mart Stores, Inc., to increase health insurance benefits for its 16,000 Maryland employees, the Act’s minimum spending provision was crafted to cover just Wal-Mart. The Retail Industry Leaders Association, of which Wal-Mart is a member, brought suit against James D. Fielder, Jr., the Maryland Secretary of Labor, Licensing, and Regulation, to declare that the Act is preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”) and to enjoin the Act’s enforcement. On cross-motions for summary judgment, the district court entered judgment declaring that the Act is preempted by ERISA and therefore not enforceable, and this appeal followed.
Because Maryland’s Fair Share Health Care Fund Act effectively requires employers in Maryland covered by the Act to restructure their employee health insurance plans, it conflicts with ERISA’s goal of permitting uniform nationwide administration of these plans. We conclude therefore that the Maryland Act is preempted by ERISA and accordingly affirm.
I
Before enactment of the Fair Share Health Care Fund Act (“Fair Share Act”), 2006 Md. Laws 1, Md.Code Ann., Lab. & Empl. §§ 8.5-101 to -107, the Maryland General Assembly heard extensive testimony about the rising costs of the Maryland Medical Assistance Program (Medicaid and children’s health programs). ' It learned that between fiscal years 2003 and 2006, annual expenditures on the Program increased from $3.46 billion to $4.7 billion. The General Assembly also perceived that Wal-Mart Stores, Inc., a particularly large employer, provided its employees with a substandard level of healthcare benefits, forcing many Wal-Mart employees to depend on state-subsidized healthcare programs. Indeed, the Maryland Department of Legislative Services (which has the duties of providing the Maryland General Assembly with research, analysis, assessments, and evaluations of legislative issues) prepared an analytical report of the
Several States, facing rapidly-increasing Medicaid costs, are turning to the private sector to bear more of the costs. Wal-Mart, in particular, has been the focus of several states, who are accusing the company of providing substandard health benefits to its employees. According to the New York Times, Wal-Mart full-time employees earn an average $1,200 a month, or about $8 an hour. Some states claim many Wal-Mart employees end up on public health programs such as Medicaid. A survey by Georgia officials found that more than 10,000 children of Wal-Mart employees were enrolled in the state’s children’s health insurance program (CHIP) at a cost of nearly $10 million annually. Similarly, a North Carolina hospital found that 31% of 1,900 patients who said they were Wal-Mart employees were enrolled in Medicaid, and an additional 16% were uninsured.
As a result, some States have turned to Wal-Mart to assume more of the financial burden of its workers’ health care costs. California passed a law in 2003 that will require most employers to either provide health coverage to employees or pay into a state insurance pool that would do so. Advocates of the law say Wal-Mart employees cost California health insurance programs about $32 million annually. Washington state is exploring implementing a similar state law.
According to the [New York] Times, Wal-Mart said that its employees are mostly insured, citing internal surveys showing that 90% of workers have health coverage, often through Medicare or family members’ policies. Wal-Mart officials say the company provides health coverage to about 537,000, or 45% of its total workforce. As a matter of comparison, Costco Wholesale provides health insurance to 96% of eligible employees.
In response, the General Assembly enacted the Fair Share Act in January 2006, to become effective January 1, 2007. The Act applies to employers that have at least 10,000 employees in Maryland, Md.Code Ann., Lab. & Empl. § 8.5-102, and imposes spending and reporting requirements on such employers. The core provision provides:
An employer that is not organized as a nonprofit organization and does not spend up to 8% of the total wages paid to employees in the State on health insurance costs shall pay to the Secretary an amount equal to the difference between what the employer spends for health insurance costs and an amount equal to 8% of the total wages paid to employees in the State.
Id. § 8.5-104(b). An employer that fails to make the required payment is subject to a civil penalty of $250,000. Id. § 8.5-105(b).
The Act also requires a covered employer to submit an annual report on January 1 of each year to the Secretary, in which the employer must disclose: (1) how many employees it had for the prior year, (2) its “health insurance costs,” , and (3) the percentage of compensation it spent on “health insurance costs” for the “year immediately preceding the previous calendar year.” Id. § 8.5-103(a)(l). The Act defines “health insurance costs” to include expenditures on both healthcare and health insurance to the extent that they are deductible under § 213(d) of the Internal Revenue Code. Id. § 8.5-101.
