Insurance Law Targeting Wal-Mart Ruled Invalid

A first-of-its-kind state law that would have required Wal-Mart Stores Inc. to spend more on employee healthcare in Maryland is invalid under federal law, a judge ruled Wednesday.

The state law would have required nongovernmental employers with 10,000 or more workers to spend at least 8% of their payroll on healthcare or pay the difference in taxes. The measure was directly aimed at Bentonville, Ark.-based Wal-Mart, which has been under attack by critics who say that its healthcare plans are inadequate and that they force some employees to rely on state-funded plans.

U.S. District Judge J. Frederick Motz decided that Maryland’s Fair Share Health Care Fund Act would have hurt Wal-Mart by requiring it to track and allocate benefits for its Maryland employees in a different way from how it keeps track of employee benefits in other states. Motz wrote that the law “imposes legally cognizable injury upon Wal-Mart.”

Motz cited the federal Employee Retirement Income Security Act, which he said preempted “any and all state laws insofar as they may now or hereafter relate to any employee benefit plan.”

“My finding that the act is preempted is in accordance with long-established Supreme Court law that state laws which impose health or welfare mandates on employers are invalid under ERISA,” the judge wrote in his 32-page opinion.

Wal-Mart Chief Executive Lee Scott said the ruling meant that businesses would not have to contend with different standards in different states for health coverage.

Thirty state and local governments have considered laws similar to the Maryland statute. In California, a measure by state Sen. Carole Migden (D-San Francisco) has passed the Senate and is pending in the Assembly Appropriations Committee.

Kevin Enright, a spokesman for the Maryland attorney general’s office, said the state would appeal to the U.S. 4th Circuit Court of Appeals in Richmond, Va.

“Supreme Court precedent makes it clear that this law does not impermissibly impact health benefit plans,” Enright said. “Employers may choose to pay the tax or avoid paying the tax in several ways.”

In Maryland, where state budget writers were looking to rein in a $4.6-billion annual Medicaid tab, the law was seen as a way to encourage companies to keep employees off public rolls. It became law last winter when the Democratic legislature overrode a 2005 veto by Republican Gov. Robert L. Ehrlich Jr.

The Retail Industry Leaders Assn., of which Wal-Mart is a member, filed the lawsuit in February to contest the legislation. The Arlington, Va.-based group contended the law unfairly targeted the world’s largest retailer.

Wal-Mart shares rose $1.03 to $44.20.