here about five months ago to tell you prospectively about the process we were engaged in to change slightly and streamlinetm employers about their compliance with this ordinance. i am here to tell you, thankfully, that we successfully implemented that. i think it was a streamlined process. part of the reason i am able to be here to report on the statistics is because we moved that process online, which has set up the way in which we can gather data. i will schedule some highlights of the data we gathered and share a couple of perspectives we have come to while enforcing this law on a day-to-day basis. and i will be here to answer any questions you may have. the health care security ordinance requires us to collect on an annual basis compliance

data from all of the employers who are required to make health care expenditures under the ordinance. we recently collected the 2010 data, the data for the 2010 calendar year that was due to our office at the end of april in 2011. i will report to some statistics based on a cracker course we have just released here in early june -- based on a draft version we released here in early june. >> you have in the back of your packet the 2010 draft report, in case you want to refer to it as the presentation is being provided. >> thank you. i want to highlight a few of those particular points that are germane to this legislation. i am going to note a few disclaimers. all of the state itself reported -- all of this data is

self reported. the data we collect is of a general compliance nature. it was not designed within the framework of this particular legislation. there are some limitations in what we are able to tell you today. finally, by way of this clamor, we have data from approximately 3000 employers. we do not know with certainty that represents the entire community of employers subject to this law. that is a number that is unfortunately difficult to pin down. the development department reports approximately 51,000 businesses in san francisco. 4000 of those are over 20 employees. those are the 4000, approximately, that are subject to this law. we have data from about 3000.

so we think it is relatively good-quality sampling of the employer community. i will note that there is a different health care expenditure rate that applies to businesses between 20 and 99 employees, medium-sized employees -- medium-sized businesses. this ordinance declines those as medium-sized businesses. large businesses are those with 100 or more employees, and different expenditure rates replied -- apply to those. approximately half the reporters to us are medium-sized. have are the large size. the first way to broadly understand how these employers were making health care expenditures was the total dollars spent.

supervisor campos alluded to this. 90% of all the health care data -- health care dollars are allocated to group health insurance plans. 3% son was allocated to the city option, the health the san francisco program, and at 7% was allocated to reimbursement plans. we can answer follow up questions. andres powers -- president o'brien: sorry to interrupt you. 90% were spent on insurance programs? >> 90% were spent on health insurance plans, exactly. >> that table is on page 7 of the draft report in your packet. >> exactly. table six gives you the full dollar amount. table 7 is the percentage

allocations. 90% health insurance. 3% to help the san francisco. 7% to reimbursement plans. >> just to clarify -- of the money that -- the business is that this was targeted toward, to sign up and become participants in the program, so to speak -- only 3% are paying in to help the san francisco? -- healthy san francisco? >> the piece of the law we are talking about, putting aside the creation of the program, which was a landmark step in its own right -- we are speaking specifically to this employer spending requirement, the law that places a burden on employers to spend money on employee health care. employers have the discretion to

spend that money on employee health care in the manner of their choosing. i think the understanding was always that the vast majority or a lot of employers would provide health insurance. in some respects, that is the ultimate goal. that continues to be true. >> your figures show that 3% are paying in to help the san francisco, 7% -- to help the san francisco, 7% to -- to healthy san francisco? >> that is one option they have to meet this requirement. that is what this figure shows. with that, there is another way to look at this. we were able to determine the way each given employer makes the requirement. many employers choose a

combination of factors. they provide health insurance to a number of their workers and pay into the city option for some of them. with respect to that, 80% of the employers have chosen health insurance as the primary way of complying with the law. 7% make contributions to help the san francisco -- healthy san francisco, and 13% choose these reimbursement plans as the primary way in which they meet the spending requirements. that is a slight trend we have seen. we have done this for three years. we have collected the data. the primary allocations have stayed consistent at 7%. we have seen applications to health insurance dropped a

little bit, from 84% down to 80%, and an increase in using reimbursement plans. that is laid out in table 8 in your chart. forgive me. there are a lot of numbers here. looking specifically at the money allocated to reimbursement plans, as supervisor campos indicated, $62 million was allocated to these plans. in this context, the allocation to a plan constitutes an expenditure. this is what is being addressed in the legislation. only top% -- only $12 million, 20% of that, was reimbursed to those employees over the course of that year.

it is 29% of employers who use these reimbursement plans in some way, shape or form. 13% of them have it as the primary method of meeting the employer spending requirements. it is a higher number that used them at all. many employers will primarily provide health insurance and may allocate a small amount of money to a small subset of workers into these reimbursement plans. in addition to that 20% figure, the amount reimbursed to workers, the median reimbursement rate is lower, 12%, if we look at all the employers and find the middle point. the reimbursement rate is 12%. in order to avoid getting into the morass, i will break that dated down into medium-sized employers and large employers.

