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 be legal. you are telling me that when i go to a restaurant and at restaurant charges me $3 because of healthy sense francisco, that that money in fact is not being spent on health the san francisco? that is the reality that we

have. we have an obligation to protect san francisco consumers. let's talk about the third group impacted by this loophole -- other businesses. employers. from my perspective, this is pro-business legislation that tries to level the playing field for businesses in san francisco. olsc has given us much information, a lot of statistics, and they have more they can give us. the reality is that the vast majority of businesses and employers in san francisco are playing by the rules and doing what they are supposed to. we will hear from restaurant owners. we will hear from many businesses that are doing exactly what the health care security ordinance intended to do, which is to cover their employees. businesses that understand that there is a business interest in treating your workers with respect and dignity, that there

is a business benefit to making sure that you have a work force that is in fact healthy, and that in fact, having a healthy worker means increase productivity and something that not only helps the business but actually helps the consumer. it makes sure that the service is more reliable. it makes sure that the business is more successful. those businesses, that 87% of businesses in san francisco that do not primarily rely on these accounts to meet their obligations -- those businesses are at a competitive disadvantage vis-a-vis the small percentage of business is taking advantage of this loophole. we have to level the playing field for those businesses. if we believe in the free market, if we believe in fair competition, let's make sure that we're going to have the health care security ordinance in san francisco, that everybody

plays by the same rules. related to that, let me say this -- i have heard many arguments in the course of the last few weeks about this legislation. many people want to re-argue the health care security organs. many people talk about things that go to the larger issue of whether or not we should have universal health care in san francisco. that is a very important debate, and they make some very important points, but that is a debate we have already had in san francisco. the law was passed. whether you like it or not, that is the law in san francisco today. from my perspective, the question is not whether or not we should have passed that law, but since we passed it, the question is -- should everyone be required to play by the same rules? the same folks who are now criticizing this amendment are the same folks, many of them,

who sued the city, and that they had their choice, we would not have universal health care in san francisco today. again, this is not about re- arguing or yet again debating the merits of the original legislation. let me talk finally about the fourth group, which is a very important group, a group that i keep mentioning, and that is the taxpayer. when that worker, when that worker who has coverage or is supposed to have coverage under these accounts does not have access to that money, and that worker gets sick, something happens to him or her or their family, they are going to go somewhere, and what that means is more often than not, that they are going to go to that emergency room, which means that the taxpayers of the city and county of san francisco are going to foot that bill. ultimately, someone pays when

that individual who has no access to health care goes to the er. the person who pays -- we know who pays -- is that taxpayer. that is simply not fair to the taxpayers of san francisco. we live in tough economic times. to expect that on top of everything else we're trying to do in the city and county of san francisco, that we have to meet the health care needs of individuals whose employers are failing them by not providing what they are required to do by law, that is simply not right. i know that many members of the business community are here today to oppose this amendment. i have met with many of them. i want to say that i continue to have an open door on these issues. i believe it is important to have meaningful dialogue, and i am definitely sympathetic to the concerns that have been raised, but let me say this -- this is a very modest piece of legislation.

that is simply aiming to close a loophole that was never intended by this -- by the health care security ordinance. i thank the people who worked on the ordinance, and i have spoken many times with assembly member ammiano. i am surprised and shocked to see the way in which a small group of people are exploiting this loophole. but the reality is that it is a small group of people, as was noted by mr. goldberg. of the 57,000 businesses we have in san francisco, only 4000 are actually covered by the ordinance. only a very small percentage of those businesses are actually in beijing in the exploitation of this loophole. to the extent that there may be disproportionate impact on some types of businesses because of this, i think that the objective should be to work with them, to make sure that we address

concerns that are larger and more important to them. let me give you an example. i met with home care agencies that abide by the employment laws, and those agencies have to unfairly compete against other agencies that treat their workers as independent contractors, and i see many of them here. these are folks that are actually trying to follow the rules. the problem, as i see it, with respect to these businesses is not that they have to provide health care, but that they are having to compete in an unfair business environment against individuals that are actually skirting the law and trying to circumvent the rules that are already in place. if we want to help those businesses, what we should do is make sure we address the underlying issue and challenge that they face, which is that there are businesses in the region that are unfairly competing with them. the best thing we can do for those businesses is make sure that those issues are addressed.

