Insurance News

Health reimbursement arrangements rule change gets support in San Francisco

Posted on: October 17, 2011

SAN FRANCISCO—Lawmakers in San Francisco are moving to curb the appeal of a funding option employers can use to satisfy a law requiring that they spend a certain amount of money on employees’ health care coverage.

Under the law, employers with 100 or more employees are required to spend $2.06 per covered employee on health care, while employers with 20 through 99 employees must spend at least $1.46 per hour. Employers with fewer than 20 employees are exempt from the requirement.

The overwhelming majority of employers satisfy the requirement through paying group health insurance premiums.

However, the San Francisco law also allows an alternative in which employers contribute the required amounts to health reimbursement arrangements, which then reimburse employees for health care expenses. Employers can design their HRAs so unused funds revert to employers at the end of the year.

Smaller employers, especially restaurants, that don’t offer group plans or don’t extend coverage to part-time employees are most likely to use the HRA approach to comply with San Francisco’s health care spending law, said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

However, in a 6-5 vote last week, the San Francisco Board of Supervisors, the city’s legislative body, tentatively approved a proposal by Supervisor David Campos that would require any HRA funds remaining at the end of the year be rolled over automatically to be used the next year. Terminating employees would be able to access the funds for 18 months.

“It has been a long road and this is the first step toward achieving the original intent of the Health Care Security Ordinance—to provide access to meaningful health care for San Francisco workers and relieve the burden on taxpayers who foot the bill of uninsured workers,” Supervisor Campos said in a statement.

The proposal still requires a second vote before it could be sent to San Francisco Mayor Edwin Lee.

Mayor Lee, who described the HRA approach in which unused funds are forfeited at year-end as a “loophole,” said he intends to work with business and labor groups to develop a compromise proposal.

“I am committed to continuing the collaborative effort to ensure health care access to workers while protecting jobs,” he said in a statement.

Business leaders say an agreement on a final bill is likely, though it wasn’t clear what changes would be proposed for the HRA provision.

“We believe legislation will be signed into law,” said Jim Lazarus, senior vp with the San Francisco Chamber of Commerce.

Supervisor Campos’ proposal stemmed from a June report by the city’s and county’s Office of Labor Standards Enforcement that concluded only 20% of the $62 million allocated to HRAs last year actually was used to reimburse employees.

“It is this gap that has caught lawmakers’ attention,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

In all, about 13% of employers last year used the HRA approach to satisfy the spending requirement, according to the Office of Labor Standards Enforcement report.

The legality of the overall 2006 law, which went into effect in 2008, was affirmed by the 9th U.S. Circuit Court of Appeals. In 2010, the U.S. Supreme Court declined to review the appeals court ruling.

Copyright © 2011. Crain Communications, Inc.

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