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December 3, 2011

Updates: San Francisco Health Care Security Ordinance

HRAs Used to Satisfy the Employer Spending Requirement

In 2008, the City and County of San Francisco passed a Health Care Security Ordinance (HCSO) imposing certain spending requirements on employers for employee health coverage.  The HCSO applies to entities that engage in business within the City, and employ 20 or more employees per week.  Nonprofit employers with fewer than 50 employees and small employers with fewer than 20 employees are exempt from the HCSO.

The HCSO requires covered employers to contribute to the health care costs of its covered employees, either through the Health Access Program, “Healthy San Francisco”; or through private means. Most employers satisfy this obligation through their traditional health plan.  Some employers satisfy this obligation through the use of a health reimbursement account (HRA).  As a result of perceived abuse of utilizing HRAs (the unused HRA funds would revert to the employer at the end of each year), San Francisco’s Mayor Edwin Lee recently signed an amendment to the HCSO.  Beginning January 1, 2012:

  • Contributions to an HRA must be reasonably calculated to benefit the employee and such contributions must be made available to the employee for 24 months from the date of the contribution.  Monetary penalties could be imposed by San Francisco’s Office of Labor Standards Enforcement (OLSE) if such contributions are not deemed to be “reasonably calculated”.
  • The employees must receive a written summary relating to contributions within 15 days from the date of the contribution.  Such notice must include the dates and amount of contributions, any debits or credits made against the account, the balance of the account, and any expiration date for the account funds.
  • If the employee separates from employment with monies remaining in the account, the individual must have continued access to those account monies for a period of 90 days from the date of separation.  Within 3 days following separation, the terminated individual must receive written notice of his/her account balance and any applicable expiration dates of the account balance.
  • Covered employers who utilize an HRA to satisfy their obligations for providing health care expenditures are now required to report the terms of the accounts to the OLSE, including what costs are eligible for reimbursement.
  • Employers who impose a surcharge on individuals to cover the cost of health care expenditures could be subject to legal action and required to pay any difference between the amount of the surcharge and the amount spent on employee health care.

In addition to the HCSO amendment, Mayor Lee also signed an Executive Order that calls upon City and County departments to gather detailed information on companies utilizing HRAs.  The Order requires additional education and outreach to workers covered by the HCSO to access health care services more effectively. 

2012 Wage Adjustment.  Along with adjusting an employer’s health care expenditure amounts for 2012 (see San Francisco HCSO Expenditure Rates for 2012) for purposes of the San Francisco’s HCSO, the OLSE has adjusted the salary exemption figure.  An employee who is a manager, supervisor, or confidential employee, and who earns at or above an annual salary of $84,051 in 2012 is exempt from coverage under the HCSO.  In 2011, the annual salaried figure was $81,450 or $39.16/hour.

 

The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations.

As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this Benefit Beat is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

 

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