Amendments to San Francisco's Health Care Security Ordinance will go into effect on January 1, 2012, requiring additional compliance by certain employers with workers in the City and County of San Francisco.
Beginning in 2008, San Francisco City and County adopted an ordinance mandating that all employers in its jurisdiction contribute to the cost of providing health care for their employees or the employer would be subject to a monetary sanction. A number of challenges were made that the ordinance was preempted by the Employee Retirement Income Security Act of 1974 ("ERISA") as an unreasonable restriction on employee welfare benefits. So far, these challenges have lost and the program continues.
In recent years, to provide benefits at more economic rates, many employers have gone to high deductible health plans. In an effort to assist the employees with paying higher deductibles, many employers are funding part or all of these higher deductibles through health reimbursement accounts ("HRAs") and health savings accounts ("HSAs"). HRAs and HSAs allow employees to pay medical expenses on a pre-tax basis which will have a less dramatic impact on the employee's take home pay.
With the emergence of HRAs and HSAs, San Francisco changed its mandatory health benefits ordinance to take into account these new funding vehicles. While some of the administrative, notice, and punitive rules also changed with the amendment, the primary directive of the revisions was to enable employers to satisfy their obligations through HRAs and HSAs. However, when an employer puts money into an HRA or an HSA, those funds will not count towards the employer's obligation unless the contribution satisfies certain restrictions. To qualify, the employer will have to provide notice to all individuals with the specifics of the benefit. The contribution must be reasonably calculated to provide a benefit for the employee and contributions will have to be available for at least two years with carry-overs of any unused balances.
Many observers believe that these new changes might open the door for additional challenges that ERISA precludes San Francisco City and County from passing such laws. Whether or not such challenges occur, employers using HSAs and HRAs will want to make sure that their plans satisfy the new rules.
Best Practices
If you are subject to the Health Care Ordinance, make sure to understand all of the coverages you are offering and whether the design will satisfy your obligations as an employer. Where high deductible plans, HSAs or HRAs are involved, make sure that the contributions work to help you satisfy the employer requirements.
How Nossaman Can Help
Nossaman's Employment Practice Group assists private and public employers with identifying, implementing, and achieving their goals. Our services include counseling, advice, and litigation on a broad array of employment and labor related matters, including harassment, discrimination, wage and hour, ERISA, unfair competition/trade secrets, wrongful terminations, executive employment agreements and benefits, leave laws, reductions in force/Warn Act, record retention, and union/employer relations. We also offer investigation and assessment services that often eliminate the threat of a lawsuit and grievances, and give our clients an effective roadmap for responding to inquiries.
This Ordinance creates a number of challenges for employers and should be reviewed carefully with experienced employment benefits counsel. Nossaman can assist you in coordinating your plan design to comply with the new requirements. If you have any questions regarding the Ordinance or would like more information about or assistance in implementing the amended Ordinance, please contact us at employment@nossaman.com.