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San Francisco HCSO

What are the 2021 San Francisco Health Care Security Ordinance (HCSO) required health expenditure rates for employers?

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The San Francisco Office of Labor Standards Enforcement recently released updated Health Care Security Ordinance (HCSO) required health expenditure rates for 2021.

Effective January 1, 2021, the rate per hour will increase:

For-profit employers with fewer than 20 workers and non-profit employers with fewer than 50 workers are exempt.

More information is available on the City of San Francisco HCSO website.

What is San Francisco’s Healthcare Accountability Ordinance?

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Many have heard of San Francisco’s Healthcare Security Ordinance, which applies to employers based in the city/county of San Francisco, however, you may not be aware of San Francisco’s more costly Healthcare Accountability Ordinance (HCAO), which applies to employers located outside the city/county of San Francisco, but who contract with the city of San Francisco or one of its agencies (such as SF International Airport or the Port of SF).

The HCAO requires employers to offer one of the following to every covered employee (those that work 20 or more hours per week):

  1. health plan benefits where the employer pays 100% of a typical silver level plan and fully-funds the deductible, or
  2. make payments to the City for use by the Department of Public Health, or
  3. under limited circumstances, make payments directly to the covered employee.

The payments in the latter two options are calculated as $4.95 per hour worked (capped at $198 per work week). Union workers are generally exempted as their plans typically meet all the requirements of the HCAO.

Comparing Costs of The Various Options

  1. A typical Kaiser Silver plan meets all the requirements for option 1, except that it has a $2,000 deductible. The employer can fund the deductible through an HRA or select Kaiser’s $0 deductible Gold plan which meets all requirements. To keep the analysis simple, we’ll choose the latter option. The rate for a 35 year old in San Francisco for that Gold plan is about $445/month. If the employee averages 160 hours/month (40/week), the hourly cost is $2.78. If the employee works only 80 hours/month (20/week), the hourly cost is $5.56.
  2. The cost of not offering a plan is $4.95 per hour regardless of how many hours the employee works, but with a cap of about $800 per month ($198/week times four).

Compare these choices with the required expenditure under the Healthcare Security Ordinance, which, for each hour worked is $1.89 (companies with 20-99 employees) or $2.83 (100 or more employees).

Conclusions – the HCAO is clearly more costly than the Healthcare Security Ordinance, however, if your client is subject to HCAO, they will have no choice but to comply with it. In that case, it is usually going to be less expensive for them to offer coverage than to pay the hourly rate to the Department of Health or to the employee.

Resources

The San Francisco Office of Labor Standards Enforcement has posted all relevant information on its Healthcare Accountability Ordinance website.

Which employers are required to comply with San Francisco’s new Paid Parental Leave Ordinance?

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Currently, only employers with 50 or more employees are required to comply with the Paid Parental Leave Ordinance (PPLO), however, that changes on July 1, 2017 when employers with 35 or more employees must comply, and changes again on January 1, 2018 when employers with 20 or more must comply.

The SF PPLO requires employers to supplement compensation that an employee receives through the state’s Paid Family Leave program so that an employee’s compensation equals 100% of their gross weekly wage (up to a cap) during the six-week leave period.

Resources

The city of San Francisco’s PPLO web site provides an excellent explanation of the ordinance, how it interacts with the state’s Paid Family Leave program and how to calculate the PPLO benefit. The state’s Paid Family Leave web site is a good resource for employees who think they may qualify.

What obligations are Covered Employers required to meet?

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Under the Health Care Security Ordinance (HCSO), all Covered Employers must meet the following obligations:

1.    Make the required Health Care Expenditures for all Covered Employees;
2.    Maintain records sufficient to establish compliance;
3.    Post a HCSO Notice in all workplaces with Covered Employees; and
4.    Submit a HCSO Annual Reporting Form to the Office of Labor Standards Enforcement (OLSE) by April 30th of each year.

How should a Covered Employer using revocable expenditures handle a Health Care Expenditure that the separating employee has earned, but the employer has not yet contributed as of the separation date?

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A Covered Employee may be entitled to Health Care Expenditures for the quarter in which the employee separates from employment based upon the hours payable prior to the separation.

The Covered Employer may satisfy this obligation in two ways. First, the Covered Employer may make the unmade contribution at the time of separation, in which case an accounting of this contribution must be included in the Separation Notice.

