SAN FRANCISCO – San Francisco's landmark universal health care program can continue to operate, after an appeals court ruled that it does not violate federal law.

The unanimous ruling Tuesday by a three-judge panel of the 9th U.S. Circuit Court of Appeals overturned a lower court decision that the program, dubbed Healthy San Francisco, had placed an undue financial burden on struggling businesses.

Healthy San Francisco is the first plan in the country to offer universal coverage, and requires companies with at least 20 workers to provide health care or give part of each employee's hourly salary to the city as a fee to help offset the program's estimated $200 million cost.

The monthly fee is capped at $180 per worker for businesses with more than 100 employees.

In its ruling, the panel stressed that it was not ruling on the wisdom of the plan, but only the legality of the mandatory employer fees under the federal Employee Retirement Income Security Act, or ERISA.

“We are asked only to decide whether ERISA pre-empts the employer spending requirements. We hold that it does not,” Judge William A. Fletcher wrote in the court's opinion.

The San Francisco Board of Supervisors approved the program in 2006. A trade association for the city's restaurants sued, arguing that the fee requirement violated a federal law that gives employers a choice in how to provide health coverage.

Kevin Westlye, executive director of the Golden Gate Restaurant Association, said the group planned to appeal.

“If this stands, many counties and states will pass their own employer expenditure rulings, going against why Congress passed ERISA in the first place,” Westlye said.

The U.S. Supreme Court ruled in February that the Healthy San Francisco program could proceed while the appeals court considered its legality.

More than 29,000 people are enrolled, according to the latest city statistics. Previous estimates put the city's uninsured population at about 82,000.

City Attorney Dennis Herrera, whose office argued the case for the city, said the court's ruling proves that local governments can navigate complex federal laws to provide improved health care to residents.

“This is a road map for state and local governments so they can step into the void and fill the vacuum that the federal government has left because of its inability to act in this area,” Herrera said.

Labor advocates also hailed the ruling as an important first step in paving the way for health care reform, a key national issue in an election year.

“No one thinks that San Francisco on its own is going to solve the health care problem in the city or the nation,” said Ken Jacobs, chair of the University of California, Berkeley's Center for Labor Research and Education, who worked with city officials on the program. “What San Francisco has shown, however, is that it's a matter of will, it can be done.”

Westlye said he agreed with the need for a universal health care plan, but that it could be funded by a quarter-cent sales tax increase instead of employer fees.