The record discloses that only four employers have at least 10,000 employees in Maryland: Johns Hopkins University, Giant Food, Northrop Grumman, and Wal-Mart. The Fair Share Act subjected Johns Hopkins, as a nonprofit organization, to a lower 6% spending threshold which Johns Hopkins already satisfies. Giant Food, which employs unionized workers, spends over the 8% threshold on health insurance and lobbied in support of the Fair Share Act. Northrop Grumman, a defense contractor, was subject to the minimum spending requirement in an earlier version of the Act, but the General Assembly included an amendment that effectively excluded Northrop Grumman. Because Northrop Grumman has many high-salaried employees in Maryland, the General Assembly was able to exclude it by an amendment that permits an employer, in calculating its total wages paid, to exempt compensation paid to employees in excess of the median household income in Maryland. See Md.Code Ann., Lab. & Empl. § 8.5 — 103(b)(1). The parties agree that only Wal-Mart, who employs approximately 16,000 in Maryland, is currently subject to the Act’s minimum spending requirements. Wal-Mart representatives testified that it spends about 7 to 8% of its total payroll on healthcare, falling short of the Act’s 8% threshold.
The legislative record also makes clear that legislators and affected parties assumed that the Fair Share Act would force Wal-Mart to increase its spending on healthcare benefits rather than to pay monies to the State. For example, one of the Act’s sponsors, Senator Thomas Y. Mike Miller, Jr., Maryland Senate President, described the Act during a floor debate: “It takes people who should be getting health benefits at work off the [State’s] rolls and it requires those employers to provide it.” Floor Debate on Senate Bill 790, 2006 Leg., 421st Sess., (Md. Jan. 12, 2006) (emphasis added).
Shortly after enactment of the Fair Share Act, the Retail Industry Leaders Association (“RILA”) commenced this action against the Maryland Secretary of Labor, Licensing, and Regulation to declare the Act preempted by ERISA and to enjoin the Secretary from enforcing it. RILA is a trade association whose members are major companies from all segments of retailing, including Wal-Mart, as well as many of Wal-Mart’s competitors, such as Best Buy Company, Target Corporation, Lowe’s Companies, and IKEA. Many of these competitors are represented on RILA’s board, which voted unanimously to authorize RILA to prosecute this action.
RILA’s complaint alleged that the Fair Share Act was preempted by ERISA, 29 U.S.C. § 1144. It also alleged that the Fair Share Act violated the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution and the “special law” prohibition of the Maryland Constitution, art. Ill, § 33.
Shortly after filing its complaint, RILA filed a motion for summary judgment on its ERISA-preemption claim and its equal-protection claim. In response, the Secretary filed a motion to dismiss RILA’s complaint for lack of jurisdiction, arguing (1) that RILA lacked standing; (2) that its claims were not ripe; and (3) that its complaint was barred by the Tax Injunc
The district court rejected the Secretary’s jurisdictional arguments and concluded that ERISA preempted the Fan-Share Act because the Act effectively mandated that employers spend a minimum amount on healthcare benefit plans. The court also found that the Fair Share Act did not violate the Equal Protection Clause because the Act’s classifications were not irrational. Each party appealed, challenging the rulings adverse to it.
II
We address first the Secretary’s jurisdictional challenges based on standing, ripeness, and the Tax Injunction Act.
A
While RILA does not assert injury to itself, it claims “associational standing” to enforce the rights of its members. See Hunt v. Washington State Apple Advertising Comm’n,
The Secretary argues first that no member of RILA has standing to sue in its own right because the injuries claimed in this case are not sufficiently imminent. He notes that the Fair Share Act is not yet effective and that he has not yet promulgated regulations implementing the Act.
To be sure, the alleged injury must, for standing purposes, be “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Lujan,
In this case, if Wal-Mart’s injury is not actual, it is certainly impending. First, RILA alleges, and the district court concluded, that Wal-Mart’s healthcare spending falls below 8% of its total wages. Accordingly, Wal-Mart faces the imminent injury of being forced either to increase its healthcare spending by January 1, 2007, or to make a payment to the Secretary. Second, the Fair Share Act’s reporting requirements impose administrative burdens on Wal-Mart even now. According to Wal-Mart’s Director of United States Ben
The Secretary also argues, focusing only on the 8% threshold spending requirement, that Wal-Mart’s alleged injury is merely “hypothetical” because it is not certain that Wal-Mart’s healthcare expenditures fall below 8%. To make this argument, the Secretary lifted out of context a fragment from the testimony of a Wal-Mart representative given before a legislative committee that Wal-Mart’s healthcare spending “could be at 10 or 12 percent, but we don’t know.” In the next breath, however, the representative stated, “Based off the definitions under this bill, we took plenty of time — Lisa Woods spent plenty of time researching the different areas of law ... we believe we do fall at 7 or 8%.” At least four Wal-Mart representatives testified before a legislative committee or by affidavit that Wal-Mart spends below 8% of its total payroll on healthcare. If the Secretary seriously does not believe that Wal-Mart spends below 8% on healthcare benefits, then he second-guesses the General Assembly which focused on this fact as the reason to enact the Fair Share Act in the first place.
