Legislative Update

New San Francisco Employer Mandate Has Implications for Employers and Brokers Throughout California
by Jay Beck

San Francisco’s embattled employer healthcare spend-ing mandate has grabbed its share of headlines. In December, the Golden Gate Restaurant Association won a court ruling invalidating spending requirements of the Healthcare Security Ordinance (HCSO). Days later, in January, HCSO was granted a stay pending appeal and allowed to go into effect while San Francisco appeals the December decision.

Most news coverage has focused on the impact on San Francisco’s businesses and residents, but brokers and businesses throughout California have reason to watch these developments since HCSO’s jurisdiction crosses city lines. Regardless of where they’re located, businesses that have a qualifying employee working in San Francisco city or County as few as 10 hours a week would have to comply. It could be a delivery person who travels in and out of San Francisco during the workday, a work crew dispatched on a building project within the county, or employees working in a separate San Francisco office.

Employers are turning to brokers to help them meet the new mandate. Businesses have several options, from paying into a city healthcare fund to purchasing private insurance. The following overview will explore common questions that clients may ask brokers and agents. It will also discuss the pros and cons of each payment option, while paying special consideration to insurance, which is expected to be employers’ top choice.

1. Does this ordinance apply to my business?
HCSO applies to businesses with more than 20 employees. It applies if any of these employees work in the city of San Francisco at least 10 hours a week. A company that has 19 employees working in Oakland and one working 10 hours or more in San Francisco would be subject to the ordinance. Some non-profit organizations are an exception. Those with fewer than 50 employees are not subject to HCSO.

2. How much will this cost?
Businesses with 20 to 99 employees must pay $1.17 per hour to an eligible employee while those with 100 or more employees must pay $1.76. San Francisco considers an eligible employee to be anyone who has been employed 90 calendar days, works at least 10 hours a week in San Francisco, and earns less than the city’s prescribed salary limit. This includes not only full-time staff, but also hourly, seasonal, and temporary workers.

Employers must calculate expenditures based on an employee’s hours paid. HCSO defines “hours paid” as hours for which a person is paid for work performed in San Francisco and hours for which a person is entitled to be paid wages, such as paid time off or paid sick days. (For more information on determining hours paid, see Regulation 6.1 of HCSO, which is available for download at www.sfgov.org/olse/hcso under the Rulemaking Process & Final Regulations section.)
Employers are also responsible for tracking the hours employees work in San Francisco. Otherwise, the city will presume that all of the employee’s working hours were performed in San Francisco unless there’s clear and convincing evidence otherwise. For businesses with 50 or more employees, the first payment is due April 30. For businesses with 20 to 49 employees, the first payment is due July 30.

3. Do I have to pay for employees who don’t want the coverage?
Yes, a business must pay for all eligible employees. Employees can only opt-out if they submit a waiver form stating that they are receiving healthcare coverage from another employer, which can include a spouse’s employer. An employee’s individual insurance coverage is not a basis for a waiver because it is not employer-sponsored. An employer can reduce each eligible employee’s wage by the applicable $1.17 or $1.76 expenditure and use that savings toward payments as long as it does not reduce an employee’s pay below the minimum wage.

4. What are my payment options and can I choose where my payments go?
Employers are limited the following choices: (Under ERISA, the city cannot dictate what a company chooses.)
• Paying for group health insurance
This is expected to be the preferred method. A business can comply with the ordinance by sponsoring a group health insurance policy for employees. It also ensures that employees who live anywhere, not only in San Francisco, have access to benefits from day one. Whether it’s through a major medical or limited benefit medical plan, insurance provides health benefits to an employee from day one anywhere in the country. Insurance can also help a business attract better talent and retain employees. The right insurance plan may pay for itself in savings from lower employee turnover.
• Sending the money to the city of San Francisco
These funds will be used for the city’s Healthy San Francisco program. San Francisco residents can participate in the program for a fee and get discounted medical care at a limited number of facilities in the city. The city will put funds into a city-run medical reimbursement account for employees who do not qualify for Healthy San Francisco. The city can make their funds available to reimburse certain healthcare expenditures (after deducting administration costs).
The city’s Participant Handbook warns that Healthy San Francisco is not insurance and advises those who have insurance against dropping it. Services are limited to specific San Francisco facilities and benefits do not follow the employee. Healthy San Francisco will not pay for a medical emergency outside of San Francisco. It also carries added out-of-pocket expense for some employees. They may have to pay a point of service fee depending on their income and the services they receive.
• Setting up a Health Reimbursement Account
Employees who are not San Francisco residents aren’t eligible for Healthy San Francisco benefits. Their funds have to be directed into a company-sponsored HSA or HRA toward health insurance or into the city-run medical reimbursement account.
Companies that select this option must fully fund the HSA for the whole year, which carries added financial risk. For example, suppose an employee is eligible for $3,600 in benefits over the year. If the employee has a $2,800 claim on the second day of the year, the company must fund that expense. Those funds are not refundable if the employee leaves the company the next month. HSAs also carry a tremendous administrative burden and financial uncertainty for employees. An employee with the minimum benefit would only get $11.70 a week. It would take months for the account to accrue enough money to cover even basic medical needs.

Next Steps
With HCSO, it may be the first time in years, or ever, that many small businesses have considered purchasing health insurance. Companies that have dropped health ben-efits may want to consider lower-cost options, such as limited benefit medical plans. Pre-miums generally range from $50 to $250 a month. An employer may be able to purchase them at no additional cost than what the company is already required to spend under HCSO.

This determination should be made after consulting with each client on the needs of its employees. The added financial coverage of a major medical plan is likely to be the best choice if a significant number of employees have assets to protect. If it’s still more than an employer can afford, an alternative is to have employees enroll in an employer-sponsored limited benefit medical plan and purchase added catastrophic coverage.
Regardless of the final product, an employer has the ability to insure employees through HCSO expenditures. With the right strategy, a broker can help make HCSO a win-win for employers and employees.
––––––––––
Jay Beck is CEO of Century Healthcare (CHC), a provider of limited benefit medical plans. CHC recently released plans customized to the Healthcare Security Ordinance and will soon be conducting educational sessions in the Bay Area for employers and brokers wanting to learn more about ordinance compliance. For more information, call 866-261-9998, or visit www.centuryhealthcare.com.