Compliance with the City of San Francisco’s Health Care Security Ordinance (the Ordinance) has been a challenge for many employers. Employers who provide health insurance to a majority of their employees are surprised to learn that they may not be meeting all of the requirements of the law. “As the deadline for 2010 reporting approaches, this is a great opportunity for employers to review their compliance with the requirements of this law,” says Steve Freeman, president of USI in San Francisco.
Smart Business spoke with Freeman about how the Ordinance could impact your business.
What is the San Francisco Health Care Security Ordinance?
San Francisco passed the Health Care Security Ordinance, a pay-or-play law, requiring employers to make health care expenditures on behalf of covered employees. The law became effective January 9, 2008.
Who qualifies as a covered employer and a covered employee?
Generally, a company is a covered employer if it engages in business within San Francisco, is required to obtain a valid city business registration certificate and employs 20 or more employees per week. Nonprofits with fewer than 50 employees and small businesses with fewer than 20 employees are exempt from the spending requirement. All employees of the employer are counted to determine employer size, including employees who work outside of San Francisco.
Generally, and subject to certain exceptions, a covered employee is any person who has been employed by a covered employer for at least 90 days and works at least eight hours per week in San Francisco.
Even if the employer is headquartered outside of San Francisco, if the employer has employees working within the city, the employer may be required to comply with the law.
What is the employer spending requirement?
A covered employer is required to make a health care expenditure on behalf of covered employees at a prescribed rate. For 2011, an expenditure rate of $2.06 per covered employee per hour applies for large employers (100 or more employees). Medium-sized employers (20 to 99 employees) must spend at least $1.37 per covered employee per hour. The spending requirement is capped at 172 hours per month. For 2011, a health care expenditure by a large employer may total up to $4,251 per covered employee.
While many employers are able to satisfy the spending requirement by providing traditional health plan coverage to their employees, issues can arise when the employer’s expenditures under the group health plan are below the required amounts. In addition, there are circumstances where covered employees are not eligible for the employer’s group health plan and the employer will need to find alternative ways to satisfy the spending requirement. It is critical that employers account for all covered employees and determine whether sufficient expenditures are being made on their behalf.
What is considered a health care expenditure?
A health care expenditure is any amount paid by a covered employer to its covered employees, or to a third party on behalf of its covered employees, for the purpose of providing health care services or reimbursing the cost associated with such services. Examples include an employer’s payment of health insurance premiums; an employer’s contribution to the covered employee’s health FSA, HRA, or HSA; or employer payments on behalf of a covered employee to the city’s programs, which include the Health Access Program (Healthy San Francisco) or a medical reimbursement account.
What are some other employer responsibilities?
Along with making the required expenditure, there are a number of additional responsibilities. Annually, the employer must report health care expenditures to the city. Further, the employer must collect and retain voluntary waiver forms from employees who waive coverage. If these annual waivers are not obtained, the employer must make the required health care expenditure on behalf of those individuals.
If the employer chooses to participate in a city program to satisfy the spending requirement, appropriate notice must be provided to employees. In addition, the employer must retain specified types of records for four years and allow the Office of Labor Standards Enforcement (OLSE) to access those records.
Failure to comply with the Health Care Security Ordinance may result in significant penalties for an employer.
Employers should review their current employee population in the City of San Francisco and current benefit programs and ensure compliance with the Health Care Security Ordinance. Watch for the Mandatory Annual Reporting Form, as it typically is mailed in late January. Make sure to complete the form and file it with OLSE by the deadline.
Steve Freeman is the president of USI San Francisco. Reach him at (925) 472-6772 or firstname.lastname@example.org.
This summary provides general information on the Health Care Security Ordinance and should not be construed as legal advice or opinion. USI does not provide legal or tax advice. For advice specific to your situation, please consult an attorney or other professional.