Seeking to undermine RILA’s satisfaction of another element necessary for associational standing, the Secretary contends that the nature of RILA’s suit requires that at least one of its members, Wal-Mart, participate in the lawsuit, thus destroying the basis for RILA’s associational standing. See Hunt,
Finally, the Secretary argues that associational standing is not appropriate because various RILA members supposedly have conflicting interests. See Md. Highways Contractors Ass’n, Inc. v. Maryland,
At bottom, the prudential considerations of the Hunt test for associational standing do not counsel against permitting RILA to bring this suit, and we reject the Secretary’s challenge on that ground.
B
For reasons similar to those advanced to challenge RILA’s standing, the Secretary contends that RILA’s claims are not ripe for review. He argues that because Wal-Mart is not certain to suffer injury under the Fair Share Act, RILA’s action is not ripe. See Pacific Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm’n,
A ripeness review consists of inquiries into “the fitness of the issues for judicial decision” and “the hardship to the parties of with-holding court consideration.” Pacific Gas & Elec.,
As we have explained, Wal-Mart will very likely incur liability to the State under the Act’s minimum spending provision and is certainly subject to the reporting requirements. Accordingly, it must alter its internal accounting procedures and healthcare spending now to comply with the Act. The Secretary’s argument that the issues are unripe because the regulations under the Act have not been promulgated do not change this. Regulations could not alter the Act’s provisions, which clearly establish the healthcare spending and reporting requirements that RILA claims are invalid. In addition, this appeal presents purely legal questions that, because of their certain applicability to Wal-Mart, are ripe for review. Accordingly, we also reject the Secretary’s ripeness challenge.
C
Finally, the Secretary contends that this litigation is barred by the Tax Injunction Act, 28 U.S.C. § 1341. He characterizes the Fair Share Act as a state law that imposes a tax on employers. The
The Tax Injunction Act prohibits district courts from enjoining, suspending, or restraining the assessment, levy, or collection of any tax under state law where, as the Act provides, “a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341. Because the Tax Injunction Act is meant to prevent taxpayers from “disrupting state government finances,” Hibbs v. Winn,
While the Valero court provided various inquiries to help determine whether a charge imposed by state law is a tax, i.e., primarily a revenue-raising measure, or a fee or penalty, see Valero,
The Secretary argues to the contrary by pointing to the fact that the Fair Share Act itself declares its purpose to establish “the Fair Share Health Care Fund” and that “the purpose of the Fund is to support the operations of the [Maryland Medical Assistance] Program.” 2006 Md. Law 1. This superficial characterization, however, does not determine the Act’s actual purpose and effect; its content and context do. We conclude that the Fair Share Act cannot be properly characterized as a “tax” provision as that term is used in the Tax Injunction Act.
In sum, we hold that RILA has standing; that RILA’s claim is ripe for adjudication; and that RILA’s complaint is not barred by the Tax Injunction Act.
On the merits of whether ERISA preempts the Fair Share Act, the Secretary contends that the district court misunderstood the nature and effect of the Fair Share Act, erroneously finding that the Act mandates an employer’s provision of healthcare benefits and therefore “relates to” ERISA plans. The Secretary offers a different characterization of the Fair Share Act — one with which ERISA is not concerned. He describes the Act as “part of the State’s comprehensive scheme for planning, providing, and financing health care for its citizens.” In his view, the Act imposes a payroll tax on covered employers and offers them a credit against that tax for their healthcare spending. The revenue from this tax funds a Fair Share Health Care Fund, which is used to offset the costs of Maryland’s Medical Assistance Program.
To resolve the question whether ERISA preempts the Fair Share Act, we consider first the scope of ERISA’s preemption provision, 29 U.S.C. § 1144(a), and then the nature and effect of the Fair Share Act to determine whether it falls within the scope of ERISA’s preemption.
A
ERISA establishes comprehensive federal regulation of employers’ provision of benefits to their employees. It does not mandate that employers provide specific employee benefits but leaves them free, “for any reason at any time, to adopt, modify, or terminate welfare plans.” Curtiss-Wright Corp. v. Schoonejongen,
The vast majority of healthcare benefits that an employer extends to its employees qualify as an “employee welfare benefit plan,” which ERISA defines broadly as:
any plan, fund, or program which ... was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, ... medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services....