there are some slight differences there. we can get into that, if you are interested. we have tried to take another cut at this. i think another speaker can address this more systematically. we have tried to distinguish between these employers who use these plans at all -- a healthy subset of those, 40%, we have considered as satisfying the requirements exclusively by reimbursement plans, not in conjunction with health insurance. i think the history of these reimbursement plans was that they were to be offered in conjunction with health insurance plans. it is a unique feature in the san francisco landscape that such a high number of employers are offering them exclusively. this is not typical in other parts of the country. one final way to look at the

data, here moving on to the final chart. we look at the number of employers who reimburse very little money, between 0% and 10%. 57% of all employers in 2010 that offered some form of a reimbursement plan only reimbursed between 0% and 10% of the money. that is a slight increase over prior years, when we saw that figure at 52% and 53%. that is an overview of what the data looks like, how money is allocated, how reimbursement plans are used. of a transition briefly to show you what our day-to-day experience has been. on this ordinance, my colleagues and i currently have talked to

thousands, literally, of workers, and hundreds of employers. and lots of third-party administrators -- brokers and insurance agencies offering some of these reimbursement plans. i want to share a few things we have taken away from this. one is the insurance industry is affirmatively and proactively selling and marketing these reimbursement plans as product to employers, by way of saying they are dramatically less expensive, that this is the least expensive way of complying with the law. this is the salient selling point. it is advertised on their web sites. we have heard presentations that we have been a part of, where employers -- where brokers encouraged employers to sign up for these plans, because in practice it is essentially an

accounting allocation. an employer has a relationship with a third-party administrator on paper. they allocate money into this account that is made available to the workers. that money does not change hands. at the end of the year, the vast majority of employers is essentially implement a use it or lose it policy. it reverts to or is retained by the employer. it is worth pointing out that the irs regulations and a lot around these accounts is very flexible. employers are committed to have these accounts, whereby the money is made available to workers in subsequent years and builds up over time.

the accounts represented with healthy san francisco accumulate over time, but i can count on one hand the number of employer reimbursement accounts that affirmatively, on their own, have a provision that allows this money to roll over year to year. the vast majority terminate on the loss at the end of the year. >> i have a question. i am sorry to interrupt again. with your example of these firms that are offering these accounts for employers, perhaps if you do not know this, somebody else would. is this something that came about because of healthy san francisco, or was it already happening due to legislation or even good will prior to help the san francisco -- prior to

healthy san francisco that is being targeted toward the city? >> the irs permitted these accounts. the tax-exempt nature and framework -- historically and traditionally, they were offered in conjunction with high deductible health-insurance plans. they worked in tandem. the idea of offering these as a stand-alone product, the employee was not provided an accompanying health insurance plan, but is provided money in one of these accounts. that appears to be unique to san francisco. the brokers advertise these plants as not just the health

reimbursement account, but the san francisco health reimbursement account, which distinguishes and shows that these were designed to meet the technical specifications. a few specific practices have flown from this. in some cases, it limits or precludes the robust use of these accounts.

but in select occasions, we see employers provide essentially no notice to their employees. the easiest way to ensure that a lot of this money is going to revert back to you at the end of the year is for there to be limited notice provided to the workers. that is particularly true of workers who do not speak english as a first language. we have had countless complaints coming to us whereby employees say to us, "my employer is not providing me with a benefit under this law and we would like you to conduct an investigation." we look into the matter and discover the employer has established a health reimbursement account, but for various reasons few of the workers were ever made aware of those accounts. another limitation that employers place on these accounts is to restrict the type of medical instances employees

can use these accounts for. because of the flexibility the irs places on these accounts, they are generally designed so an employee could be reimbursed for what would be considered to be the full range of medical expenses, medical expenses recognized by the irs, a broad range of tax-exempt medical services. but employers are permitted under the tax rules to place limitations. we have seen most prominently and frequently employers who do not permit employees to be reimbursed for health insurance premiums that they may pay on their own, if they are able to afford health insurance. the imminent and restrict reimbursements for vision care and dental care, -- a limit and restrict reimbursements for vision care and dental care, a main way people like to use these accounts. the irs permits these accounts to be made available to spouses

and dependents. employers at their discretion oftentimes take the discretion to preclude an employee from being able to be reimbursed for the expenses incurred by spouses and dependents. which ultimately leads me with the final thing i will tell you, a question we get on a regular basis. employees come to my office and say, "i am aware of my account, but i cannot afford private health insurance and my employer has established a use it or lose it policy so that over the course of a given year money builds up on my account and is wiped clean at the end of every year puzzle employees come to us and ask what is the appropriate our best way to use -- at the end of every year." employees come to us and ask what is the best way or a proper way to use that money. they would usually like the

money to accrue over time, so if they are faced with a medical emergency they would have access to that money, if they were in the hospital with a broken bone after a bike accident. as you know, that can easily cost $6,000. the inability to allow the money to accrue over time and have access to it leaves a number of workers feeling as though they are in a conundrum as to how best to utilize that money, because you are turning that money back on them. there are employers who are taking advantage of this opportunity to restrict and make it difficult for workers.

