Several states and communities are moving to provide universal health coverage for their residents, but a federal law is blocking their efforts. Many of the proposals require employers either to offer health coverage themselves or pay into a public fund to help cover the uninsured. 'NIGHTMARE': Businesses fight forced payments for universal health care Some employers say that conflicts with a federal law that bars states from requiring or regulating employer-provided benefits such as health coverage. The law, which protects private-sector companies from having to meet a patchwork of state and local demands, is supported by businesses. The dispute has set off a legal battle pitting lawmakers against employers. Its resolution could determine how far state and local lawmakers can go with their plans to cover the uninsured. "There are people who believe that but for (this law), we would be much farther along in knowing what works in terms of health reform," says Phyllis Borzi, a George Washington University health policy professor. Greg Scandlen, president of Consumers for Health Care Choices, says the law shields businesses from varying rules. "The idea that the employer is required to provide coverage or pay a fee will be thrown out in a heartbeat" in court, says Scandlen, whose group advocates less government regulation of health care. An early legal test of these plans is taking place in San Francisco, the first city to offer universal coverage to its residents. A group of restaurant owners sued the city in 2006, saying the law violates the federal Employee Retirement Income and Security Act (ERISA). In December, a lower court judge sided with employers. But last week, an appeals court allowed San Francisco to proceed temporarily with its program and begin charging employers a fee, ruling that the city has a "strong likelihood of prevailing" in its appeal. California, Colorado, Michigan and Minnesota have proposals pending that rely on partial funding by employers. The lower court ruling "raises doubt with regard to all of the state health reform proposals," says Atlanta attorney John Hickman, an expert on the federal law. The 1974 law poses the biggest challenge in California, where Gov. Arnold Schwarzenegger has spent more than a year pushing a $14 billion health plan. His proposal includes a payroll tax on employers who don't offer coverage. "We believe the ruling (of the lower court) is not insurmountable," says Frank Furtek, chief counsel at the California Health and Human Services Agency. If the 9th U.S. Circuit Court of Appeals ultimately rules in the city's favor, the case may end up before the U.S. Supreme Court, Borzi says. That's because last January, the 4th U.S. Circuit Court of Appeals reached the opposite conclusion over a Maryland law. That law charged very large employers a fee if they did not spend 8% of payroll on health care, essentially affecting only Wal-Mart. The appeals court ruled the measure violated federal law. If the appeals courts disagree, "it sets up a conflict, which is the classic pathway to having the Supreme Court resolve it," Borzi says. A similar law in Suffolk County, N.Y., was rejected by a lower court in July; the county decided not to appeal. Massachusetts, the only state to require all residents to carry insurance, sets a $295 per worker annual fee on employers who don't offer coverage. The fee's small size and early support from business are credited with preventing a legal challenge. Conversation guidelines: USA TODAY welcomes your thoughts, stories and information related to this article. Please stay on topic and be respectful of others. Keep the conversation appropriate for interested readers across the map.