>> 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, that might be -- to the extent that there needs to be further discussion, you know, that might be done in closed session. i just want to make sure we are careful because we have been sued before, and the entity that sued us is in the building. supervisor chiu: thank you. i appreciate the comments, and it might require a closed session with the city attorney's office to really understand what our options are. in your presentation, you talk about how the city-administered mra has a 55% usage rate as opposed to the 20%. the 20% is troubling. i think that is what many of us have been focused on as to why there might be some need for change. if the number is closer to the

55%, that would suggest that there really is not less of a disincentive to move into one system as opposed to the other, right? in my mind, the discrepancy between the numbers is what is troubling, but if the 20% or close to half, it would seem as if the systems are playing out the same way. >> i think it is absolutely right that it -- as the usage rate increases, there is less incentive for employers to choose the options, less money coming back to the employers. i would speculate that even at 50%, if you are an employer who has tens of thousands of dollars in required expenditures, the prospect of getting half of that money back, even if it were administered perfectly and clearly and broadly, it would still nonetheless provide a pre substantial incentive for employers to choose this option. i think there continued to be real health consequences for the employees who merely have that

money for a given year, but i think your point is absolutely right. as the usage rates move up, the financial incentives to choose the options go down. i just have a final slide here where i would like to try to outline sort of the size and scope of the issue we are dealing with here. the 2010 data we collected indicates that employers allocated and were credited with making $62 million in spending toward these reimbursement plans. i alluded to the 20% average reimbursement rate already. the median rate is even lower. as such, only $12 million was actually reimbursed to the employees. the remaining $50 million in spending was cut by a total of 705 employers. there is a slightly higher number of employers who utilize

hra's, but a subset are reimbursed at 100%, so they do not retain or keep money at the end of a given year, which is what we are dealing with today. that represents just under a quarter of the covered employers would be affected by the issue we're dealing with today, who have money come back to them that they are credited for spending. when you consider the number of employers who are exempted, the 705 employers represent just 1.37% of all the san francisco employers. the final chart is a bit complicated, but we simply tried to break down the impact a little bit to indicate that the amount of money that went un- reimbursed for small employers was comparatively smaller. i think quite clearly because they have fewer employees and thus, the number of people they have and the dollars allocated to these reimbursement plans are

smaller. you will see for the smallest employers covered in the range, the average amount of un- reimbursed allocations in a given year is just under $20,000. the number is a bit larger for employers in the 50-99 category. that is just designed to give you a sense of the size of the issue we are dealing with. here is just some contact information about how to reach or contact us. my personal information. i'm happy to talk with anybody further, happy to respond to more questions now or throughout the hearing. supervisor campos: thank you, mr. goldberg. unless there are specific questions at this point, i'd like to just make a very brief presentation on why we're here. again, i wanted thank all the members of the community who have come out through this hearing, including workers,

business owners, and taxpayers. so many people that have been following this issue. in terms of why i introduced this legislation, let me simply say that i did not think that anyone who has been following san francisco politics, government in the last few years would be surprised by the statement that the health care security organs has been an incredible success. it is something that we take a great deal of pride in because of the health care security ordinance that was offered by then-supervisor ammiano. more than 50,000 previously uninsured san franciscans have access to health care, and i haven't because it was -- because of this law. this was an incredible accomplishment here the most extensive public study on the impact of this ordinance shows that not only has the ordinance created the opportunity for

these 50,000 san franciscans to be injured, but that there is no appreciable effect on actual job creation or earning patterns here in the city and county of san francisco because of this ordinance. that is a very significant thing to because at that time that the health care security organs was introduced, there were a parade of horribles identified by many who opposed the legislation. thousands of jobs would be lost in the city and county of san francisco, and that the economy in san francisco would crumble because of this legislation. the parade of horribles has not materialized. the one study that looked at the impact of the legislation makes that very clear. but this loophole is something that was never intended when this legislation was first introduced. a loophole that was never envisioned because it really

