in san francisco have really benefited from the national attention that universal healthcare in san francisco has received. we have, indeed, become a model for the rest of the country in how to address this very complicated issue of healthcare. during the debate around national healthcare reform in the white house itself, san francisco was looked upon as a model of how to do this right. having been a legislator for 2 1/2 years and having represented as an attorney the board of education, i can tell you that legislation sometimes has unintended consequences and needs tweaking from time to time and that's the tweaking we're doing today. we are here to address a loophole that essentially allows employees to meet their obligations under healthy san francisco through the use of what i call health reimbursement

accounts. these are accounts that are use-it-or-lose it account. the money required to be spent by law is put into these accounts with the idea that somehow eventually that money will be spent on the healthcare provided to that employee. and i have here and i want to share with you copies of receipts that, from restaurants, from all over the city, where you have, in this case, restaurants meeting their obligations under healthy san francisco by actually adding to the bill that's given to the consumer an item that reads, depending on the restaurant, in this case, it reads, as a benefits offset. in another restaurant it says, let's see here, healthy sf. so many of us probably if we've gone to a restaurant in the last couple of years, we have, when we get the bill, seen this item

added to our bill. the reality is, and the very close study that we did of this item, is that that money that goes into these accounts and we're talking about $62 million, 80% of that money, in fact, is not spent on the employee. it is, in fact, reimbursed back to the employer. so we are here to close that loophole because as supervisor, now assembly member omiany will tell you, the whole intent of healthy san francisco was to provide that healthcare to the employees that were supposed to be covered by healthy san francisco. let me share with you text from the original legislation that talks about the original intent of that ordinance and i quote -- "all san francisco residents should have quality, affordable healthcare. currently approximately 82,000

adult san francisco residents are uninsured even though more than half of those individuals are employed. san francisco taxpayers bear the cost of paying for emergency room visits and other unnecessarily expensive healthcare for the uninsured. by establishing a health access program for uninsured san francisco residents with an emphasis on preventive care and by requiring businesses to make reasonable healthcare expenditures on behalf of their employees depending on the business' ability to pay, the burden on san francisco taxpayers for providing healthcare for the uninsured can be reduced," and i end the quote from the text of the original legislation. there are four reasons why we are here today. one, we are here for the same reason that healthy san francisco was passed, to protect workers, and you're going to hear later on today from at least two workers who have been courageous enough to actually come before this

commission and actually come all the way to city hall not withstanding fear of retaliation to explain to you why these accounts make it difficult for workers to in fact use the money that is being allocated into these accounts. the way that these accounts work is that there are incentives that the individuals who use these accounts have that make it very difficult for the employee to actually benefit from the account, so it is thus not surprising that the account, that the money that is being allocated into these accounts, only 20% of that money actually as it stands today is being used for the healthcare of those employees. the second reason we're here, though, is not just about the workers. it's also about the small businesses and i am proud to say and i believe this wholeheartedly that this is a pro-business legislation that tries to level the playing field by recognizing that the great majority of businesses in

san francisco are in fact complying with the spirit and the letter of healthy san francisco. in fact, the numbers bear that out. 87% of all businesses, in fact, that comply with their obligations under the law, do not use these accounts. we're talking about a very small percentage, essentially one out of 10 businesses, that are using these accounts. move businesses in fact are following the rules as they were intended and are providing healthcare to their employees. now, this individual could not be here today but i want to quote a statement that was made by one of your constituents, a small business owner here in the city and county of san francisco, the owner of zasy restaurant who said the following -- "this legislation levels the playing field for the vast majority of businesses in san francisco that provide health insurance to our employees. a loophole should not disadvantage those of white

house agree with the spirit of the healthcare security ordinance and who believe that employers should contribute to the wellbeing of our employees." i am here as a supervisor who believes that all businesses should play by the same rules and that to the extent that businesses are taking advantage of a loophole, that is an advantage that is hurting other businesses, the vast majority of which are actually doing what they're supposed to. but there is a third reason that we're here and that's to protect the consumer. i have heard repeatedly as a supervisor from a number of my constituents who point out as i indicated earlier in my presentation that they do have that idea added to their bill and the expectation and sometimes when they say that, some are o.k. and happy to pay that, others are not. but the expectation in every single instance that i have spoken to on the part of that consumer is that this money that line item that is included in the bill will in fact be used

for the purpose of providing healthcare to the employee and will not revert back to the employer. in fact, i think if you ask consumers in san francisco, they will be not only surprised but, in fact, shocked to hear that 80% of the money that goes into these accounts in fact is money that is not expended on behalf of the employee. this is a pro-consumer piece of legislation that tries to make sure that when a business tells consumers that we're going to spend money a certain way and in fact charges that consumer for that amount, that that money should be spent the way in which that promise is made to the consumer. there's a final reason why we're here, and it's, quite frankly, one of the primary reasons why healthy san francisco was passed. we are here to protect the san francisco taxpayer. something happens to that employee who is not provided healthcare or access to healthcare. that person, that individual who is working hard, somehow their health needs have to be

addressed and what ends up happening is that if those needs are not addressed by the employer as the law requires, those needsville to be addressed by the city and county of san francisco. that means they will have to be met by the san francisco text pair. that's one of the main reasons why healthy san francisco was enacted and passed because we want to make sure that burden is not unduly placed on the taxpayer here in san francisco. that's why this is also a pro taxpayer piece of legislation that has the very modest effect of simply having the original intent of the law followed. that's why we're here. so, i can go on and on and on about this legislation, i want to end my presentation here. we have a couple of other folks here to present on the piece of legislation. i can either take your questions now or wait until the other individuals present, however you would like to, mr. president.

president o'brien: i'll leave it up to you. i think it would be more effective to hear all of them. supervisor campos: why don't i call upon matt goldberg from the office of labor standards and enforcement. i want to thank them for their objective and unbiased assistance in providing information and facts which is critical when you're drafting a legislation as complicated as this one. so, mr. goldberg. president o'brien: if anyone has any cell phones, if you came late and missed the announcement, please switch them off or put them on vibrate mode. it's not fair to the presenters to have that distraction during the presentation. thank you. >> good evening, mr. president, fellow commissioners. i appreciate the opportunity to share thoughts and perspectives here tonight. as mr. campos said, i am matt

goldberg with the office of labor standards enforcement. you may recall i was actually 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