Judge Overturns Wal-Mart Health Care Spending Law

A first-of-its-kind state law that would have required Wal-Mart to spend more on employee health care in Maryland is invalid under federal law, a judge ruled Wednesday.

The state law would have required non-governmental employers with 10,000 or more workers to spend at least 8 percent of payroll on health care or pay the difference in taxes. The measure was directly aimed at Bentonville, Ark.-based Wal-Mart Stores Inc., which has been under attack by critics who say that its inadequate health care plans are forcing some employees to rely on state-funded plans.

U.S. District Judge J. Frederick Motz decided that the Maryland Fair Share Health Care Fund Act would have hurt Wal-Mart by requiring it to track and allocate benefits for its Maryland employees in a different way from how it keeps track of employee benefits in other states. Motz wrote that the law “imposes legally cognizable injury upon Wal-Mart.”

Motz cited the federal Employee Retirement Income Security Act, which he said pre-empts “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

“My finding that the act is pre-empted is in accordance with long established Supreme Court law that state laws which impose health or welfare mandates on employers are invalid under ERISA,” Motz wrote in his 32-page opinion.

Wal-Mart Chief Executive Lee Scott said the ruling meant businesses would not have to contend with different standards in different states for health coverage.

“The thing that we find encouraging is that there is going to be consistency, that the federal government is going to be the control point on health insurance and these kinds of issues, so that commerce itself, businesses, will be able to have one set of standards that they work against,” Scott said during an appearance on the Rev. Al Sharpton’s syndicated radio show.

Kevin Enright, a spokesman for the Maryland attorney general’s office, said the state would appeal to the 4th U.S. Circuit Court of Appeals in Richmond, Va.

Enright said the state disagreed with Motz on several counts, particularly in finding that the law is pre-empted by ERISA.

“Supreme Court precedent makes it clear that this law does not impermissibly impact health benefit plans,” Enright said. “Employers may choose to pay the tax or avoid paying the tax in several ways.”

In Maryland, where state budget writers were looking for ways to rein in a $4.6 billion annual Medicaid tab, the Wal-Mart law was seen as a way to encourage companies to keep employees off public rolls. It became law last winter when the Democratic legislature overrode a 2005 veto by Republican Gov. Robert Ehrlich.

The Retail Industry Leaders Association, of which Wal-Mart is a member, filed the lawsuit in February to contest the legislation. The Arlington, Va.-based group contended the law unfairly targeted the world’s largest retailer.

RILA President Sandy Kennedy said the ruling sent a message that employer health plans are governed by federal law and “not a patchwork of state and local laws.”

“It also is a clear message that similar bills under consideration in other states and municipalities violate federal law as well,” Kennedy said.

Other states have considered bills similar to Maryland’s law, although no other state has adopted one.

Nu Wexler, a spokesman for Wal-Mart Watch, one of Wal-Mart’s most vocal union-funded critics, said the ruling doesn’t change the fact that Wal-Mart’s health care plan is “unaffordable and inaccessible for its employees.”

“Until large employers and the federal government take action, other states will continue to seek individual solutions to the health care crises plaguing their states,” Wexler said.

Wal-Mart has 53 stores and two distribution centers in Maryland and employs nearly 16,000 people in the state.

Motz pointed out that lawyers for the state had argued that the Maryland law amounted to a “payroll tax” and therefore was outside federal jurisdiction. However, the judge said the purpose of the law clearly was not to raise revenue for the state.

“To the contrary, its purpose was to force Wal-Mart to increase the level of its health care benefits,” Motz wrote.

Without the court’s intervention, the law would have taken effect in January.

Lawyers for the state argued that Wal-Mart was free to pay a penalty — estimated at $6 million a year — instead of providing better benefits. State lawyers also argued that as another alternative, the retailer could have set up clinics for its employees. Motz rejected both arguments, saying no company would make those choices rather than increase health care for its workers.

“The ‘choice’ here is a Hobson’s choice,” he said.