29 U.S.C. § 1002(1) (emphasis added). While an employer’s one-time grant of some benefit that requires no administrative scheme does not constitute an ERISA “plan,” a grant of a benefit that occurs periodically and requires the employer to maintain some ongoing administrative support generally constitutes a “plan.” See Fort Halifax Packing Co. v. Coyne,
The primary objective of ERISA was to “provide a uniform regulatory regime over employee benefit plans.” Aetna Health Inc. v. Davila,
The language of ERISA’s preemption provision — covering all laws that “relate to” an ERISA plan — is “clearly expansive.” Travelers,
Through application of these principles, the Supreme Court has held that not all state healthcare regulations are equal for purposes of ERISA preemption. States continue to enjoy wide latitude to regulate healthcare providers. See, e.g., De Buono,
In line with Shaw, courts have readily and routinely found preemption of state laws that act directly upon an employee benefit plan or effectively require it to establish a particular ERISA-governed benefit. See, e.g., Metro. Life,
A state law that directly regulates the structuring or administration of an ERISA plan is not saved by inclusion of a means for opting out of its requirements. See Egelhoff v. Egelhoff,
In sum, a state law has an impermissible “connection with”
B
We now consider the nature and effect of the Fair Share Act to determine whether it falls within ERISA’s preemption. At its heart, the Fair Share Act requires every employer of 10,000 or more Maryland employees to pay to the State an amount that equals the difference between what the employer spends on “health insurance costs” (which includes any costs “to provide health benefits”) and 8% of its payroll. Md.Code Ann., Lab. & Empl. §§ 8.5-101, 8.5-104. As Wal-Mart noted by way of affidavit, it would not pay the State a sum of money that it could instead spend on its employees’ healthcare. This would be the decision of any reasonable employer. Healthcare benefits are a part of the total package of employee compensation an employer gives in consideration for an employee’s services. An employer would gain from increasing the compensation it offers employees through improved retention and performance of present employees and the ability to attract more and better new employees. In contrast, an employer would gain nothing in consideration of paying a greater sum of money to the State. Indeed, it might suffer from lower employee morale and increased public condemnation.
In effect, the only rational choice employers have under the Fair Share Act is to structure their ERISA healthcare benefit plans so as to meet the minimum spending threshold.
This view of the Fair Share Act is reinforced by the position of the State of Maryland itself. The Maryland General Assembly intended the Act to have precisely this effect. As we noted in Part I, the context for enactment of the Act, including the Department of Legislative Services’ official description of it, shows that legislators and interested parties uniformly understood the Act as requiring Wal-Mart to increase its healthcare spending. If this is not the Act’s effect, one would have to conclude, which we do not, that the Maryland legislature misunderstood the nature of the bill that it carefully drafted and debated. For these reasons, the amount that the Act prescribes for payment to the State is actually a fee or a penalty that gives the employer an irresistible incentive to provide its employees with a greater level of health benefits.
It is a stretch to claim, as the Secretary does, that the Fair Share Act is a revenue statute of general application. When it was enacted, the General Assembly knew that it applied, and indeed intended that it apply, to one employer in Maryland — Wal-Mart. The General Assembly designed the statute to avoid applying the 8% level to Johns Hopkins University; it knew that Giant Food was unionized and already was providing more than 8%; and it amended the statute to avoid including Northrop Grumman. Even as the statute is written, the category of employers employing 10,-000 employees in Maryland includes only four persons in Maryland and therefore could hardly be intended to function as a revenue act of general application.
While the Secretary argues that the Fair Share Act is designed to collect funds for medical care under the Maryland Medical Assistance Program, the core provision of the Act aims at requiring covered employers to provide medical benefits to employees. The effect of this provision will force employers to structure their record-keeping and healthcare benefit spending to comply with the Fair Share Act. Functioning in that manner, the Act would disrupt employers’ uniform administration of employee benefit plans on a nationwide basis. As Wal-Mart officials averred, Wal-Mart does not presently allocate its contributions to ERISA plans or other healthcare spending by State, and so the Fair Share Act would require it to segregate a separate pool of expenditures for Maryland employees.
This problem would not likely be confined to Maryland. As a result of similar efforts elsewhere to pressure Wal-Mart to increase its healthcare spending, other States and local governments have adopted or are considering healthcare spending mandates that would clash with the Fair Share Act. For example, two New York counties recently adopted provisions to require Wal-Mart to spend an amount on healthcare to be determined annually by an administrative agency. See N.Y.C. Admin. Code § 22 — 506(c)(2); Suffolk County, N.Y., Reg. Local Laws § 325-3. Similar legislation under consideration in Minnesota calculates total wages, from which an employer’s minimum spending level is determined, with reference to Minnesota’s median household income. See H.F. 3143, 84th Leg. Sess. (Minn. 2006). If permitted to stand, these laws would force Wal-Mart to tailor its healthcare benefit plans to each specific State, and even to specific cities and counties. This is precisely the regulatory balkanization that Congress sought to avoid by enacting ERISA’s preemption provision. See Shaw,
The Secretary argues that the Act is not mandatory and therefore does not, for pre
First, the laws involved in Travelers and Dillingham are inapposite because they dealt with regulations that only indirectly regulated ERISA plans. In Travelers, a New York law required hospitals to add a surcharge to the fees they demanded from most insurance companies, but the law exempted Blue Cross and Blue Shield from having to pay the surcharge. Travelers,
Likewise, in Dillingham, a California law directly regulated wages that contractors paid to apprentices on public construction projects, which only indirectly affected ERISA-covered apprenticeship programs’ incentives to obtain state certification.
