A federal appeals court gave San Francisco the green light Wednesday to require employers to help pay for health care for uninsured workers and residents, and it signaled that it is likely to uphold the city's groundbreaking universal coverage law.

A three-judge panel of the Ninth U.S. Circuit Court of Appeals allowed San Francisco to enforce its law and extend coverage to all uninsured adults while the city appeals a federal judge's decision striking down a key funding provision.

That provision requires large and medium-size companies to offer insurance to their employees or pay a fee to the city for the cost of their coverage. The court said the city probably would win its argument that U.S. District Judge Jeffrey White was wrong when he ruled Dec. 26 that local governments lack the power to force employers to contribute to a health care program.

That the ruling allows the law to take effect during the city's appeal is unusual. Generally, appellate courts refuse to allow enforcement if a lower court has found part of a law invalid. In this case, however, the appeals court said it was granting San Francisco's request for an emergency stay of White's ruling because the city had a strong argument and because of consequences for people who cannot get health coverage.

"Otherwise avoidable human suffering, illness and possibly death will result if a stay is denied," Judge William Fletcher said in the 3-0 decision.

The court's attitude makes it more likely that a proposed state health care law, which the Assembly has approved and Gov. Arnold Schwarzenegger supports, will survive any legal challenge. Like the San Francisco measure, the state measure depends in part on funding from employers. The Senate has yet to take up the bill.

"It's a tremendous victory for those who want to see the state do something in this area," said Stacey Leyton, lawyer for a group of labor unions that joined in the defense of the San Francisco law.

City Attorney Dennis Herrera said the ruling would make thousands of uninsured San Franciscans eligible for health coverage in the next few months. A ruling against the city, he said, "would very likely frustrate state and local health care reform efforts throughout the nation."

The law was challenged by the Golden Gate Restaurant Association, which represents more than 900 Bay Area establishments. Dan Scherotter, the association's incoming president, said the restaurants were disappointed but would comply with the ruling and remained confident of winning after the court hears all the evidence.

The judges put the case on a fast track. Final written arguments are due in April, and a ruling in the summer or fall is a possibility.

Scherotter, chef and owner of Palio D'Asti restaurant in the Financial District, said he and other restaurant owners would have to lay off employees and raise prices to comply with the ordinance. He said he now provides insurance for most of his 65 employees, but not at the levels mandated by the city.

"The reason we're suing is that (health insurance) is unaffordable for a lot of people and businesses," Scherotter said. The restaurant association has proposed a quarter-cent increase in the local sales tax to replace employer fees as a source of health care funding.

The San Francisco ordinance, the first of its kind in the nation, is designed to provide care at a network of hospitals and clinics for about 73,000 uninsured adults who are not covered by the Medi-Cal program for the poor or Medicare for the elderly.

Most of the estimated $200 million annual cost is to be covered by state and local taxes and by payments from patients based on their income. The rest, less than 20 percent of the total, would come from fees paid by employers who don't offer insurance.

About 7,350 residents were enrolled during the last half of 2007, when eligibility was limited to those making less than the federal poverty level of $10,310 a year for individuals. The city had planned to remove the eligibility limits Jan. 2, but White's ruling against the employer fees led officials to restrict enrollment to those making up to three times the federal poverty level.

That left about 26,000 uninsured residents out of the program. Some of those are among an estimated 20,000 employees in San Francisco whose companies provide no insurance. The ordinance provides coverage for those employees - some of them nonresidents - either in the city program or in a new health plan offered by their employers.

The provision that the restaurant association challenged requires private employers with at least 20 workers, and nonprofits with at least 50, to provide coverage at dollar amounts set by the city or to pay a fee to cover the city's cost of care for their uninsured employees.

White ruled that the provision violated a 1974 federal law that prohibits state and local governments from regulating employee benefit plans. But the appeals court said the federal law, intended to promote uniformity in benefit plans, leaves a city free to protect its residents' health and welfare as long as it does not require an employer to adopt a particular health care plan, or alter an existing plan to provide specific benefits.

To comply with the San Francisco ordinance, "employers need not have any (health) plan at all; and if they do have such a plan, they need not make any changes in it," said Fletcher, who was joined by Judges Stephen Reinhardt and Alfred Goodwin. Fletcher said companies are simply required to spend a certain amount on employee health care, either as insurance premiums or as payments to the city.

He also said the hardships that the city and its residents would suffer from a delay in implementation would be far greater than the harm to restaurant owners from having to abide by the law during the appeal.