As any deep-sea fisherman knows, blood in the water tends to attract sharks.

In recent years, the waters of the U.S. health care system have been increasingly stormy and dangerous, with spiraling medical costs and an economy that's transitioning away from manufacturing and toward service industries. Employer-sponsored health insurance is covering a smaller share of the U.S. population every year, and public costs are increasing exponentially as more individuals find themselves without insurance and unable to pay their medical bills.

But now state politicians seeking a solution to the health care dilemma smell blood in the water.

Specifically, about 30 states are considering some form of “fair-share” health-insurance legislation that seeks to shift the burden for providing health insurance away from public agencies and onto individuals and corporations. Two states–Massachusetts and Maryland–have enacted laws that would make employers responsible for covering more health care costs. These legislative developments are attracting national attention and feeding the political ambitions of hopeful candidates.

“There obviously is some red meat to be found in proposing something that looks good to constituents,” says Joseph Antos, a health policy expert with the American Enterprise Institute for Public Policy Research. “But in the health sector, nothing ever goes as well as hoped.”

Indeed, the Massachusetts and Maryland laws face legal and practical challenges that could render them dead in the water. But if the idea of fair-share insurance spreads, state-mandated health programs might soon begin taking a bigger bite out of companies.

Constitutional Challenges

Maryland was the first state to consider fair-share health care policy. The state legislature passed the Fair Share Health Care Fund Act last spring, and overrode Gov. Robert Ehrlich Jr.'s veto to enact the law in January.

The Maryland bill is narrowly tailored toward a single employer–Wal-Mart. The bill requires employers with more than 10,000 employees in the state to spend at least 8 percent of the in-state payroll on health care benefits. If the employer fails to reach that threshold, it would be subject to a penalty equal to the shortfall.

Maryland's law is under attack as violating the equal-protection clause because it affects just one employer. The Retail Industry Leaders Association (RILA) filed suit February, arguing the law is discriminatory in the way it singles out Wal-Mart.

“It's not the best piece of legislation,” says Kathy Conklin, a member with McGlinchey Stafford. “A better approach would look at the entire population.”

The Massachusetts law does exactly that by requiring all individuals to obtain health insurance. The law creates a program to provide subsidized insurance for low-income residents and requires employers of more than 10 people to provide health insurance or pay a contribution of $295 a year per employee. Gov. Mitt Romney signed the bill April 12, but used his line-item veto to strike the fair-share language. However, proponents expect to override the veto.

ERISA Challenges

In addition to sparking political controversy, the Massachusetts and Maryland laws both face serious legal challenges. RILA argues Maryland's law is preempted by ERISA, which provides uniform federal regulation of employee-benefits plans.

That argument also is being leveled against the Massachusetts law, although at press time no one had filed suit. In February, however, RILA filed a complaint in federal court in New York challenging Suffolk County, N.Y.'s fair-share law, which requires large grocers and other retailers to spend $3 on health care benefits for every hour their employees work. The suit charges that the statute is preempted by ERISA, and that it violates federal equal protection, civil rights and interstate commerce protections.

While the broader constitutional questions about fair-share laws are interesting, the ERISA-preemption argument seems to provide the strongest challenge to such legislation. How courts likely will rule on the issue is uncertain.

“A basic principle of ERISA is that employers have no obligation to provide benefit plans,” says Tom Gies, a partner with Crowell & Moring. “But these laws are candidly drafted to get around the ERISA preemption by saying they regulate employers and not benefit plans. Whether it's legal is an open question.”

The argument is that forcing an employer to make contributions toward a health-insurance plan is an impermissible regulation of ERISA-covered benefits. Further, by imposing different requirements on employers in certain states, the laws conflict with ERISA's mandate to administer employee benefits plans uniformly across the U.S.

“We don't know whether ERISA will preempt these laws,” says Tim Stanton, a partner with Gardner Carton & Douglas. “For the past 10 years or so, it has been harder to win an ERISA-preemption argument.”

Shifting Ground

Irrespective of whether the Maryland and Massachusetts statutes survive the ERISA challenge, fair-share health care laws have sparked an important policy trend, with lawmakers in numerous states pushing such laws forward.

“State legislatures don't have a lot of arrows in their quiver to deal with the health care crisis,” Stanton says. “What they have come up with is the fair-share law, and it is a more powerful idea than many people realize.”

Fair-share health care laws have attracted a strange alliance of Republican and Democratic politicians, as well as labor unions. In addition, some business leaders are attracted to the idea because they already provide health insurance for their entire workforce, and fair-share laws increase costs for their competitors who don't.

“Many employers who provide health insurance to their employees are saying they are having a hard time competing,” Gies says. “Fair-share laws are an example of how that dynamic is playing out.”

Predicting where this dynamic will lead might be difficult, but employers should undergo a simple analysis of their own health-benefits programs to determine how fair-share laws might affect them. Many nationwide companies might face higher standards in some states than in others.

“To ensure compliance with every law in the country, employers might expand benefits across the board,” Stanton says.

Whether the benefits of fair-share legislation outweigh the costs remains to be seen. But as lawmakers hunt for new solutions to growing health care problems, one thing seems certain: employers, especially large ones, will be expected to contribute their pound of flesh.