In contrast, to Travelers and Dilling-ham, the Fair Share Act directly regulates employers’ structuring of their employee health benefit plans. This tighter causal link between the regulation and employers’ ERISA plans makes the Fair Share Act much more analogous to the regulations at
Second, the choices given in the Fair Share Act, on which the Secretary relies to argue that the Act is not a mandate on employers, are not meaningful alternatives by which an employer can increase its healthcare spending to comply with the Fair Share Act without affecting its ERISA plans. It is true that an employer could maintain on-site medical clinics, the expenditures for which would qualify as “health insurance costs” under the Fair Share Act because they are deductible under § 213(d) of the Internal Revenue Code. 26 U.S.C. § 213(d); Md.Code Ann., Lab. & Empl. § 8.5-101. At the same time, such expenditures would not amount to the establishment of an “employee welfare benefit plan” under ERISA. See 29 C.F.R. § 2510.3-l(c)(2). The ERISA regulation, however, defines non-ERISA clinics quite narrowly as “the maintenance on the premises of an employer of facilities for the treatment of minor injuries or illness or rendering first aid in case of accidents occurring during working hours.” Id. And the Department of Labor strictly interprets the regulation not to cover a facility that treats members of employees’ families or more than “minor injuries.” See Labor Dep’t Op. No. 83-35A,
In addition to on-site medical clinics, employers could, under the Fair Share Act, contribute to employees’ Health Savings Accounts as a means of non-ERISA healthcare spending. Under federal tax law, eligible individuals may establish and make pretax contributions to a Health Savings Account and then use those monies to pay or reimburse medical expenses. See 26 U.S.C. § 223. Employers’ contributions to employees’ Health Savings Accounts qualify as healthcare spending for purposes of the Fair Share Act. See Md. Code Ann., Lab. & Empl. § 8.5-101(d)(2). This option of contributing to Health Savings Accounts, however, is available under only limited conditions, which undermine the impact of this option. For example, only if an individual is covered under a high deductible health plan and no other more comprehensive health plan is he eligible to establish a Health Savings Account. See 26 U.S.C. § 223(c)(1). This undoubtedly reduces greatly the pool of Wal-Mart employees who would be eligible to establish Health Savings Accounts. In addition, for an employer’s contribution to a Health Savings Account to be exempt from ERISA, the Health Savings Account must be established voluntarily by the employee. See U.S. Dep’t of Labor, Employee Benefits Sec. Admin., Field Assistance Bulletin 2004-1. This would likely shrink further the potential for Health Savings Accounts contributions as many employees would not undertake to establish Health Savings Accounts.
More importantly, even if on-site medical clinics and contributions to Health Savings Accounts were a meaningful avenue by which Wal-Mart could incur non-ERISA healthcare spending, we would still conclude that the Fair Share Act had an impermissible “connection with” ERISA plans. The undeniable fact is that the vast majority of any employer’s healthcare spending occurs through ERISA plans. Thus, the primary subjects of the Fair Share Act are ERISA plans, and any attempt to comply with the Act would have direct effects on the employer’s ERISA plans. If Wal-Mart were to attempt to utilize non-ERISA health spending options to satisfy the Fair Share Act, it would
Further, the Fair Share Act and a proliferation of similar laws in other jurisdictions would force Wal-Mart or any employer like it to monitor these varying laws and manipulate its healthcare spending to comply with them, whether by increasing contributions to its ERISA plans or navigating the narrow regulatory channel between the Fair Share Act’s definition of healthcare spending and ERISA’s definition of an employee benefit plan. In this way, the Fair Share Act is directly analogous to the Washington State statute in Egelhoff,
Perhaps recognizing the insufficiency of a non-ERISA healthcare spending option, the Secretary relies most heavily on its argument that the Fair Share Act gives employers the choice of paying the State rather than altering their healthcare spending. The Secretary contends that, in certain circumstances, it would be rational for an employer to choose to do so. It conceives that an employer, whose healthcare spending comes close to the 8% threshold, may find it more cost-effective to pay the State the required amount rather than incur the costs of altering the administration of its healthcare plans. The existence of this stylized scenario, however, does nothing to refute the fact that in most scenarios, the Act would cause an employer to alter the administration of its healthcare plans. Indeed, identifying the narrow conditions under which the Act would not force an employer to increase its spending on healthcare plans only reinforces the conclusion that the overwhelming effect of the Act is to mandate spending increases. This conclusion is further supported by the fact that Wal-Mart representatives averred that Wal-Mart would in fact increase healthcare spending rather than pay the State.
