In response to an increasing number of uninsured individuals, the declining number of employers offering insurance to their employees, and the absence of federal action, states and localities have experimented with certain measures to address the problems of health care financing and access. One approach has been to enact fair share laws, also referred to as "pay or play" statutes, which generally require employers to choose between paying a certain amount for health expenditures or coverage for their employees, or contributing to the state or locality to offset the cost of medical expenses for their uninsured residents. Recently, questions have been raised as to whether the Employee Retirement Income Security Act's (ERISA's) express preemption provision, Section 514, prevents the application of fair share laws. There have been legal challenges to fair share laws enacted in Maryland, San Francisco, and Suffolk County, New York, with courts reaching varying conclusions. In addition, the state of Massachusetts, which has received a great deal of attention for enacting comprehensive health care reform, maintains a fair share requirement as part of its health care reform package. This report provides an overview of ERISA preemption, discusses legal challenges that have been brought against fair share laws, and discusses the fair share requirements of the Massachusetts Health Care Reform Act. ERISA provides a comprehensive federal scheme for the regulation of employee pension plans, and a somewhat less detailed scheme for regulating welfare benefit plans, offered by private employers. An "employee welfare benefit plan" is defined, in relevant part, as any plan, fund, or program ... established or maintained by an employer ... for the purpose of providing for its participants or their beneficiaries, medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment ... Although ERISA does not require an employer to offer pension or welfare benefits, it does mandate compliance with its provisions if such benefits are offered. Congress enacted ERISA to eliminate the conflicting and inconsistent regulation of pension and employee welfare benefit plans by state laws. Accordingly, Section 514(a) of ERISA expressly preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan ..." The U.S. Supreme Court has interpreted this language as applying to any state law that "has a connection with or reference to such a plan." The Court has explained that to determine whether a state law has a connection with an ERISA plan, a court must consider the objectives of ERISA as a guide to the scope of the statute that Congress understood would survive, as well as the nature of the effect of the state law on ERISA plans. A state law has a reference to an ERISA plan if it acts "immediately and exclusively" on ERISA plans or if the existence of such a plan is essential to the law's operations. A state law that "relates to" an ERISA plan may avoid preemption if it regulates insurance within the meaning of ERISA's "saving clause." Section 514(b)(2)(A) "saves" from preemption "any law of any State which regulates insurance, banking, or securities." However, an additional clause serves as an exception to ERISA's saving clause. Section 514(b)(2)(B), ERISA's "deemer clause," indicates that a state law that "purport[s] to regulate insurance" cannot deem an employee benefit plan to be an insurance company for purposes of regulation. Until 1995, the Court's decisions on ERISA preemption suggested generally that the application of Section 514(a) was limitless. However, with its decision in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co. , the Court began to show a greater willingness to uphold various state laws. In Travelers , several commercial insurers challenged a state law that required them, but not Blue Cross and Blue Shield, to pay surcharges on hospital services. The commercial insurers argued that the law was preempted by ERISA because it "relate[d] to" employer-sponsored health insurance plans. In addressing the application of ERISA's preemption clause, the Court first noted that there is a "presumption that Congress does not intend to supplant state law." The Court then considered whether Congress intended to preempt state law by looking to "the structure and purpose" of ERISA. The Court concluded that "nothing in the language of the Act or the context of its passage indicates that Congress chose to displace general health care regulation, which historically has been a matter of local concern." Although the Court continued to uphold several other state laws following Travelers , it nevertheless concluded in 2001 that a Washington state law was preempted by ERISA despite the fact that it gave plans an option for avoiding its requirements. The Washington law at issue in Egelhoff v. Egelhoff provided that the designation of a spouse as the beneficiary of a nonprobate asset would be revoked automatically upon divorce. Under the law, plan administrators were required to alter the terms of a plan to indicate that the plan would not follow the law. It was argued that the law not only avoided the regulation of plan administration, but also did not apply so long as the plan