Buried in all fussing and feuding over the California recall is a new bill passed by the California legislature and sent to Governor Davis for his signature.

“Buried” might be an especially apt expression because this bill will end up in the same graveyard that has killed most other over-reaching state health care proposals – one created by the federal Employee Retirement Income Security Act of 1974 (ERISA).

Senate Bill 2 would require almost every employer in the Golden State to provide health insurance coverage for people working over 100 hours a month, or pay an equivalent “fee” to a state agency. Companies with fewer than 20 workers are exempt, and companies with fewer than 50 workers wouldn’t have to comply until the legislature passes another bill subsidizing 20 percent of their costs.

All other employers would have to pay at least 80 percent of the costs of each worker’s coverage, and companies with 200 or more employees would have to pay 80 percent of dependent coverage, including “domestic partners.”

The Governor hasn’t yet announced whether he will sign the bill, but the smart money says he will as a way to shore up support among his base.

The media reports on the bill have almost all been about the potential impact on California businesses, the state budget, and the currently uninsured – which in California amounted to 21.4% of the under-age 65 population in 2001, or 6.7 million people.

There is little question this proposal would have a profound impact on the business climate in California. It would discourage business expansion, cause employers to force more overtime on existing workers instead of hiring new people, and drive many companies out of business because they cannot afford to raise compensation costs by $2,000 – $3,000 per worker, and even more if the worker has a family.

But all of that is moot, because the bill will never be enforced. The media has barely mentioned it, but ERISA has forbidden such legislation ever since it was passed in 1974.

ERISA is a much-misunderstood law. It was passed to allow companies to provide health and pension benefits on a consistent basis across the United States. Its primary purpose was to prohibit states from interfering with a company’s ability to decide for itself what benefits to provide to its workforce. There is surely no law on the books that has generated more U.S. Supreme Court cases, with the Court interpreting one provision or another nearly once a year since 1975.

But some things about ERISA are perfectly clear to anyone who can read English:

1. Some people think ERISA applies only to large employers. Not true. ERISA covers every employer who provides coverage, except churches and governments. The company may be large or small. It may be self-insured or buy coverage from an insurance company. The law says, “This title shall apply to any employee benefit plan if it is established or maintained by any employer engaged in commerce or in any industry or activity affecting commerce.”

2. Some people think ERISA applies only to self-insured employers. Nope. The law defines a benefit plan as “any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer? to the extent that such plan, fund or program (provides), through the purchase of insurance or otherwise, medical, surgical, or hospital care or benefits?.”

3. Some people suppose ERISA applies only to state mandated benefits. Wrong. It says, “the provisions of this title and title IV shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan?” Again – any and all state laws that relate to any employee benefit plan. It is hard to get a more sweeping preemption than that.

People get confused by ERISA because it allows states to continue to regulate insurance companies. Employers who buy coverage from an insurer also buy all the regulations that apply to the insurer.

So, a state can make an insurer do anything – cover certain benefits, charge a certain price, accept all people who apply for coverage – but it cannot make an employer buy the policy. It cannot tell the employer what to cover and what not to cover. It cannot penalize an employer who does not provide coverage.

The California legislature either never read ERISA, or maybe it thought it could get around it by using different terminology – e.g., call a tax a “fee,” call a premium a “contribution,” call a “domestic partner” a dependent.

Or maybe it knew perfectly well this bill was illegal and passed it anyway for political showmanship. Whatever the reason, this bill is a zombie – it may be walking around, but it is already dead.

Buried in all fussing and feuding over the California recall is a new bill passed by the California legislature and sent to Governor Davis for his signature.

“Buried” might be an especially apt expression because this bill will end up in the same graveyard that has killed most other over-reaching state health care proposals – one created by the federal Employee Retirement Income Security Act of 1974 (ERISA).

Senate Bill 2 would require almost every employer in the Golden State to provide health insurance coverage for people working over 100 hours a month, or pay an equivalent “fee” to a state agency. Companies with fewer than 20 workers are exempt, and companies with fewer than 50 workers wouldn’t have to comply until the legislature passes another bill subsidizing 20 percent of their costs.

All other employers would have to pay at least 80 percent of the costs of each worker’s coverage, and companies with 200 or more employees would have to pay 80 percent of dependent coverage, including “domestic partners.”

The Governor hasn’t yet announced whether he will sign the bill, but the smart money says he will as a way to shore up support among his base.

The media reports on the bill have almost all been about the potential impact on California businesses, the state budget, and the currently uninsured – which in California amounted to 21.4% of the under-age 65 population in 2001, or 6.7 million people.

There is little question this proposal would have a profound impact on the business climate in California. It would discourage business expansion, cause employers to force more overtime on existing workers instead of hiring new people, and drive many companies out of business because they cannot afford to raise compensation costs by $2,000 – $3,000 per worker, and even more if the worker has a family.

But all of that is moot, because the bill will never be enforced. The media has barely mentioned it, but ERISA has forbidden such legislation ever since it was passed in 1974.

ERISA is a much-misunderstood law. It was passed to allow companies to provide health and pension benefits on a consistent basis across the United States. Its primary purpose was to prohibit states from interfering with a company’s ability to decide for itself what benefits to provide to its workforce. There is surely no law on the books that has generated more U.S. Supreme Court cases, with the Court interpreting one provision or another nearly once a year since 1975.

But some things about ERISA are perfectly clear to anyone who can read English:

1. Some people think ERISA applies only to large employers. Not true. ERISA covers every employer who provides coverage, except churches and governments. The company may be large or small. It may be self-insured or buy coverage from an insurance company. The law says, “This title shall apply to any employee benefit plan if it is established or maintained by any employer engaged in commerce or in any industry or activity affecting commerce.”

2. Some people think ERISA applies only to self-insured employers. Nope. The law defines a benefit plan as “any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer? to the extent that such plan, fund or program (provides), through the purchase of insurance or otherwise, medical, surgical, or hospital care or benefits?.”

3. Some people suppose ERISA applies only to state mandated benefits. Wrong. It says, “the provisions of this title and title IV shall supercede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan?” Again – any and all state laws that relate to any employee benefit plan. It is hard to get a more sweeping preemption than that.

People get confused by ERISA because it allows states to continue to regulate insurance companies. Employers who buy coverage from an insurer also buy all the regulations that apply to the insurer.

So, a state can make an insurer do anything – cover certain benefits, charge a certain price, accept all people who apply for coverage – but it cannot make an employer buy the policy. It cannot tell the employer what to cover and what not to cover. It cannot penalize an employer who does not provide coverage.

The California legislature either never read ERISA, or maybe it thought it could get around it by using different terminology – e.g., call a tax a “fee,” call a premium a “contribution,” call a “domestic partner” a dependent.

Or maybe it knew perfectly well this bill was illegal and passed it anyway for political showmanship. Whatever the reason, this bill is a zombie – it may be walking around, but it is already dead.