In short, the Fair Share Act leaves employers no reasonable choices except to change how they structure their employee benefit plans.
Because the Act directly regulates employers’ provision of healthcare benefits, it has a “connection with” covered employers’ ERISA plans and accordingly is preempted by ERISA.
IV
On its cross-appeal, RILA contends that the district court erred in finding that the Fair Share Act does not violate the Equal
V
The Maryland General Assembly, in furtherance of its effort to require Wal-Mart to spend more money on employee health benefits and thus reduce Wal-Mart’s employees’ reliance on Medicaid, enacted the Fair Share Act. Not disguised was Maryland’s purpose to require Wal-Mart to change, at least in Maryland, its employee benefit plans and how they are administered. This goal, however, directly clashes with ERISA’s preemption provision and ERISA’s purpose of authorizing Wal-Mart and others like it to provide uniform health benefits to its employees on a nationwide basis.
Were we to approve Maryland’s enactment solely for its noble purpose, we would be leading a charge against the foundational policy of ERISA, and surely other States and local governments would follow. As sensitive as we are to the right of Maryland and other States to enact laws of their own choosing, we are also bound to enforce ERISA as the “supreme Law of the Land.” U.S. Const, art. VI.
The judgment of the district court is
AFFIRMED.
Notes
. The well-known criteria for standing are that the plaintiff must allege an (1) injury in fact (2) that is fairly traceable to the defendant's conduct and (3) that is likely to be redressed by a favorable decision. Lujan v. Defenders of Wildlife,
. A state law is preempted also if it contains a "reference to” an ERISA plan, the alternative characterization referred to in Shaw for finding that it "relates to” an ERISA plan. Shaw,
. Theoretically, a covered employer whose healthcare spending for employees falls short of the 8% minimum could, by other steps, avoid regulation without restructuring or altering the administration of its ERISA plans. It could move plants from the State to bring its employee number under 10,000; it could reduce wages to increase the proportion of its payroll devoted to healthcare spending; it could violate the Act and incur a civil penalty; or it ctíuld leave the State altogether. But not even the Secretary advances these arguments.
Dissenting Opinion
dissenting:
Maryland, like most states, is wrestling with explosive growth in the cost of Medicaid. Innovative ideas for solving the funding crisis are required, and the federal government, as the co-sponsor of Medicaid, has consistently called upon the states to function as laboratories for developing workable solutions. In response to this call and its own funding predicament, Maryland enacted the Fair Share Health Care Fund Act (Maryland Act or Act) in 2006 to require very large employers, such as Wal-Mart Stores, Inc., to assume greater responsibility for employee health insurance costs that are now shunted to Medicaid. I respectfully dissent from the majority’s opinion that the Maryland Act is preempted by ERISA. The Act offers a covered employer the option to pay an assessment into a state fund that will support Maryland’s Medicaid program. Thus, the Act offers a means of compliance that does not impact ERISA plans, and it is not preempted.
I.
“Medicaid is a means-tested entitlement program financed by the states and federal government” that provides medical care for about 60 million Americans, a number made up of low-income adults and their dependent children. Nat’l Governors Ass’n & Nat’l Ass’n of State Budget Officers, The Fiscal Survey of States 4 (2006). Medicaid was originally intended to provide help to the most vulnerable rather than to a broader population of the working poor and their families. In short, Congress intended for the Medicaid program to serve only as the “payer of last resort.” See S.Rep. No. 99-146, at 312-13 (1985), as reprinted in 1986 U.S.C.C.A.N. 42, 279-80. Over time, however, Medicaid has become the payer of first resort for a large percentage of patients. In 2006 state and federal Medicaid spending totaled an estimated $320 billion. Medicaid — the fastest-growing expense for many states — dominates the state budgeting process around the country. Program expenditures currently make up about twenty-two percent of total state spending annually, and these outlays are projected to grow at a rate of eight percent over the next decade. Already, between one-quarter and one-third of the states have experienced significant
The increase in Medicaid spending is caused in part by the decline in employer-sponsored health insurance. In Maryland’s words, Medicaid “has been transformed into a corporate subsidy, with taxpayer-funded employee health care an integral component of [many] an employer’s benefits program.” Reply Br. of Appellant at 4. Wal-Mart, which is subject to the Maryland Act, is cited as a company that abuses the Medicaid program. “Wal-Mart has more employees and dependents on subsidized Medicaid or similar programs than any other company nationwide.” J.A. 321. A Georgia survey “found that more than 10,000 children of Wal-Mart employees were enrolled in the state’s children’s health insurance program ... at a cost of nearly $10 million annually.” J.A. 89. Similarly, a study by a North Carolina hospital found that thirty-one percent of Wal-Mart employees were enrolled in Medicaid and an additional sixteen percent were uninsured. In an internal company memo of fairly recent origin, Wal-Mart acknowledged that “[t]wenty-seven percent of [its employees’] children are on [Medicaid],” and an additional nineteen percent are uninsured. J.A. 321.
