Constant Readers,
A friend once called my blog a "stream of vulgarities" (I told him to "kiss my country ass" and promptly bought him another beer) but the criticism that I hear more frequently is that I do not post often enough. Well y'all, I am really going to try to post more often this year. And to prove my dedication to You, my Constant Readers, I did something so boring, so dorky, so pack-my-bags-I'm-going-to-the-Star-Trek-Convention, that I hope it will cause you to forgive my past sins of omission:
I read big chunks of the US tax code.
This post, therefore, is my attempt at a PDA.
[NOTE: You are reading a nitty gritty section, where I am assuming the reader has a fair amount of knowledge about the proposed Health Care Security Ordinance and the case of Golden Gate Restaurant Association v. City and County of San Francisco. If you don't, you can check my other posts, I'm not repeating all that crap here.]
Okay, so last time I promised you two arguments for why the employer contribution provisions of the Health Care Security Ordinance are preempted by ERISA. I then gave you one argument; here comes the second one.
And it starts with something many of us recognize: the annual employee benefits open enrollment period. Ever wonder why (absent a major life event) you can only change health insurance plans once per year? Its because IRS Section 125 (26 U.S.C. Sec. 125) allows employees to pay for health benefits (and other kinds of benefits) with pre-tax dollars when the employer offers benefits though a "cafeteria plan." Yay! Thank you IRS! But there's a hitch: unless the employee can prove a major life event occurred, the employee is stuck with that particular plan for the calendar year; the calendar year is defined by the employer. So, what kinds of things constitute major life events? Well, that is defined by each "cafeteria plan" (which is an employee plan that offers paricipants a choice between at least 1 taxable benefit and 1 qualified benefit). But Federal Regulations give a list of the kinds of events that can qualify as a major life event: marriage, divorce, kids, death of a dependent, etc. (26 CFR Sec. 1.125-4.)
Why do employers love Section 125 plans? Because they pay less in taxes. Here's how: Say you have 10 employees, each of whom earn $1000 per month. Each month, you must pay 7.65% of your $10000 payroll in FICA taxes. Unemployment and Worker's Compensation are also dependent upon payroll. (And I'm not even getting into state and local payroll taxes.) But if your employees each pay $100 per month in pre-tax dollars for health insurance, you only pay those taxes on a $9000 payroll. For big companies, the savings here can be in the millions and even for small companies the employer's tax savings can help offset the amount the employer pays toward employee health insurance. (Its also one reason why many employers wouldn't choose the HAP - they don't get the tax benefit from employee contributions.)
A pretty good deal, huh? This is why a recent MetLife survey (p.2) reported that 33 percent of employers offer cafeteria plans.
What does this have to do with the HCSO? Everything.
Remember that the basic thrust of the employer contribution provisions of the HCSO is that employers either have to provide employees health benefits or they have to pay the City so the employees can use the HAP program. Okay? Here comes the prollem:
The HCSO exempts from its coverage "those persons whose employers verify that they are receiving health care services through another employer, either as an employee or by virtue of being the spouse, domestic partner, or child of another person; provided that the employer obtains from those persons a voluntary written waiver of the health care expenditure requirements of this Chapter and that such waiver is revocable by those persons at any time." (Sec. 14.1(h).)
FUN FACT: Both the HCSO and the waiver form employees are supposed to use only allow an employee to waive health care benefits if they have alternative EMPLOYER PROVIDED health care. So, people with independent insurance (say, an independent contractor who is hired on by an employer full-time and wants to keep her insurance) still have to enroll in an employer plan or the HAP. And the HAP requires a quarterly employee participation fee (p. 12).
Consider this hypothetical: I am an employer who agrees with the HAP itself that "Insurance is always better" than the HAP, and I am paying the required amount for my employees to have health insurance through a cafeteria plan. I get a notice from an employee that he wants to waive his right to employer-provided insurance or HAP contribution because he wants to be covered by his wife's insurance. (Whether the HCSO makes the employer liable for the fact that an employee can't leave a cafeteria plan without a major life event is unclear.) A few months later, that employee now wants to exercise his right to revoke his prior waiver "at any time." Only it is not open enrollment time at my company. And no major life event has occurred. As an employer, I have no choice but to pay into the HAP program on the employee's behalf. For some small employers, this will be no biggee. But for others, it will require the creation of new systems to track, report and deal with the HAP payment.
Like I explained before, the broad preemption clause in ERISA is specifically designed to ensure national uniformity in the administration of employe benefits plans. Too much local administrative bullshit can cause a law to be preempted by ERISA. In GGRA v. SF, the City argues that the administrative burdens imposed by the law are minimal (p. 16). The City maintains that employers who provide the right amount of benefits will be able to keep their same systems in place and just create some simple reports. Well, I'm sorry y'all, but that's just a big ol' plate of wrong.
See, ALL employers who provide insurance will be forced to both renegotiate their ERISA plans and create new administrative systems to track, report and pay the HAP for their San Francisco employees if these scenarios occur: (1) employees want to revoke a waiver outside of the open enrollment period (for employers with cafeteria plans), or (2) employees do not want employer-provided health insurance and have no other employer-provided health insurance. (Without a waiver or an insurance election, the employer is on the hook to pay into the HAP - the law does not contemplate employees who just don't freaking want to pay for insurance. I believe that the number of people in this category is larger than anyone expects.**) In fact, the more employees an employer has, the more likely it is that one of these problems will arise - and large and medium-sized employers are often the very ones for whom it is a huge administrative problem to change massive multi-state insurance payment systems. To put it in technical legal terms, this is the kind of local administrative bullshit that ERISA was designed to prevent. (Who wants to negotiate with an insurance company to provide health benefits to employees where there is one city in which everyone can opt out and still cost you the same amount out of your budget?) And that's another reason why this law will ultimately go down - if not in the Ninth Circuit, in the Supreme Court.
**I have to say though, I'd be amused to see the City go after an employee for the quarterly HAP employee contribution where the employee is all "F-you I don't want your silly HAP, neether.....Wait! Don't taze me, bro!"
--Melissa
Now, on to the conclusion of all this...
Your blog IS NOT a string of vulgarities. It's a beautiful explanation of the inexplicable in colordul language only a true Southern belle could muster.
and p.s.--You don't post often enough. r.s.
Posted by: R.S | January 09, 2008 at 08:41