Judges OK S.F. health program

Gov. Arnold Schwarzenegger’s ongoing effort to create a universal health insurance system for California got a major boost Tuesday when a federal appeals panel upheld San Francisco’s pioneering citywide healthcare program.

Ruling on a suit brought by a local restaurant association, a three-judge panel of the U.S. 9th Circuit Court of Appeals found that fees charged to employers under the 10-month-old San Francisco Health Care Security Ordinance do not violate federal laws regulating employee benefit programs.

The San Francisco ordinance, which took effect Jan. 9, requires for-profit employers with 20 or more workers to offer health insurance, set aside funds in health reimbursement accounts or pay a fee to the city’s Healthy San Francisco program. Nonprofit employers with 50 or more staffers are also covered.

Healthy San Francisco uses the fees partly to run a network of local clinics and a county-operated hospital to treat clients who do not get health insurance from their employers.

“I think this case strengthens the governor’s case for having a shared responsibility” for health insurance coverage that includes employers, said Daniel Zingale, a senior advisor to Schwarzenegger.

During 2007 and early this year, the governor tried to secure broad support for a $14.9-billion plan that would cover the state’s 7 million uninsured residents through a complex plan that spread the financial burden among hospitals, doctors, insurance companies, employers and individuals. The Assembly approved the bill, but it died in the Senate Health Committee, where it was lambasted as too expensive and unworkable.

Backers of Healthy San Francisco, including Mayor Gavin Newsom, labor unions and advocates for expanded healthcare, say their local program is a model for the state and the nation. In less than a year, it provided basic medical care to 30,000 uninsured city residents.

“Today’s ruling is a huge victory for the city and for the 46 million Americans who don’t have health insurance,” Newsom said. “San Francisco is proving that it can be done. By thinking outside the box, every city and state in this country can provide health insurance if they are willing to challenge the conventional wisdom.”

But employers represented by the Golden Gate Restaurant Assn. contended that the program violated a federal law that precludes state and local governments from mandating employer-financed benefit plans such as health insurance. The 1974 law is known as the Employee Retirement Income Security Act, or ERISA.

In the ruling, the appellate panel found that “the spending requirements do not establish an ERISA plan.”

The restaurant association’s executive director, Kevin Westlye, said his organization continued to believe that the San Francisco ordinance was expensive and burdensome to employers.

He said that if it is allowed to stand, it could lead to a patchwork of conflicting state and local laws governing employer contributions to health insurance benefits.

The association, he said, hasn’t decided whether to appeal the panel’s ruling to the entire 9th Circuit or to the U.S. Supreme Court.

In the meantime, many restaurants, especially neighborhood eateries not frequented by tourists, “are barely making ends meet,” Westlye said. Some more expensive establishments that serve conventions, business groups and foreign tourists now are covering their new health insurance costs by putting a surcharge of 3% to 6% on their customers’ bills.

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marc.lifsher@latimes.com