January 9, 2014

San Francisco's HCSO: Excepted Benefits

The San Francisco's Office of Labor Standards Enforcement has issued another FAQ relating to compliance with its Health Care Security Ordinance (HCSO) and the Affordable Care Act (ACA).  This particular FAQ specifically addresses the provision of excepted benefits.  According to this guidance, excepted benefits for purposes of HCSO expenditures include:

  • Limited-scope dental and vision benefits;
  • Medical indemnity insurance;
  • Long-term, nursing home, home health, or community-based care; and
  • Limited-scope specific disease or illness coverage.

Employers can provide any of these excepted benefits to employees directly, through insurance, or through an excepted health reimbursement arrangement (“excepted HRA”) to satisfy the HCSO’s health care expenditure requirement in limited circumstances.  Generally, to use the excepted HRA concept, the plan must have been put in place by the beginning of the initial plan year; but according to the FAQ, an employer has until March 31, 2014 to accomplish this.  An employer interested in using an excepted HRA to satisfy the HCSO requirement should review the FAQ carefully.

Employer contributions to an excepted benefit HRA are deemed to satisfy the HCSO obligation if they are ‘reasonably calculated’ to benefit those employees working an average of 20 hours per week; and, as long as all other conditions of a stand-alone HRA are satisfied, including the notice requirement and the requirement to maintain coverage for 24 months following termination (see prior Benefit Beat articles,  San Francisco’s HCSO: More FAQs on HRAs and 2014 Resources (12/11/13) and Updates: San Francisco’s HCSO and New Family Friendly Leave Benefits (11/5/13)).  Whether the employer can take credit for contributions to an excepted HRA for individuals whose hours exceed 20 per week will depend on the facts and circumstances and can only be taken after the money has actually been reimbursed to the individual.  

Many questions remain on the prudence of using an excepted HRA to satisfy the HCSO obligation.  It is very important to understand that an excepted HRA will not satisfy the employer’s shared responsibility requirement imposed by the ACA.  It may be that using the excepted HRA will only be appropriate for individuals working fewer than 30 hours per week; or perhaps for employers employing fewer than 50 employees and not subject to the employer shared responsibility requirement.


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