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California proposal may face legal challenge

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SACRAMENTO, Calif.—Some benefit experts question whether aspects of the California plan are legal.

In particular, they say challenges may arise over one of the foundations of Gov. Arnold Schwarzenegger's plan--the imposition of a 4% assessment on employers that do not offer health insurance plans.

Such assessments, benefit legal experts say, may run afoul of the federal Employee Retirement Income Security Act. The act, which pre-empts state rules and laws that relate to employee benefit plans, could void Gov. Schwarzenegger's proposed requirement--at least as it applies to self-funded health care plans.

Health insurance plans offered by commercial insurers are not covered by ERISA pre-emption.

In questioning whether California's plan would survive a legal challenge, some experts point to a somewhat similar Maryland law that was struck down last year by a federal judge who said it was pre-empted by ERISA.

The Maryland law required any employer with at least 10,000 employees in the state that did not spend an amount equal to at least 8% of payroll on health insurance to contribute the difference to a state fund that provides coverage to the low-income uninsured.

The way the Maryland law was written, it would have applied only to retailer Wal-Mart Stores Inc. A federal appeals court is now reviewing the lower court ruling.

"Could (California) even do this?" asked J.D. Piro, an attorney in Norwalk, Conn., office of Hewitt Associates Inc., referring to the 4% assessment. "We are talking about a provision that is quite similar" to the Maryland law, he added.

"This would run the risk of an ERISA pre-emption challenge," said Chris Renz, a principal in the San Francisco office of Mercer Health & Benefits.