As any deep-sea fisherman knows, blood in the water tends to attract sharks.

In recent years, the waters of the U.S. health care system have been increasingly stormy and dangerous, with spiraling medical costs and an economy that's transitioning away from manufacturing and toward service industries. Employer-sponsored health insurance is covering a smaller share of the U.S. population every year, and public costs are increasing exponentially as more individuals find themselves without insurance and unable to pay their medical bills.

But now state politicians seeking a solution to the health care dilemma smell blood in the water.

Specifically, about 30 states are considering some form of “fair-share” health-insurance legislation that seeks to shift the burden for providing health insurance away from public agencies and onto individuals and corporations. Two states–Massachusetts and Maryland–have enacted laws that would make employers responsible for covering more health care costs. These legislative developments are attracting national attention and feeding the political ambitions of hopeful candidates.

“There obviously is some red meat to be found in proposing something that looks good to constituents,” says Joseph Antos, a health policy expert with the American Enterprise Institute for Public Policy Research. “But in the health sector, nothing ever goes as well as hoped.”

Indeed, the Massachusetts and Maryland laws face legal and practical challenges that could render them dead in the water. But if the idea of fair-share insurance spreads, state-mandated health programs might soon begin taking a bigger bite out of companies.

Constitutional Challenges

Maryland was the first state to consider fair-share health care policy. The state legislature passed the Fair Share Health Care Fund Act last spring, and overrode Gov. Robert Ehrlich Jr.'s veto to enact the law in January.

The Maryland bill is narrowly tailored toward a single employer–Wal-Mart. The bill requires employers with more than 10,000 employees in the state to spend at least 8 percent of the in-state payroll on health care benefits. If the employer fails to reach that threshold, it would be subject to a penalty equal to the shortfall.

Maryland's law is under attack as violating the equal-protection clause because it affects just one employer. The Retail Industry Leaders Association (RILA) filed suit February, arguing the law is discriminatory in the way it singles out Wal-Mart.

“It's not the best piece of legislation,” says Kathy Conklin, a member with McGlinchey Stafford. “A better approach would look at the entire population.”

The Massachusetts law does exactly that by requiring all individuals to obtain health insurance. The law creates a program to provide subsidized insurance for low-income residents and requires employers of more than 10 people to provide health insurance or pay a contribution of $295 a year per employee. Gov. Mitt Romney signed the bill April 12, but used his line-item veto to strike the fair-share language. However, proponents expect to override the veto.

ERISA Challenges

In addition to sparking political controversy, the Massachusetts and Maryland laws both face serious legal challenges. RILA argues Maryland's law is preempted by ERISA, which provides uniform federal regulation of employee-benefits plans.

That argument also is being leveled against the Massachusetts law, although at press time no one had filed suit. In February, however, RILA filed a complaint in federal court in New York challenging Suffolk County, N.Y.'s fair-share law, which requires large grocers and other retailers to spend $3 on health care benefits for every hour their employees work. The suit charges that the statute is preempted by ERISA, and that it violates federal equal protection, civil rights and interstate commerce protections.

While the broader constitutional questions about fair-share laws are interesting, the ERISA-preemption argument seems to provide the strongest challenge to such legislation. How courts likely will rule on the issue is uncertain.

“A basic principle of ERISA is that employers have no obligation to provide benefit plans,” says Tom Gies, a partner with Crowell & Moring. “But these laws are candidly drafted to get around the ERISA preemption by saying they regulate employers and not benefit plans. Whether it's legal is an open question.”

The argument is that forcing an employer to make contributions toward a health-insurance plan is an impermissible regulation of ERISA-covered benefits. Further, by imposing different requirements on employers in certain states, the laws conflict with ERISA's mandate to administer employee benefits plans uniformly across the U.S.

“We don't know whether ERISA will preempt these laws,” says Tim Stanton, a partner with Gardner Carton & Douglas. “For the past 10 years or so, it has been harder to win an ERISA-preemption argument.”

Shifting Ground

Irrespective of whether the Maryland and Massachusetts statutes survive the ERISA challenge, fair-share health care laws have sparked an important policy trend, with lawmakers in numerous states pushing such laws forward.

“State legislatures don't have a lot of arrows in their quiver to deal with the health care crisis,” Stanton says. “What they have come up with is the fair-share law, and it is a more powerful idea than many people realize.”

Fair-share health care laws have attracted a strange alliance of Republican and Democratic politicians, as well as labor unions. In addition, some business leaders are attracted to the idea because they already provide health insurance for their entire workforce, and fair-share laws increase costs for their competitors who don't.

“Many employers who provide health insurance to their employees are saying they are having a hard time competing,” Gies says. “Fair-share laws are an example of how that dynamic is playing out.”

Predicting where this dynamic will lead might be difficult, but employers should undergo a simple analysis of their own health-benefits programs to determine how fair-share laws might affect them. Many nationwide companies might face higher standards in some states than in others.

“To ensure compliance with every law in the country, employers might expand benefits across the board,” Stanton says.

Whether the benefits of fair-share legislation outweigh the costs remains to be seen. But as lawmakers hunt for new solutions to growing health care problems, one thing seems certain: employers, especially large ones, will be expected to contribute their pound of flesh.