Second, the Covered Employer may make a post-separation contribution on its usual schedule, which must be no later than 30 days after the end of the calendar quarter. If the Covered Employer elects to make the final Health Care Expenditure after the separation, the following three criteria must be met:

  1. The Separation Notice must indicate that the Covered Employee is entitled to a final Health Care Expenditure and when it will be made;
  2. The separated employee must be provided a Revocable Expenditure Summary within 15 days of the post-separation contribution; and
  3. The post-separation contribution must remain available to the separated employee for at least 90 days from the date of the contribution.

What are the penalties for violations of the HCSO?

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HCSO Penalties: Violation of the HCSO, Maximum Administrative Penalty

Does the HCSO require employers that already provide health insurance to their employees to spend more money on their employees?

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It depends. The premiums that a Covered Employer pays for medical insurance for its Covered Employees count toward its required Health Care Expenditures, so if that amount meets the minimum required expenditure under the HCSO, the Covered Employer will have no further obligations.

However, if the monthly premium paid by the employer does not meet the minimum expenditure amount, it must make up the shortfall. The employer could choose a health insurance plan that provides more comprehensive benefits; increase its contribution towards the health care premiums while decreasing the portion paid by the employee; or add dental and vision benefits. The employer could also complement the existing plan with a health spending or medical reimbursement account; make payments to the City Option; or make other expenditures that qualify as Health Care Expenditures according to the HCSO.

How does an employer that provides uniform coverage to its Covered Employees determine if its expenditures meet or exceed the minimum Health Care Expenditure rate?

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A Covered Employer that provides uniform health care coverage (i.e., an HMO or PPO) to some or all of its Covered Employees will be deemed to comply with the spending requirement of the HCSO as to those employees if the average hourly expenditure rate per employee meets or exceeds the expenditure rate required under the HCSO. If the Covered Employer’s expenditure rate fails to meet or exceed the minimum expenditure rate, the employer must spend the difference (or shortfall) within 30 days of the end of the calendar quarter.

Employers shall calculate the average hourly expenditure rate by (a) dividing the total monthly premium paid for all employees covered by the uniform plan by the total number of employees covered by that plan, then (b) dividing that number by 172 hours paid (hours paid per employee is capped at 172 hours in a single month).

The option of averaging expenditures is limited to plans with a uniform design, i.e., the plans must have a uniform benefit design offered to all employees (same co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, eligibility criteria). An employer that offers an HMO and a PPO may average hourly expenditures for all of the employees covered by the HMO, and calculate a separate average hourly expenditure for those covered by the PPO. Similarly, an employer that offers two HMO options may not average the expenditures between the two HMOs unless the benefit design for both HMOs is exactly the same.

The employer has the option of including only Covered Employees in this calculation, or including all employees participating in the uniform plan, provided that all such employees receive the same health coverage or product.

Amounts paid for dependent coverage may be counted towards the minimum Health Care Expenditure required under the HCSO. Accordingly, contributions for employees with dependents can be averaged with contributions for employees without dependents. However, if differences in the employer’s contribution levels are based on other criteria, i.e., number of hours worked, status as union/nonunion, salary, waiting periods, or work site/location, the expenditures cannot be averaged.

Which employers are “Covered Employers”?

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An employer is covered by the HCSO for any calendar quarter if it meets the following three conditions, regardless if it’s located outside of San Francisco:

  1. Employs one or more workers within the geographic boundaries of the City and County of San Francisco;
  2. Is required to obtain a valid San Francisco business registration certificate; and
  3. Is a for-profit business with 20 or more persons performing work or a nonprofit organization with 50 or more persons performing work. This includes all persons working for the entity, regardless of whether they are located in San Francisco or outside of the City.

What if my employees have other insurance? Am I still required to make Health Care Expenditures for those employees?

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Covered Employees who already have health care benefits through another employer may voluntarily waive their right to Health Care Expenditures under the HCSO by signing the OLSE’s Employee Voluntary Waiver Form. An employer will not be required to make Health Care Expenditures for employees that choose to sign this form. If an employee who is receiving health care benefits from another employer chooses not to sign the waiver, the employer must make the minimum Health Care Expenditures for that employee.

Keep in mind that the waiver will not be valid unless the health care benefits are provided either by another employer of the Covered Employee or by the employer of that Covered Employee’s spouse, domestic partner, parent, or guardian. If a Covered Employee has health care benefits that are not provided by another employer (i. e., the employee is purchasing it themselves or receiving Medi-Cal), the employee may not sign a waiver and the employer is still required to make the minimum Health Care Expenditures for that employee.