>> do you have a hard number on that in the last year? are there a hard number of them lawyers that you have had to investigate? >> it does not lead to investigation. it has been construed to be a permissible way to meet the requirement. >> thank you. president o'brien: thank you. supervisor campos: if i may call for a very brief presentation -- brendan munos conducted a study for the office of labor standards. he was part of the program of professional education at the goldman school.

>> members of the commission, my name is brenda munos. we are a federal agency. but i am not here representing gao today. my testimony is based on a study that i conducted at the goldman school of public policy. they were interested in learning more about how various health reimbursement accounts worked. the difference supreme and health reimbursement account, held savings account, etc. -- the difference between a health reimbursement account, a health savings account, etc. what i learned during the study is that typically sell for reimbursement accounts have been used -- health reimbursement

accounts are high-deductible health plans offered in tandem with spending accounts for the most part used as incentives to recruit employees or keep employees, given that health care premiums are very high. they try to incentivize employees to pay for a high deductible plan but put money in their account. in a lot of cases, this money is rolled over. although hra's have been offered with high deductible plans, they can be offered alone. that means that at this point there are accounts like that for catastrophic illness. the stray away from the consumer-directed model there

were designed for. they are designed to be controlled by the employer. they can decide what they want to cover. they can decide whether the plans will roll over to the next year or whether they want to take it back. one of the interesting things is trying to understand hra's. i've reached out to a lot of employee benefits experts. nowhere could i find information on stand-alone hra's. i remember calling them several times and saying, "are you sure you do not know anything about this?" they had never heard of it. they had been doing this work for many years. they said they had not heard of it and it must be something that is new. i also learned that benefits brokers within and outside of

san francisco were targeting san francisco employers to set up stand-alone products, claiming they are a cheaper option than health insurance. if employees do not use the funds at the end of the year, employers can choose to take them back. we have examples of these advertisements, if you are interested. there is one here that says san francisco health care security ordinance compliant plans can reduce employer costs by an amazing 50%. that is one example. employee benefits brokers i spoke with said additional advantages for san francisco employers is that can restrict the types of benefits employees can get reimbursed for. i also heard that their employers were restricting reimbursements of health insurance premiums.

people who already have health insurance they were paying for where excited they would now have the money, because they thought they could use them to pay for the health insurance premiums they were already paying for. but that was restricted. i was conducting his research with the office of labor standards enforcement. employers had said they did not want to reimburse health insurance premiums because people would use the money. i also spoke to a couple of benefits brokers who told me the majority of san francisco employers do not reimburse employees for health insurance. employers are choosing not to. i spoke to a few employees in san francisco. they shared that employers did not notify them or educate them

about their stand-alone plan. therefore, they missed the types of care they could get reimbursed for, vision, dental, and these health insurance premiums. they were restricted, and some of them did not know they had health reimbursement accounts to submit to. it was very difficult to get information about what the reimbursement rates are for health reimbursement arrangements at a national level, because brokers would not sure that. but i did get an opportunity to speak with a broker who said that for plants in conjunction with high-deductible health plans, there was a survey of 2000 employers. the reimbursement rate for plans

that allowed all iras-eligible expenses was 63%. however, when it was limited to, medical and prescription expenses only, the reimbursement rate decreased to 36%. that is still higher than the 20% in san francisco. thank you for your time. president o'brien: thank you. supervisor campos: the final piece of the puzzle today, and we will look forward to public comment, is we are going to hear from two employees. i will thank them again for being here, their courage to speak about their own experience. thank you. >> hello. i work for a major dealership in san francisco. i would rather not say which

dealership. i would rather not give you my last name, due to retaliation may be. -- maybe. the first year that this plan came into effect was really good. i was able to get eyeglasses. i was able to use my coat-pay for everything. -- cote pay for everything -- co-pay for everything. after that, we got a paper that you could not use it for dental or vision. you could only use it for co- pays for kaiser, over the counter drugs, and drugs to buy at the hospital. i had kaiser with them. they only paid $125 for that. i was having these health