something that i have heard from folks in the business community, from the chamber of commerce and the golden gate restaurant association, is this notion that instead of creating this amendment, we should beef up the notice requirements and perhaps conduct a study to evaluate how many employers are placing restrictions on these accounts. let me be very clear that from our perspective and the perspective of this very broad coalition that includes workers, businesses, and taxpayers, that proposal is a nonstarter. this is simply not just about a lack of notice or a lack of enforcement. even if you had a model compliance system, the use it or lose it rules that are allowed under these accounts would mean that workers would still, even if they knew about the existence

of these accounts, not have access to that money. that would still leave us in this same position of again thousands of workers not being covered and the taxpayers of the city and county of san francisco having to bear that burden. i think that to the extent that people are emphasizing that point, i think that what we're really hearing in my estimation is that they do not want to see any change. frankly, they do not want to see any change because many of them do not believe that we should have had universal health care to begin with. so i think that is simply a distraction, and it is a distraction that, quite frankly, is not only unworkable, but it is unfair because the very same business folks who are making those points are not saying

anything about how unfair it is to the businesses that in fact are following the rules and that have demonstrated in the last few years then you can be competitive in this economy if you follow those rules, and there are many businesses that are driving because of the compliance. now, the last point i want to say is talk about the economic impact report that has been issued by the chief economist for the city and county of san francisco. i think that -- let me put that report in context. the one study that has been done on the health care security ordinance very clearly says that there has been no negative impact on job creation. i believe in my reading of mr. egan's reports that his report in essence confirms what we already know. that the impact on job creation,

if any, is minimal, and we can argue on whether or not there actually is any impact on job creation because, you know, doing this kind of steady, and mr. egan is a very capable and talented individual, but i think that his findings essentially proved our point, that you can amend this legislation. you can amend the health care security ordinance. you can close the loophole, and you will still have significant job creation in the city and county of san francisco. under the worst-case scenario, the worst-case scenario that has been described in this report, the city will gain 35,625 jobs in the next three years. so it will still gained 35,625 jobs as opposed to a possible gain of 36,000 jobs. that is in the worst-case

scenario. if you compare that to what was predicted when the health care security organ is was introduced, when you had a much larger job loss projection as a possibility, we are in pretty good shape. that larger projection loss that was provided never materialized. it never materialized. so i think that we are in very strong standing here. even the worst case scenario that has been described talks about continuous job creation in the city and county of san francisco. the benefits cannot be overestimated. you are talking about increased worker productivity because of the meaningful access workers will finally have to health care. you are talking about ending

consumer fraud because that is exactly what is happening when a consumer is told they will be charged an additional amount, and that amount is not to be spent -- is not spent the way it is supposed to be. that is fraud committed on the part of the consumer. we are talking about relief of a taxpayer. when the worker is not insured and does not have access to basic health care, the taxpayer has to foot the bill. we are also talking about protecting this notion that everyone has to play by the same rules. leveling the playing field for other businesses in the city and county of san francisco. the last thing i would say is that we have been working on this for quite some time. the matter has been sitting on committee for 30 days, and we believe it is important for us to protect the interests of workers, businesses, taxpayers, to move expeditiously on this

item. i hope the item can move out of committee today so it can go before the supervisors for action. i ask my colleagues on this committee to allow for this item to move forward so that we can have a boat at the board of supervisors. i think we owe that to the workers. i think we owe that to the businesses. we owe that to the taxpayers of the city and county of san francisco. and, you know, the last thing i would say is that i look forward to hearing from everyone who is here today. the purpose of this hearing is to see what people have to say. i am very proud that we in san francisco can say that we are the first city that had universal health care, but i do not think that we can continue to say the unless we close this loophole. because the ordinance is not working the way that it should work because of a very small number of people who are exploiting this loophole.

with that, colleagues, i do not know if you have colleagues -- comments or questions, but we can proceed to hear from the city economist, mr. egan. >> good morning, supervisors. this morning, our office issued an economic impact report on this matter, and i am going to go over some of the highlights of our report for you now. you have already heard and discussed some of the key points of the legislation's, so i will not go into much detail on that. the economic impact starts with the fact that we are essentially talking about 8 $50 million difference between the amount allocated to hra's and the amount being expended in 2010. that is what essentially the legislation will require employers to essentially spend once it goes into effect, and that is where the economic impact starts.

hra's expenditures are not even evenly distributed across san francisco employers. it has confirmed that they are concentrated in a few industries -- in particular, food services -- restaurants and bars and also the hotel industry and the retail trade industry, with fairly minor amounts of employers primarily rely on them in other industries of the economy. in terms of how this affects the economy, like many pieces of legislation, the ultimate economic impact is a trade-off. in this case, a trade off between higher costs on the employers, which is essentially higher labor costs, with the resulting benefit being the benefits of higher health care spending, both tangible and intangible, or quantifiable and un-quantifiable. in terms of the impact on costs, by essentially increasing the amount that an employer must pay annually on behalf of an employee, that is effectively like a wage increase.