II.
Maryland has its own Medicaid funding crisis. The state’s Medical Assistance (Medicaid and children’s health) Program now consumes about seventeen percent of the state general fund, and it is one of the fastest growing components of the budget. Maryland’s 2007 Medical Assistance expenditures are expected to total $4.7 billion. Over the next five years the state’s Medicaid costs are projected to grow at a rate that exceeds growth in general fund revenues by about three percent. Increasing enrollment in the program is a contributing factor. Enrollment growth is being spurred by the continuing rise in the number of children qualifying for Medicaid due to low family income. As employers drop or fail to offer affordable family health care coverage, more and more children of low income employees are forced into Medicaid or other taxpayer-funded insurance. Rising health care costs and the increase in the number of uninsured residents of all ages are also factors that accelerate the growth in Maryland’s Medicaid budget. Even though many of the uninsured may not qualify for Medicaid, they nevertheless drive up Medicaid costs under Maryland’s “all-payor” system. The all-payor system requires those who pay their hospital bills in Maryland to subsidize the cost of hospital care rendered to uninsured patients. The costs of treating those who cannot pay are added into the state-approved rates charged to those who can pay through insurance or other means. See Md.Code Ann. Health-Gen. §§ 19-211, 214, 219. The all-payor rates rise as the number of uninsured persons increases. Medicaid, as a significant purchaser of medical care in Maryland, is thus forced to bear an ever greater burden as the number of patients without employer-backed health insurance increases.
Maryland’s annual Medicaid obligations are exceeding legislative appropriations by enormous sums. The shortfall in 2006 was estimated to be around $130 million. The state has made up the deficit in part by transferring money from other programs. Such stopgap measures, however, are becoming less sustainable with each passing month. To deal with the crisis, Maryland, like many other states, has sought new ways to constrain health care costs and
The Maryland Act is part of the state’s effort to deal with the mounting funding pressures. The Act establishes the Fair Share Health Care Fund to “support the operations of the [Maryland Medical Assistance] Program.” Md.Code Ann. Health-Gen. § 15-142(e). The fund will,receive revenue from assessments on large employers that fail to meet the Act’s spending requirements for health insurance. Id. § 15-142(e). The Act requires each employer with 10,000 or more employees in Maryland to submit an annual report specifying its Maryland employee number, the amount it spent on health insurance in Maryland, and the percentage of payroll it spent on health insurance in the state. Md.Code Ann. Lab. & Empl. § 8.5-103. Currently, four employers in Maryland are subject to the Act. A for-profit employer, of which there are three, must spend eight percent or more of total wages on health insurance or pay the difference to the Secretary of Labor, Licensing, and Regulation. Id. § 8.5-104(b). Health insurance costs include all tax deductible spending on employee health insurance or health care allowed by the Internal Revenue Code. Id. § 8.5-101(d). Nothing in the Act demonstrates an intent to restrict its application solely to Wal-Mart.
The Act instructs the Secretary to place any i*evenue collected in a special fund to defray the costs of Maryland’s Medicaid program. Md.Code Ann. Health-Gen. § 15-142. In this way, the Act will support the state’s Medical Assistance Program either by directly defraying Medicaid costs or by prompting covered employers to spend more on employee health insurance.
III.
I agree with the majority that the claims asserted by the Retail Industry Leaders Association (RILA) are justiciable, but not for all of the same reasons. RILA has associational standing to sue because it alleges that one of its members, Wal-Mart, faces the imminent injury of being forced to comply with the Act’s reporting requirements and either to pay an assessment or to increase its spending on employee health insurance. This allegation is sufficient to satisfy the injury element necessary for standing. There is thus no need to rely on RILA’s argument that the Act will injure Wal-Mart by impeding its ability to administer its employee benefit plans in a uniform fashion. The Act will not cause such an injury, as I explain later on.
