9 judge terri l. jackson. the court is now recruiting prospective civil grand jurors. our goal is to develop a pool of candidates that is inclusive of all segments of our city's population. >> the jury conducts investigations and publishes findings and recommendations. these reports them become a key part of the civic dialog on how we can make san francisco a better place to live and work. >> i want to encourage anyone that is on the fence, is considering participating as a grand jury member, to do so. >> so if you are interested in

our local city government and would like to work with 18 other enthusiastic citizens committed to improving its operations, i encourage you to consider applying for service on the civil grand jury. >> for more information, visit the civil grand jury website at sfgov.org/courts or call >> i have been a cable car grip for 21 years. i am a third generation. my grand farther and my dad worked over in green division for 27. i guess you could say it's blood. >> come on in. have a seat. hold on. i like it because i am standing

up. i am outside without a roof over my head and i see all kinds of people. >> you catch up to people you know from the past. you know. went to school with. people that you work with at other jobs. military or something. kind of weird. it's a small word, you be. like i said, what do people do when they come to san francisco? they ride a cable car. >> california line starts in the financial district. people are coming down knobbhill. the cable car picks people up. takes them to work. >> there still is no other device to conquer these hills better than a cable car.

nobody wanted to live up here because you had to climb up here. with the invention of the cable car, these hills became accessible. he watched horses be dragged to death. cable cars were invent in san francisco to solve the problem with it's unique, vertically challenged terrain. we are still using cars a century old >> the old cable car is the most unique thing, it's still going. it was a good design by then and is still now. if we don't do something now. it's going to be worse later.

>> the cable cars are built the same as they were in the late 1800's. we use a modern machinery. we haven't changed a thing. it's just how we get there. >> it's a time consuming job. we go for the quality rather than the production. we take pride in our work and it shows in the end product. >> the california line is mostly locals. the commuters in the morning, i see a lot of the same people. we don't have as tourists.

we are coming up to street to chinatown. since 1957, we are the only city in the world that runs cable cars. these cars right here are part of national parks system. in the early 1960's, they became the first roles monument. the way city spread changed with the invention of the cable car. >> people know in san francisco, first thing they think about is, let's go

supervisor campos: good morning, everyone. welcome to the board chambers. welcome to the july 14, 2011 meeting of the board of supervisors and government audit and oversight committee. we are joined by members of the committee vice chair supervisor mark farrell, board president david chiu. the clerk of the committee today

is -- do we have any announcements? >> [clerk announcements] supervisor campos: thank you. please call item one. >>item 1. ordinance amending the san francisco administrative code by amending sections 14.1, 14.3, and 14.4 of the health care security ordinance to provide that only amounts actually paid or irrevocably committed to pay for providing employee health care services shall satisfy the employer expenditure requirements of the ordinance, add an employee notification requirement, and to modify penalty provisions. supervisor campos: this is an item that i introduced. before our call the first presentation on an item, i want to begin by thanking my colleagues on the board of supervisors who have co- sponsored this legislation.

supervisor john avalos, ross mirkarimi, malia cohen, jane kim. i also want to thank members of my staff who have been working on this for quite some time. i would also like to thank the city attorney's office, a number of staff members who have been providing advice and guidance on this. i also want to think the office of labor standards and enforcement for their great work and provide technical guidance and assistance, providing the information that has led us to where we are. i want to thank the members members of the community, especially issues addressed by this legislation.

labor leaders who have read the identified this as a top priority for the city and county of san francisco. lastly, i want to thank the business owners that have identified the importance of leveling the playing field through this legislation. with that, i will call on matt goldberg to give us a presentation on how the health care security works. >> thank you, supervisors. i appreciate the opportunity to be here at the request of supervisor campos to share a bit of background and context on the

ordinance and proposed amendment. i have a presentation hard copy available for members of the public. i would try to get through this as quickly as possible. the first high-level point i would like to make is simply that the health care security ordinance which was passed unanimously by the board in 2006 has two distinct components. there is the help the san francisco element of a law that everyone is familiar with -- healthy san francisco element of the law that everyone is familiar with. a second piece of the ordinance will be the employer spending requirements. this has been in place since 2008, enforced by the office of labor standards and enforcement. thus, we are going to share our

