San Francisco may take back $104 million in unused health care funds

‘This is a process of last resort but a necessary matter’

San Francisco leaders are trying to figure out what to do with $104 million in unused medical funds that were collected on behalf of employees who are eligible for The City’s local health care programs.

Now, after a vote that took place Tuesday, that staggering sum — along with future untapped dollars in the program — could head to San Francisco’s General Fund.

“Our goal is to maximize our use of the funds with participants,” said Jenny Louie, chief financial officer for the Department of Public Health. “This is a process of last resort but a necessary matter. We just can’t leave unclaimed funds in perpetuity.”

San Francisco requires employers in The City and at San Francisco International Airport to provide health insurance or health care expenditures on behalf of eligible employees. In 2006, the Department of Public Health created Healthy San Francisco and an employer spending requirement to make health care more readily available for uninsured residents.

In 2008, San Francisco launched the City Option program as one way to meet the employer spending requirement. That program includes a medical reimbursement account (MRA) as well as a pool account where money is stored for new employees who have yet to set up personal accounts. (Companies may also choose a privately managed health benefit as an alternative to City Option.) Since it was formed, the City Option program has grown to cover nearly 4,300 employers and 500,000 employees who have received contributions.

But a problem has emerged as the program has expanded: Employees, many of whom have no idea that they are entitled to the reimbursement funds, are leaving millions of unused dollars in their accounts.

At the latest count, San Francisco has accumulated $104 million in inactive funds through the City Option program, according to documents from the Department of Public Health.

Often, employees aren’t made aware of their options or find out through word of mouth from friends or colleagues, The Examiner reported in 2020, when unassigned health funds collected by The City ballooned to a whopping $409 million.

On Tuesday, the San Francisco Health Commission Finance and Planning Committee voted to approve a proposal that would deactivate accounts that have been idle for three years and have The City absorb the funds. The proposal now heads to the Health Commission, where it will be up for approval in January.

Some business leaders are frustrated by the idea of The City keeping funds collected by local employers that were intended for employee medical needs. Currently, contributed dollars are not refundable for employers who pay into the program.

“I’m not sure why The City gets a ‘pass’ and gets to reclaim the money after three years,” said Laurie Aaronson, president at AOC SF, Inc., a restaurant consultancy firm. “The City should contact those businesses that contributed over the last three years and offer them either a refund based on their pro-rata share of contributions over the last three years, or a credit against future contributions … that sure would help many businesses get back on their feet post-COVID.”

The level of unused funds is a signal to some to rethink the program, which was created before the Affordable Care Act.

“Wow, this is not working and this is not what was intended to happen, and that’s a real bummer that money is sitting in an account,” said Laurie Thomas, executive director of the Golden Gate Restaurant Association. “It needs to be rethought if we are really trying to provide health care to employees.”

Some amount of unused funds are expected, officials at the Department of Public Health said Tuesday.

“We have a larger amount of money, about $104 million, that has been inactive for over three years in the two fund pools. This is not normal because we have never escheated,” said Louie, referring to the process DPH is proposing to move unused funds to The City’s General Fund.

In future years, Louie said the amount estimated to go unused is closer to a total of $38 million, with about $2 million annually for MRA and about $36 million from pool accounts.

Although the proposal was passed unanimously by the finance committee, equity concerns were top of mind for commissioners who asked how someone can claim their medical dollars after an account is closed.

If the proposal passes, the holder will be notified that it would be deactivated within six months after it has been inactive for three years. After that process is complete, account holders and employers would not be able to reclaim the funds.

“People just need to come forward and say, ‘Yes, I would like to retain the funds.’ They don’t have to spend it down, they just need to say I want to retain them,” Louie said. “The policy before you is consistent with the policy that The City does for other funds.”

Commissioners also questioned how the money could be used after it’s sent to the General Fund. The group agreed to include a line in its recommendation to the Health Commission that it would like to explore how to repurpose the funds for health care later on.

“These were dollars designed for health and that’s a major part of San Francisco’s DNA,” said Health Commissioner Edward Chow. “Funds that were given for health should return to health.”

Business leaders have other ideas. Thomas suggested some of the funds might be used to support businesses struggling to navigate parklets and other expensive pandemic challenges.

“We need to reimagine this program,” said Thomas. “This was not the right solution if we have this much sitting in accounts. God knows small businesses need the money.”

Correction: A previous version of this story said future pool accounts are expected to bring in $36. The correct amount is $36 million. The story has been updated.

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