undermines the original intent of the legislation, which is that we want to -- we wanted to make sure the taxpayers in san francisco were not burdened with the challenge of providing health care for those who are uninsured. that has significant consequences on every taxpayer in san francisco, and that was the ultimate objective. as important as providing health care to the worker was, the overarching goal was to make sure that there was no unfair and undue burden placed on san francisco's taxpayers. this loophole is problematic for many reasons, and it impacts a number of individuals. many individuals here in san francisco. i would like to identify who those are. first, it impacts the employees, the workers of the city and county of san francisco. these workers have been harmed by this loophole because they have been unable to get the

health care that this health care security ordinance invasion that they would get. we have heard testimony from many employees, and you will hear from many today, that talk about how the limitations on how the health reimbursement accounts work make it impossible for them to access the very basic health care that was intended by the law. i have heard countless stories of workers who sought reimbursement only to discover that their accounts had been wiped out by their employers. others who have put off critical services as they waited to accumulate money in their accounts, only to learn that that money was no longer available. we heard when the matter was heard in the commission -- we heard the story at the small business commission where they

talked very passionately and very courageously because it is not easy to share a personal story here in city hall when something is being televised. and even though they could not be here today, i want to make sure that their stories are not lost. they talked about the pain of not being able to access this account and not really knowing how to, you know, do something as basic as taking care of your teeth. the fears that you live with when you have no guarantee that you are going to have any money available should something happen. and this notion out there that i have heard repeatedly that we are talking about many young workers and many young workers do not get sick. we have heard from many young workers that in fact, they do get sick. things happen and this money is not available to them. it is also important to mention that employees who have hr a's

as opposed to employees who are covered by insurance or by healthy san francisco are at a disadvantage. they are at a disadvantage because of like an employee or worker who has a guarantee of coverage, a guarantee that extends to specific procedures, specific things that happen, the employee covered by these accounts, the ability for them to actually get their health care needs addressed is very limited. the accounts have a very small amount of money that can be accumulated. even if they are able to accumulate the entirety of the amount for a year, that entire amount would not be sufficient to cover one day, one-night at a hospital. so going back to the point that you made about maybe we would not be where we are today if the

rate at which expenditures happen was similar to what happens in healthy san francisco, 55%, i don't know that i agree with that. i think the nature thinkhra -- i think that the nature of hra accounts is such that the employee is at such a huge disadvantage that you want the expenditure rate to be as high as possible. even if the entirety of the amount is spent, the coverage is minimal. i do not know if anyone has been to a hospital lately, but 20 of hundred dollars does not go very far. let me also talk about the second group of individuals that are greatly impacted by this, and that is the consumer. we will be hearing from workers, but i want to talk about the consumer. many of us have gone to restaurants in san francisco and have gotten the bill and have seen these bills that have

specific items that reference the expenditure on health care. we have collected many of these in the process of investigating this issue. i have here a receipt from a restaurant which is in this case charging a 2% surcharge for healthy san francisco. i have a receipt from patsies pizza, a 3% surcharge. tony's pizza. frances -- $1.50 surcharge. 314 sutter st.. 4.3% surcharge. if anyone wants copies of these, you know, there are so many of them. i think that many of us have probably seen many of these receipts if we had dined out in

san francisco, but i think most of us would be shocked to learn -- i was shocked to learn that 80% of this money in fact never goes to the worker. with respect to the specific restaurants i mentioned, i do not really know of those restaurants actually spend the money on the employee or not, but when you look at the totality of what we know, which is that for that one year that we have that information, only 20 cents of every dollar actually win to providing and spending health care -- actually went to providing an spending health care on the worker. from a consumer protection standpoint, you are talking about consumers in san francisco being told that they are paying for something that in fact is not happening. i have spoken to so many of my friends who are simply shocked to learn that something like this is happening, let alone that something like this could