documents expressly provided otherwise. The Court determined that the Washington law had an impermissible connection with ERISA plans because it interfered with nationally uniform plan administration. The Court explained that one of the principal goals of ERISA is to enable employers to establish a uniform administrative scheme that provides standard procedures for the processing of claims and disbursement of benefits. The Court maintained that uniformity is impossible if plans are subject to different legal obligations in different states. Moreover, the Court declined to find the law saved from preemption because of its "opt out" option: It is not enough for plan administrators to opt out of this particular statute. Instead, they must maintain a familiarity with the laws of all 50 States so that they can update their plans as necessary to satisfy the opt-out requirements of other, similar statutes ... This 'tailoring of plans and employer conduct to the peculiarities of the law of each jurisdiction' is exactly the burden ERISA seeks to eliminate. The fair share laws discussed in this report present similar questions about preemption and the impact of a plan or plan sponsor's ability to choose from various compliance options. Courts have evaluated fair share laws enacted in Maryland, Suffolk County, New York, and San Francisco, with varying results. In January 2006, Maryland became the first state to adopt legislation that would have required for-profit employers with 10,000 or more employees in the state to either spend at least 8% of their total payroll costs on employee health insurance costs, or pay to the state the amount their spending fell short of that percentage. Shortly after the Fair Share Health Care Fund Act (Fair Share Act) was enacted, the Retail Industry Leaders Association (RILA), a retail trade association that includes Wal-Mart as a member, challenged the measure on the grounds that it was preempted by ERISA. In January 2007, the U.S. Court of Appeals for the Fourth Circuit affirmed the decision of a federal district court that found the Fair Share Act to be preempted by ERISA. Prior to enactment of the Fair Share Act, the Maryland General Assembly heard extensive testimony about the rising costs of the Maryland Medical Assistance Program, which provides access to health care services for the state's low-income residents. The General Assembly also received information concerning Wal-Mart's failure to provide adequate health benefits to its employees, and Wal-Mart employees and dependents enrolling in Medicaid and the state children's health insurance program. Wal-Mart would have been the only for-profit employer in Maryland to be subject to the Fair Share Act. Other for-profit employers with at least 10,000 employees in Maryland either satisfied the Fair Share Act's 8% threshold or were exempted from the measure. James D. Fielder Jr., Maryland's Secretary of Labor, Licensing, and Regulation and the defendant in the case, made two arguments in favor of upholding the Fair Share Act. First, the Secretary contended that the Fair Share Act was a revenue statute of general application and not one that involved an employer's provision of health care benefits. He asserted that the revenue from the "payroll tax" imposed under the Fair Share Act would fund the Fair Share Health Care Fund established under the measure, which would be used to offset the costs of the Maryland Medical Assistance Program. Second, the Secretary argued that the Fair Share Act did not have a connection with employee benefit plans because an employer could act in ways that did not involve such plans. For example, an employer could increase health care spending by establishing on-site medical clinics or by contributing more money to employees' health savings accounts. An employer could also refuse to increase benefits under an ERISA plan and simply pay the amount by which its spending fell short of the measure's 8% threshold. The Fourth Circuit rejected both of the Secretary's arguments. Acknowledging the legislative history of the Fair Share Act and what the Maryland General Assembly knew at the time of its consideration, the court indicated that the measure "could hardly be intended to function as a revenue act of general application." The court stated, [L]egislators and interested parties uniformly understood the Act as requiring Wal-Mart to increase its healthcare spending. If this is not the Act's effect, one would have to conclude, which we do not, that the Maryland legislature misunderstood the nature of the bill that it carefully drafted and debated. For these reasons, the amount that the Act prescribes for payment to the State is actually a fee or a penalty that gives the employer an irresistible incentive to provide its employees with a greater level of health benefits. In response to the Secretary's second argument, the Fourth Circuit distinguished the Fair Share Act from state laws that were found to not be preempted by ERISA. Citing Travelers , the court noted that the Supreme Court upheld the state law in that case because it did not act directly upon employers or their plans, but merely created "an indirect economic influence" on plans.