Loophole allows businesses to ignore health care law

Local corporations and businesses that fail to comply with a newly adopted law requiring them to pay a mandated amount of money toward the health insurance of their employees will not be held accountable unless someone complains or until a required compliance report is filed with The City at the end of the year.

Businesses with 50 or more employees had until Wednesday to comply with the controversial health care law requiring employers to either purchase a health plan at a minimum cost set by The City, pay for employees to participate in The City’s Healthy San Francisco program or put the money into health reimbursement accounts for employees, among other options.

The mandated employer spending is expected to contribute $28 million toward the total cost of the $198 million program for San Francisco’s 82,000 uninsured residents by requiring business owners to either pay The City an amount that’s based on the hours an employee works or contribute to a comparably priced employee health care program.

San Francisco’s 800-member Golden Gate Restaurant Association has sued The City because of the mandate, arguing that it violates a federal law prohibiting state or local governments from determining employer benefits. The two sides are awaiting a decision from the 9th Circuit Court of Appeals, which could come this month.

As of Thursday, 734 businesses had sent in payments on behalf of 12,900 employees, according to the Mayor’s Office.

There are more than 42,000 businesses with 50 or more employees in San Francisco, and as much as 97 percent of those businesses provide some form of health insurance, according to city studies. However, whether or not they pay enough as required by the law is currently undetermined.

The law requires businesses with 50 to 99 employees to pay $1.17 per hour toward employee health care costs, and businesses with 100 or more employees to pay $1.76 per hour. If they do not contribute that set amount, they must pay the difference to The City’s health care plan.

Eric Prosnitz, one of the founders of Sports Basement, which has two of its four Bay Area stores in San Francisco, said complying with the law is difficult. The company provided health insurance for its full-time employees and their dependents, but to keep costs affordable, it uses a high-deductible plan and reimburses staff for out-of-pocket expenses.

“We actually spend less than the required amount [by The City], because we have a really good plan,” Prosnitz said. “So the challenge for us now is coming up with things to provide the staff so we can hit the required dollars. We already provide a reimbursement for dental expenditures, so we may just lift that up a little bit and do some other things.”

Last week, Mayor Gavin Newsom told The Examiner that businesses had expressed confusion about how to comply with the ordinance, and were hoping for a legal ruling before deciding what to do.

The degree of compliance with the ordinance is not likely to be known until the end of the year, according to officials with the Office of Labor Standards Enforcement, which enforces the law.

There are two ways to discover noncompliance: Companies will be required to file an annual report at the end of the year indicating their form of compliance or employees can file complaints with the office if they are not being covered, said Donna Levitt, manager of OLSE.

“If there was a complaint, we would follow up on it,” Levitt said.

Fines for noncompliance include a payment of 1.5 times what the company might owe, plus 10 percent interest, according to the ordinance.


Examiner Staff Writer John Upton contributed to this report.

Employers opting for reimbursement account option

Although San Francisco employers have numerous options to fulfill The City's health care expenditure requirement, many are choosing to put the mandated funding into employee health care reimbursement accounts.

“Virtually everyone I talked to opened a medical reimbursement account,” said Kevin Westlye, the executive director of The City's 800-member Golden Gate Restaurant Association.

Nearly half of the expenditures given to The City to date, made on behalf of 12,900 employees, were set up as medical reimbursement accounts, according to the Office of Labor Standards Enforcement.

Employers have a wide range of options to meet the required spending, including paying health insurance premiums at costs that meet the minimum spending requirements, making the required expenditures to The City to fund the employees participating in San Francisco's new affordable health care program, and set aside money in a reimbursement account, according to the Office of Labor Standards Enforcement.

Scott Hauge, owner of Cal-Insure and the head of California Small Business, said he is finding a lot of employers also are choosing a city option to make cash contributions to employees for expenses incurred for health care needs. Those contributions will have to total up to the minimum spending level, according to the city mandate.

“The reason is because they don’t have to put aside the money, but they’ve got to be able to pay the bills,” Hauge said. “If they’re doing that they don’t need to report that to The City.”

For employers who want to put the required money into a health care reimbursement account, but don’t want to manage it, The City is willing to take on the job.

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