My conclusion that this action is not barred by the Tax Injunction Act also rests on different reasons. The majority is wrong to characterize the Act’s stated revenue raising purpose as superficial. The Act legitimately anticipates a potential revenue stream, despite making available an alternative mode of compliance that does not generate revenue. The Act’s revenue raising component is directly connected to the regulatory purpose of assessing employers that rely disproportionately on state-subsidized programs to provide health care for their employees.
“To determine whether a particular charge is a ‘fee’ or a ‘tax,’ the general inquiry is to assess whether the charge is for revenue raising purposes, making it a ‘tax,’ or for regulatory or punitive purposes, making it a ‘fee.’ ” Valero Terrestrial Corp. v. Caffrey,
In this case the Act was passed by the legislature and has revenue raising potential. Other indicators suggest, however, that the Act’s assessment scheme is more in the nature of a regulatory fee than a tax. The Act applies to a very small group — only four employers. The assessment may generate revenue, but its primary purpose is punitive in nature. It assesses employers that provide substandard health benefits or none at all. Any revenue collected serves to recoup costs incurred by the state due to such behavior; collections are not deposited in the general fund. The regulatory purpose is further evidenced by the Act’s creation of a special fund administered by the Secretary of Labor, Licensing, and Regulation and dedicated to defraying the state’s Medicaid costs. These characteristics show the significant differences between the assessment imposed by the Act and a typical tax imposed on a large segment of the population and used to benefit the general public. See Valero,
IV.
I respectfully dissent on the issue of ERISA preemption because the Act does not force a covered employer to make a choice that impacts an employee benefit plan. An employer can comply with the Act either by paying assessments into the special fund or by increasing spending on employee health insurance. The Act expresses no preference for one method of Medicaid support or the other. As a result, the Act is not preempted by ERISA.
ERISA supersedes “any and all State laws insofar as they ... relate to any employee benefit plan.” 29 U.S.C. § 1144(a). State laws “relate to” ERISA plans if they have a “connection with” or make “reference to” such plans. Shaw v. Delta Air Lines, Inc.,
A state statute has an impermissible connection with an ERISA plan when it requires the establishment of a plan, mandates particular employee benefits, or impacts plan administration. See Fort Halifax Packing Co. v. Coyne, 482 U.S. 1, 14,
A.
The Act does not compel an employer to establish or maintain an ERISA plan in order to comply with its provisions. ERISA plan expenditures are considered
B.
The Act does not impede an employer’s ability to administer its ERISA plans under nationally uniform provisions. A problem would arise if the Act dictated a plan’s system for processing claims, paying benefits, or determining beneficiaries. See Egelhoff,
C.
The Act does not mandate a certain level of ERISA benefits. A statute that “alters the incentives, but does not dictate the choices, facing ERISA plans” is not preempted. Calif. Div. of Labor Standards Enforcement v. Dillingham Constr., N.A., Inc.,
Under the Act employers have the option of either paying an assessment or increasing ERISA plan health insurance. This choice is real. The assessment does not amount to an exorbitant fee that leaves a large employer with no choice but to alter its ERISA plan offerings. See id. at 664,
The majority attempts to distinguish Travelers and Dillingham by contrasting the indirect regulation of ERISA plans in those cases with what it deems a direct regulation here. I disagree with the majority’s assertion that the Maryland Act directly regulates ERISA plans. “Where a legal requirement may be easily satisfied through means unconnected to ERISA plans, and only relates to ERISA plans at the election of an employer, it ‘affectfs] employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law “relates to” the plan.’ ” Foley,
We must similarly focus our inquiry on any threat the Maryland Act poses to the purposes of the ERISA preemption provision rather than on hazy distinctions between direct and indirect regulations. See Travelers,
Rather than fitting within the ERISA preemption target, the Maryland Act is in line with Congress’s intention that states find innovative ways to solve the Medicaid funding crisis. Congress already directs states to “take all reasonable measures to ascertain the legal liability of [and to seek reimbursement from] third parties (including health insurers ... or other parties that are, by statute, contract, or agreement, legally responsible for payment of a claim for a health care item or service) to pay for care and services available under [Medicaid].” 42 U.S.C. §§ 1396a(a)(25)(A) & (B). I recognize, of course, that the Maryland Act goes beyond this basic directive, but it is nevertheless a legitimate response to the consistent encouragement Congress has given to the states to find “novel approaches” and to “develop innovative and effective solutions” to deal with
D.
The Act also contains no impermissible reference to an ERISA plan. Such a reference occurs only when a statute explicitly refers to or relies upon the existence of an ERISA plan. District of Columbia v. Greater Wash. Bd. of Trade,
E.
As the record makes clear, Maryland is being buffeted by escalating Medicaid costs. The Act is a permissible response to the problem. Because a covered employer has the option to comply with the Act by paying an assessment — a means that is not connected to an ERISA plan — I would hold that the Act is not preempted.