Campos plans to plug loophole in SF health care law


Back in 2006, when Tom Ammiano was a supervisor, the Board approved his trailblazing San Francisco Health Care Security Ordinance (HCSO).  But the Golden Gate Restaurant Association, which presumably prefers you get served by folks who don’t have health insurance (“Waiter, there’s a booger in my soup!”) sued the city over the program. GRRA was hoping to invalidate the employer spending requirements of the City's ordinance on the grounds that it violated the federal Employee Retirement Income Security Act. And in its quest, GGRA, which represents restaurants statewide and was concerned that Ammiano’s citywide legislation would spread to other municipalities, tried to take its case all the way to the U.S. Supreme Court. But in June 2010, the "Supremes" denied review to GGRA’s legal challenge, ending a contentious four-year legal battle over "Healthy San Francisco." Or so everybody thought.But according to Sup. David Campos, who succeeded Ammiano as D9 supervisor and champion of the city’s health care legislation, some employers have been exploiting a loophole in the HCSo legislation to avoid their obligations under the law. And Campos now plans to stick a cork in this loophole.

Since 2008, HCSO has mandated that private businesses with 20 or more employees make minimum health care expenditures to, or on behalf of, their covered employees each quarter. But instead of paying for health insurance or paying into Healthy San Francisco (which provides workers with free or reduced-cost enrollment) some employers allocated money on paper to an account workers can access to reimburse out-of-pocket medical expenses.

“The problem is that most of these accounts are set up with ‘use-it-or-lose it’ provisions, “ a press release from Campos’ office explains. “The employers are credited with making the expenditures, but the balances in the accounts are wiped-out at the end of every year (or when the worker quits or gets fired) and the employers keep the money.” Oops.

So, Campos is introducing an amendment to the HCSO that would close what he's calling a “don’t get sick in January” loophole (when employers zero-out the account balance at the end of the year, their employees begin the next year without any money available to reimburse health care costs). 

According to Campos, only 20 percent of the $62 million allocated to such reimbursement plans last year was actually reimbursed to the employees.“This means that $50 million, or 80 percent, of the health care expenditure was not spent on employee health care,” Campos stated. “Moreover, employers that meet the spending requirement via use-it-or-lose-it reimbursement accounts have a financial incentive to limit their use (in order to retain more funds at the end of the year).”

Campos’ office cites the words of auto mechanic Ron (who prefers not to use his last name for fear of retaliation by his employer) to explain this problem.

 “My employer provides me and my co-workers with a use-it-or-lose-it reimbursement account to satisfy part of its spending requirement under the Health Care Security Ordinance,” Ron stated. “But the employer does not allow us to use the money to pay for health insurance premiums and has limited the services eligible for reimbursement to such an extent that it is difficult to make good use of the account. As a result, we use a small portion of the money and lose the rest every year.  I finally decided to join Kaiser as a dependent of my wife who is a city employee.” 
Campos' proposed amendment would close the loophole by re-affirming the traditional understanding of a "health care expenditure.": employers will not be credited with making mandatory health care expenditures unless the expenditure is "irrevocably paid" (the money carries over from quarter to quarter and year to year to the employee.)

Campos’ proposed legislation also requires employers to provide written notice to their employees explaining how they are meeting their health care expenditure, and it streamlines penalties for noncompliant employers.

Zazie restaurant owner Jennifer Piallat says she supports the amendment because it “levels the playing field” for the vast majority of businesses in San Francisco that provide health insurance to their employees.

“A loophole should not disadvantage those of us who agree with the spirit of the Health Care Security Ordinance and who believe that employers should contribute to the well being of our employees,” Piallat stated.

Whether this loophole means that restaurants that were allegedly adding up to 4 percent in surcharges to customers’ bill to cover the alleged cost of paying contributions to their employees’ healthcare costs, have been pocketing the difference remains to be seen. An HCSO analysis by the city’s Office of Labor Standards Enforcement notes that the city’s Treasurer and Tax Collector did not collect industry data from businesses in 2009 and 2010, and therefore expenditures by industry are not available for those years.

But i industry data from 2008 shows that the “accommodations and food services” industry (think hotels and restaurants) “elected reimbursement plans as their primary expenditure at a substantially higher rate than any other industry in 2008," the OLSE report states. (A table atttached to OLSE's report shows that this rate was 47 percent in 2008—which was 36 percent more than the next highest ranking industry group listed.)

OLSE’s analysis also reveals that in 2010, 90 percent of all health care dollars were spent on health insurance, 3 percent were spent on Healthy San Francisco (the health access program San Francisco established as an option within HCSO) and only & percent were allocated to reimbursement plans. So, in other words, in 2010, most employers were doing the right thing by their employees, at least in terms of making required health care expenditures.

“The average reimbursement rate of money allocated to reimbursement plans in 2010 was low: only 20 percent of the $62.5 million allocated to such plans in 2010 was actually reimbursed to employees,” states the executive summary of OLSE’s analysis. “The remaining 80 percent, or $50.1 million, went unutilized. The median reimbursement rate for the 29 percent of employers (860 in total) that allocated money to a reimbursement plan in 2010 was even lower, just 12 percent.

OLSE’s report notes that this low utilization rate of reimbursement dollars is consistent with prior years.
“For example, in each of the past three years, over 50 percent of such plans (53 percent in 2008, 52 percent in 2009, and 57 percent in 2010) had a reimbursement rate of between 0 and 10 percent,” OLSE observed. “In other words, more than half of the employers who elected to meet their health care expenditure requirement (entirely or in part) by providing reimbursement plans retained over 90 percent of the money allocated to reimbursement plans. The increase in the percentage of employers utilizing reimbursement plans coupled with continued low reimbursement rates raises public policy concerns.”

Campos will be holding a press conference tomorrow (Friday June 10) at 11.30 a.m. in his office (Room 279 in City Hall) to flesh out the gory details. He’ll be joined by Tim Paulson, Executive Director of the Labor Council; Jennifer Piallat, owner of Zazie; Ron, auto mechanic; Tiffany Crain, Young Workers United; and Matt Goldberg, from the city’s Office of Labor Standards Enforcement.