Some employers drop private health plans for San Francisco’s subsidized public option

Unintended consequences of city’s effort at universal health care

A San Francisco requirement that businesses pay for their employees’ health needs has led to more workers having some form of health care. But after businesses initially stepped up to buy private health insurance for more of their workers, there has been a steady retreat.

Since 2008, a growing percentage of employers have ditched private insurance for a cheaper way of meeting the law’s requirements: city-engineered reimbursement accounts, which cost companies half or less what they previously paid for traditional insurance.

The percentage of employers covering workers with private health insurance dropped from 84 percent to 80 percent in the three years since the ordinance came into force. In its place they are contributing to medical reimbursement accounts, an option according to San Francisco’s Health Care Security Ordinance of 2006.

At the same time an equivalent number were setting up reimbursement accounts for workers. The city’s Labor Standards Enforcement office said the rise in popularity of reimbursement accounts, from 9 percent to 13 percent, corresponded to the drop in employers’ insurance coverage.

This change, the office concluded recently, “raises public policy concerns” because with too little money in these accounts to cover some health costs, workers were getting worse care.

The shift away from insurance also increases the cost of the city-run Healthy San Francisco universal health care program, which is another option for employers. Because business contributions to either the reimbursement accounts or Healthy San Francisco are low — about $4,000 for a full-time employee, compared with $8,000 for a typical insurance plan — the city picks up more of the tab.


As has been reported widely, businesses using these reimbursement accounts collectively took back four-fifths of the money they had stashed in the accounts for their workers at the end of each year.

So goes the law of unintended consequences.

When San Francisco passed the 2006 ordinance, which also set up Healthy San Francisco, the law required medium and large businesses to either buy health insurance, contribute to Healthy San Francisco as the health provider of their workers or set up reimbursement accounts.

Any business with 20 or more employees, or nonprofit with 50 or more, falls under the program. This law covers 5,600 businesses and includes any company registered to do business here, city records show.

Employers now have to spend at least $1.37 per employee per hour worked even for just eight hours of work a week. Employers with more than 100 employees pay more. That works out to $2,849 per year for a full-time employees for small businesses, and $4,285 for large ones.

An outside study by Dartmouth Medical School researcher Carrie Colla and University of California researcher William Dow found that while most employers subject to the mandate already offered private health insurance before the ordinance was enacted, three-quarters of them had to expand their insurance offerings to meet the law’s requirement to cover part-time employees.

But then, according to the Labor Standards office, over time certain firms — disproportionately restaurants and hotels — discovered they could set up reimbursement accounts and empty them at year’s end. What followed was a steady climb in the number of employers choosing this plan.


Not only has that hurt workers who lost the health benefits the law promised, but it did two other things. It made an uneven playing field among businesses, and it cost the city money, by putting the workers into the city safety-net system when their reimbursement accounts went dry.

“I was hearing from workers about not being able to use the money,” said David Campos, a member of the Board of Supervisors, who tried to close this “loophole” by introducing legislation to amend the ordinance to disallow employers from recouping unspent money.

The full Board of Supervisors approved it in a 5-4 vote in October, but Mayor Ed Lee vetoed it. The unresolved issue is sure to produce a showdown early in Lee’s new term and could affect the future fortunes of the city’s universal care ambitions.

“Healthy San Francisco has been a tremendous success and the vast majority of businesses are doing the right thing,” Campos said. “With any law there are tweaks that have to be made.”

State Assemblyman Tom Ammiano, D-San Francisco, who wrote the ordinance when he was a city supervisor, said those recouping money from the reimbursement accounts are violating the spirit of the law.

“When I wrote this legislation five years ago, it never occurred to me that some restaurants would be so obvious in their attempts to game the system,” Ammiano said in an email. “I find it unconscionable that there are restaurants charging customers a health surcharge and then keeping the money for profit. Healthy San Francisco is about providing health care, not creating profit, and I am looking into legal options to put a stop to this larceny.”

But Steve Falk, president of the San Francisco Chamber of Commerce, suggested a compromise: leave at least a year’s worth of funds in the accounts for each worker, but not all the funds.

“I think most businesses would say it is the right thing to do to provide health care to employees,” Falk said. “What irritates business owners is the unpredictability of the process.”

To leave all the funds in the accounts each year, he said, “takes $50 million out of circulation that could be creating jobs.”

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The California Endowment Health Journalism Fellowships at USC Annenberg sponsored this reporting project by the San Francisco Public Press to take a closer look at whether local health care reform ideas are working in one major metropolis. More than 40 individuals also donated to this project via Spot.Us. Reporting, photography and research for this project were contributed by Barbara Grady, Angela Hart, Kyung Jin Lee, Cindy Chew, Jason Winshell, Monica Jensen, Tom Guffey, Siri Markula and Frank Bass..

This article appeared in Issue No. 5 of the San Francisco Public Press (Winter 2011), a broadsheet, full-color local newspaper, will soon be available for just $1 at more than 50 retail outlets and through online mail order ($4).