Supervisor Campos seeks to close HRA "loophole" in San Francisco health care law

San Francisco ' Supervisor David Campos on July 14 proposed an amendment to the city's Health Care Security Ordinance that would tighten the definition of employer "spending" so only amounts actually paid or irrevocably committed to pay for employee health care would satisfy the law's employer spending requirement. The measure targets stand-alone health reimbursement accounts (HRAs) that, the sponsor and city staff say, have been credited as employer spending although employees rarely access the funds.

"This loophole is problematic for many reasons," Campos told the Government Audit and Oversight Committee, saying the change is intended to protect workers, consumers and taxpayers and to level the playing field for businesses that already provide insurance. He asked the committee to forward the item to the full board for action.

The Office of Labor Standards and Enforcement presented data showing that in 2010 employers allocated about $62,000,000 to reimbursement plans but only about $12,000,000 was actually reimbursed to employees that year, leaving roughly $50,000,000 retained by a subset of employers, according to OLSE analyst Matt Goldberg. Goldberg also said the average annual utilization rate for these HRAs was about 20 percent, compared with roughly 50'55 percent usage for the city's managed medical reimbursement accounts.

"By virtue of satisfying the requirement less expensively with these reimbursement plans, we have created an incentive for employers to choose that option instead of health insurance or the city option," Goldberg said, adding that employers can limit the accounts'eligible uses, provide poor or non‑English notice, and impose onerous claims procedures that depress utilization.

The city's Office of Economic Analysis, represented by Ted Egan, presented an economic simulation that assumed a maximum $50,000,000 in additional employer payments and estimated a short-term negative employment impact in the low hundreds over 2012'13 while noting long-term benefits from increased health spending. "The model finds the impact of higher labor costs outweighs the benefits of higher health spending over the two years we're looking at," Egan said, describing the projected job effects as a small fraction of the city's projected job growth.

Public testimony ran nearly three hours. Workers, labor unions and health advocates gave personal examples of missed reimbursements and emergency bills and urged the supervisors to close what they called a consumer‑protection and worker‑protection gap. "Last year ' I was not notified and when I tried to use that money it had already expired," restaurant worker Dave Hayes said, describing a lost $900 deposit that he could not access for prescriptions.

Business owners, hotel and restaurant representatives and the Small Business Commission warned that the amendment, as drafted, would impose administrative burdens and could harm small establishments that operate on thin margins. Several suggested stronger notice requirements, mandatory reporting and targeted enforcement against bad actors as alternatives to a broad statutory change.

Committee action: Supervisor Campos moved to forward the item to the full Board of Supervisors without recommendation; the motion failed on a 1'2 roll call (Campos Aye; Farrell No; Chiu No). Supervisor Mark Farrell then moved to continue the matter to the call of the chair; that motion passed 2'1 (Farrell Aye; Chiu Aye; Campos No). The item was continued to the call of the chair with the sponsor signaling he will seek direct placement on the full board agenda.

What the amendment would do and why it matters

The Campos amendment does not change the employer spending threshold or the Healthy San Francisco program; it would narrow what counts as a qualifying expenditure under the employer spending requirement so that only money actually paid or irrevocably committed on behalf of a worker would be credited. Supporters say the change would reduce incentives for employers to rely on stand-alone HRAs that often produce very low utilization rates and leave workers without practical access to care. Opponents say the proposal, as written, raises legal and administrative questions (including ERISA constraints and COBRA/IRS compliance) and could increase costs for small businesses.

Next steps

Committee members asked for additional legal analysis and practical fixes to reduce unintended consequences; several members supported a follow-up committee hearing. The committee ultimately continued the item to the call of the chair. Campos said he intends to seek full‑board consideration if the committee does not move the item expeditiously.

Votes at a glance

- Motion to forward without recommendation (mover: Supervisor David Campos): failed (Campos Aye; Farrell No; Chiu No). - Motion to continue to the call of the chair (mover: Supervisor Mark Farrell): passed (Farrell Aye; Chiu Aye; Campos No).

This article is based on presentations and public testimony at the July 14, 2011 Government Audit and Oversight Committee meeting on the Health Care Security Ordinance.