RICHMOND, Va.—A federal appeals court decision last week, which upheld a lower court ruling striking down a Maryland law that would have required Wal-Mart Stores Inc. to spend more on employees' health insurance, likely will be the death knell to that coverage approach.

The measure, which Maryland lawmakers approved last year by overriding a gubernatorial veto, would have required employers with at least 10,000 employees to spend at least 8% of payroll to provide health insurance benefits or pay the difference into a state fund covering the low-income uninsured.

Because of the way the measure was written, the law would have applied only to Wal-Mart, the giant Bentonville, Ark.-based retailer.

Maryland's law became a template for similar bills--dubbed "Fair Share" by backer AFL-CIO--that were introduced last year in about two dozen states.

But the Maryland model was dealt a blow when a federal judge last July ruled, in a suit filed by the Retail Industry Leaders Assn., that the measure violated the federal Employee Retirement Income Security Act, which pre-empts state and local rules and laws that relate to employee benefit plans.

In the wake of that decision by Judge J. Frederick Motz, legislative interest in the Fair Share approach withered and most of the state proposals died in committee. One state--California--did approve a bill similar to Maryland's, but Gov. Arnold Schwarzenegger vetoed it.

State interest in the issue could completely evaporate in the wake of last week's 2-1 decision by a three-judge panel of the 4th U.S. Circuit Court of Appeals upholding Judge Motz's decision, opponents of the Maryland law say.

"This decision should send a strong signal to other states considering similar legislation that it will not pass judicial muster," said Steve Cannon, outside general counsel for the Arlington, Va.-based RILA, whose members include Wal-Mart.

In the ruling, written by Judge Paul Niemeyer, the appeals panel said Maryland's goal to require Wal-Mart to spend more on health insurance "directly clashes with ERISA's pre-emption 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."

Federal legislators included the pre-emption provision to minimize the administrative and financial burden on employers in complying with varying state benefit laws and rules.

"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," the court concluded.

The state has until early next month to decide whether it will seek a review by the full appeals court of the panel's decision.

Retail Industry Leaders Assn. vs. James D. Fielder Jr., 4th U.S. Circuit Court of Appeals, No. 06-1840, Jan. 17, 2007.