perspectives on it today. we collect data from the business community every year. most recently, based on the 2010 calendar year. we have a more detailed report on that available from our website, which is at the end of the report. broken down into a single sentence, the spending requirements simply requires covered employers to make required health care expenditures on behalf of their employees. define those terms here briefly. covered employers are those who have more than 20 employees. that is approximately 4000 of san francisco's 51,000 businesses. the other 47,000 businesses with between zero and 19 employees are exempt and not impacted. covered employees are those who work in san francisco primarily, more than eight hours a week,

and there are a couple of exemptions out there. supervisors and managers with a certain income level are exempt from the requirement. individuals who get health care through another employer, spouse, a partner, parent, can voluntarily there was -- waived their right to these expenditures. based on the number of hours and employee hours worked, you can see the numbers. just by way of context, a part- time worker for a medium-sized business would be entitled to $1,400 a year for health care. at the most, a full-time worker for a large employer would be entitled to just over $4,200 in expenditures over the course of the year.

here is some data from the report that was compiled from the compliance date and that we gathered in 2010. we tend to think of health care as one of three general categories, a broadly speaking. the vast majority of spending for health care goes to health insurance, 90% of the total spending. 3% goes to the city option. 7% to various reimbursement plans. i think we all know what it means for the company to provide health insurance. i will explain in more detail what the city option and what the reimbursement plans worare d how they work. i should preface that the person who runs healthy san francisco

is here and can answer questions. those who are eligible, they are provided reduced or free enrollment in the program. those not eligible for the program are provided a medical reimbursement account. the department of public health works with a third party to set this up on behalf of those individuals. this is not an issue in the amendment today, but i will tell you a little bit about them, by way of comparison to the help reimbursement account. money remains available to these workers in these accounts beyond a calendar year. they roll over forward and remained even after words a employee separates from employment. there are some circumstances where those accounts can be closed after a certain period of inactivity.

the money is available to reimburse any type of virus- recognized medical expense, no limitations -- i r s-recognized medical expenses, the limitations. as a result, one statistic to compare it to -- 55% of the money was reimbursed. 55% of the money put into these accounts were reimbursed. the remaining money remains available to them in the future. health reimbursement accounts is essentially what is at issue today. there are a variety of plant that the irs recognizes. we are utilizing them to meet the requirements of the employees spending requirement. employers under the irs will have part of discretion about

how they work. typically, they are essentially free, because the third party that is administered by them, can be taken out of the balance from these workers. administering these with third parties is typically no cost to employers. a certain number of these reimbursement accounts are of the stand-alone variety, and that is to distinguish these are provided to a worker not in conjunction with a high deductible health-insurance plan, but provided a loan to the worker. these have become popular in san francisco to meet the employer requirement. there are ways in which these help reimbursement accounts, as stand alone, are an adequate with the federal health care reforms. those come into play in 2014, employer mandates. there are a number of tangible

regulations put forth by the federal government to suggest these stand-alone help reimbursement accounts are unsatisfactory with respect to meeting the federal requirements coming into play. the reason we're here today -- supervisor chiu: so you are suggesting in january, 2014, what ever we do we will be pre- empted by law? >> there will be some changes required. the health reimbursement account -- the set of employers subject to the mandates in 2014 will not be able to settle the mandate by providing a stand-alone help reimbursement account. that has been established already. we are dealing with the federal reforms. those will impact employers at 50 or above. this ordinance affects employers

with 20 or more employees. if there are no changes, there would be a subset of the population that would not be under this law, but would have to still follow the san francisco ordinance. supervisor campos: so to the extent that these hra's are being used in a specific way, to create these loopholes, the way that they are being used as of 2014, that would not meet federal law. >> that is right. employers using hra's today, those impacted by the federal rules in 2014, the stand-alone programs will be insufficient under the federal standards. as a result, those employers will be required to make changes in their programs. this slide is a quick example of precisely what we are dealing with, in terms of the issue that

