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Employers Scrambling to Comply With San Franciscos New Health Care Law

February 12, 2008
Related Topics: Health and Wellness, Featured Article, Compensation
Shortly after a federal court ruled last month that organizations whose employees work in San Francisco must comply with the city’s health care law, an e-mail arrived in the inboxes of many benefits managers around the country portending the administrative hurdles now facing employers.

    A Mercer consultant sent clients a copy of San Francisco’s Mandatory Annual Report. The one-page form asks employers how they spent their health care dollars in 2007. The form is due to the city by the end of April and is meant to serve as a baseline against which the city can judge how employers are complying with the new law.

    "We have a lot of questions," says Joannie Chang, contract compliance officer in the city’s Office of Labor Standards Enforcement. "If employers will drop insurance and choose to pay the city, the city has to deal with that. We want to get an understanding of the impact this has on employers."

    That question, of course, is something many employers are only just beginning to consider. The law applies to "covered employees," which according to the city means any person who has worked for his or her employer for at least 90 calendar days and performs at least 10 hours of work per week within the geographic boundaries of the city or county of San Francisco.

    Though the San Francisco Health Care Security Ordinance, as it is formally known, became law in 2006, most employers thought it would go the way of other employer mandate laws, like the one shot down by a federal judge in Maryland in 2006 for violating the federal Employee Retirement Income Security Act.

    But that is not what happened. On January 9, the 9th Circuit Court of Appeals said the law could be implemented while a three-judge panel decides whether it violates ERISA. That sent employers scurrying for a way to meet the city’s requirements that employers begin paying $1.17 to $1.76 toward health care for every hour worked by an employee who works at least 10 hours per week for 90 days.

    Many employers contacted for this story—including Macy’s, the University of San Francisco, San Francisco State University and Barnes & Noble—say they are not yet sure what they plan to do.

    "The majority of companies were not ready to deal with this, but it went through, and now a lot of them are scrambling to comply with this law," says Trung Thai, business development specialist at the San Francisco office of staffing firm Manpower.

    While the city has said it would prefer that employers put the money toward health benefits, some national and local employers say it may be cheaper and easier to pay that money to the city.

    Employers basically have two options. Companies can spend the minimum amount toward health insurance or contribute that same amount to the city, which either puts the money into a fund that helps run health clinics or into medical reimbursement accounts for employees. (If the money is not used by the employee, it can be transferred to the city’s health care fund.)

    But the decision facing employers is more complicated. An employee is not required to take any health insurance offered by an employer. Even if an employer is paying its fair share toward a health plan under the law, the employer doesn’t get credit for it if the employee doesn’t take it.

    Offering insurance to employees who do not take it is a problem that Pittsburgh-based nutritional supplement company GNC has faced before. It is a major reason why it, and others, will probably pay directly into the San Francisco health care fund.

    GNC regularly offers health care to temporary workers who work 1,000 hours in a year—or 20 hours per week. The plan, says Gene Leis, director of benefits, costs employees about $16 a week. Last year, approximately 700 employees were eligible; six enrolled.

    "We’re offering health care but nobody is taking it up," say Leis, who did not say how much GNC paid for the plan. "I don’t care how part time you are, you pay that amount for a case of beer."

    Leis is not confident that his employees, many of whom are young and fit, will take health insurance. And under the San Francisco health care law, if an employee decides not to take the plan, an employer must still pay the minimum amount to the city’s health care fund. While most employers would prefer to spend that money on employees, the cost of complying may make it easier to simply pay the fee to the city.

    "It’s going to be cheaper to pay the fine than cover the people," he says, although the city doesn’t characterize the payment as a fine. "I’ll just scratch some number on the report, pay a couple dollars and go away."

    Another employer has decided that it is easier to pay the assessment to the city than create a health plan specifically for its employees in San Francisco.

    The staffing firm Adecco, which says it has been studying the issue for the past year, will pay the fee directly to the city. The company will use its payroll administrator to calculate how many hours a temp employee works, multiply that times $1.76 and, once a quarter, send the money to the city.

    Complying with the law in this manner is more reliable than offering health insurance, says Adam Entenberg, director of benefits for Adecco in North America. Only a fraction of the 125,000 temporary workers the company pays each week work in San Francisco. The company already offers "mini-medical" plans to temps for as little as $20 a week. The enrollment for that benefit is 7 percent of the eligible workers.

    Entenberg doesn’t think employees in San Francisco would necessarily take the health care if the company paid more for it, and offering a health plan just for San Francisco employees would be an administrative headache. The company already must comply with employer mandates in states including Massachusetts and Vermont.

    "This can’t be done on a city level or a state level," Entenberg says. "It has to be done on a national level because all this does is create an administrative nightmare for national employers."

    Many local employers feel the same way. Valli Farmaian, president of San Francisco-based ABA Search and Staffing, says that for a small company like his, where the same employee could work in San Francisco and outside the city, it’s easier and cheaper to pay the fee directly to the city. He subsidizes his permanent employees’ health care and offers the same plan unsubsidized to temp workers. He’s not interested in making his role as health care provider any more complicated.

    "I don’t want to be the evaluator of who needs what type of benefit," he says. "That’s not my job. I don’t think it’s the city’s job either."

    Because an employee must accept an employer’s insurance for a company to be in compliance, at least one health care vendor has developed new products it thinks will be embraced by employers and employees.

    Century Health Care, based in Irving, Texas, offers mini-medical plans that meet San Francisco’s HIPPA-compliance requirement. The plans provide medical benefits in proportion to the number of hours an employee works. Moreover, the plans cost employees nothing.

    William C. Hammett, an insurance broker and president of HMG Benefit Services in La Jolla, California, says Century’s plan, if it is embraced by employees, is an elegant solution and one that he advocates.

    "All an employer has to do is send a list of employees, the hours they work and a check," he says.

    But he also realizes that this may not suit the needs of national employers, most of whom are just beginning to deal with the law.

    "We’re fully expecting to field a tremendous amount of questions from employers," he says.

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