what that does is when you increase the cost of labor, you create a disincentive to hire labor, and that is a $50 million disincentive that, as i said, will be spread across different industries. because this increase is a benefit, the corporate market, the labor market would react to essentially share the cost between employers and employees. essentially, if an employer offers a benefit, and in this case, this would be enhanced hra that does not expire each year, employees -- workers would rather work there then at alternative businesses that do not offer that. it is important to keep in mind, for example, that businesses with less than 20 employees are not required to offer this benefit, and we can assume that many of them did not. some of the impact in industries like restaurant -- for example, the vast majority are not impacted by the legislation, and only the largest art. because of that reason, the

businesses that do apply to offer the benefit or are required to offer the benefit, and could expect greater demand for workers. in a perfect labor market, workers would accept lower wages in exchange for the greater benefit. in our analysis, we do not project that much of the cost of the benefit will be borne by workers. the main reason is the city's minimum wage ordinance, which limits the amount basically how far down employee wages can go in response to the higher benefit costs. the heavily impacted industries -- restaurants and retail trade in particular -- many workers are already at or near the minimum wage, and therefore, even if the benefits are enhanced, that cannot be offset by lower wages. in our analysis, we project that approximately 80% of the cost of the benefit will be borne by employers, particularly in the industries that i mentioned. when i sit one by employers, that is a direct bearing, and of lawyers can choose to react in different ways. they can choose to have their profits lower or to try to pass

that on to consumers. if they choose to pass it on to consumers in the form of higher prices, they put themselves at a competitive disadvantage, and is the source of the competitive disadvantage that is the real negative economic impact or element of negative economic impact associated with the legislation. finally, the picture does change significantly on january 1, 2014, when employers with more than 50 employees are required to either provide insurance for their full-time workers or pay a fine under federal health care reform. the discussion earlier reflected the fact that it is not an exact overlap between those requirements and responsibilities under the htso, but there is significant uncertainty around exactly how many of the employers that are affected currently are full time and what their new responsibilities will be. without the data to further continue the projection beyond 2014, we have limited our analysis just to the two years

of 2012 and 2013. as i indicated, there are also spending benefits or benefits associated with the legislation, including benefits on spending. the covered employees will receive up to an additional $50 million for spending eventually on health care, and much of that we expect would be spent within san francisco, which would affect stimulus to the health care industry in the city. we have seen already that currently, the hra's are being expanded at an average rate of 20%. it is possible and in fact likely that if the legislation is enacted, the utilization might rise to something along the lines of what the city is experiencing with the medical reimbursement accounts it is managing on behalf of employers who adopt the city auctioned and his employees do not live in the city. that is 50% of allocation. we are projecting that the potential spending benefits that

difference between 20% currently expended and 50%, which the city is being with the mra's under its management. there is another 50% that would not be spent, but would accumulate and be spent at some point in the future. it is simply not considered within our analysis. in the same way that higher costs and reduced competitiveness on the employer side that are facing higher labor costs reduces their employment incentive and creates a negative ripple effect through of the economy, the increased health spending creates positive ripple effects throughout the economy. the model our office uses essentially accounts for both of these effects in an economic stimulation. supervisor chiu: could i ask one question, a follow-up on something you just said? getting to the board of the measure were put into place, we could likely see the expenditure going up from 20% to the% or 55%. the money not spent would sit in

the employees' accounts indefinitely, right? >> it is my understanding that is right. supervisor chiu: maybe i could ask the sponsor of the legislation exactly what happens to the money that is not used. supervisor campos: i do not know that it's it's in the account. it means it is available for the worker to access it in the event that something happens. so, depending on the worker, if that individual becomes ill, then they would access the account and spend it on their health care. supervisor chiu: but again, your economic model assumes that the legislation would lead to a comparatively used to what we see on the city side. >> that is right. certainly, there will be workers who need to and will use all of it, but on the other side, there are workers who will use less than 50%, and the aggregate average is 50%, reflecting the diversity of experiences people have with it. supervisor campos: one thing i

would say is that because we're talking about a very small amount of money relative to what actually is needed to provide health care, you have situations where workers to wait and actually try to accumulate some money until they have enough to be able to cover a significant portion of whatever procedure or illness they have. it is hard to know, and i think that's when you are talking about the remaining 50%, it really depends on the timing. depending on the worker, the money will be spent at some point, but i think it is really hard to gauge exactly when that will happen. supervisor farrell: to follow up along those questions, did you look at -- right now, the benefits days in an account, or wherever it sits in definitely. i would say that a concern -- i have concerns on both sides,