has arisen. the lot is currently interpreted such that when an employer allocates money to one of these health reimbursement accounts, the allocation count toward their expenditure. an employer who is required to provide $2,000 in spending on behalf of the worker allocates that money, over the course of a year. an employee may access only 20% of that. at the end of the year, the worker loses access to the remaining money. essentially, the employer retains the money, but they are credited with making a $2,000 expenditure when they have only made a $400 expenditure. rarely, firsthand, over time, and is forcing the ordinance. on the first player, i talked about the health insurance, city

option, and reimbursement plans. by virtue of satisfying the requirements less expensively, we have created an incentive for employers to choose that option rather than health insurance, or the city option. over the past couple years of our data collection, we have seen a trend where more employers are satisfied the requirement via the health reimbursement accounts, in place of health insurance. that runs counter to the legislative intent of the ordinance, as it was passed originally, which makes reference to avoiding a race to the bottom where employers are providing the least favorable health care option. it also runs counter to the idea of the burden being placed on the taxpayers. the workers who had these health reimbursement accounts, inevitably, they will have to face an emergency without insurance. once an employer has selected a

help reimbursement account and is meeting the spending requirements, they have a secondary financial incentive. essentially, the less the account is utilized, the more money comes back to the employer at the end of the year. i think it is a small subset of the employers, but we have certainly seen those who make it difficult for employees to utilize an access these accounts, in a variety of ways. they have the ability to limit the way accounts are used on dental care, vision care, health insurance premiums, common ways that employers may want to use these accounts. employers will restrict the accounts and not allow them for dependents. they provide limited notice to the workers, often times, not in the primary language of the worker. oftentimes we see all or some of

workers at one company are not even aware of the account, which is how we account for a subset of utilization rates. they also find difficult claiming procedures. all of that contributes to the fact that our data shows the average utilization rate of these accounts is just 20% each year. the median rate is even lower, but that contrasts substantially from what we see with the parallel accounts in healthy san francisco. supervisor farrell: i do not know if this is the appropriate place to talk about it, but we are not allowed to provide in the ordinance, dictating how these accounts are constructed, the limitations placed on them. my understanding -- i wonder if this is the right time to educate folks, talk about why

that conflict exists, how you view it? >> i would be happy to. as many people know, the original employer spending requirement was challenged in federal court. the ninth circuit court of appeals ultimately ruled it was permissible to have this employer spending requirement, that it did not run afoul of the federal law that was potentially going to preempt the spending requirement. the supreme court declined to hear the case, so we are left with this federal authority that says the employee spending requirement is permissible and the not run afoul of federal preemption. however, it is true that any changes need to be consistent with arissa, and not be preempted by that. if the city were tried to -- were to specify how these would

be used, you would be running a foul of this pre-emption. that is why the amendment here is carefully designed to simply say, we are just clarifying what it makes tbeans to make an expe. merely clarify what an expenditure is, money that has been let go permanently and irritably -- zero vocally on behalf of the worker. supervisor farrell: and this is an important issue. most people would say the limits on usage, you cannot pay premiums or dependents, really restricting it, that seems a perverse incentive, but making sure the public understands we are not able to dictate that. >> that is absolutely right.

the board is hamstrung in some respects and prevented from just saying to some employers you have to keep these as open as possible and allow workers to utilize them for any kind of expense, make them available to workers dependence. i think the board is hamstrung in that respect. supervisor campos: if i may, i know president chiu wants to jump in on this, but i want to caution our colleagues in terms of how much of a discussion we have. as was noted, the city was sued over the original health care legislation. in fact, the entity that sued the city, the golden gate restaurant association, is here and will be speaking against this amendment. so the possibility of another lawsuit is very real, and we want to make sure we're careful in how we talk about these issues. to the extent that it needs to be for the discussion, you know, be for the discussion, you know, that might be -- to the extent