receiving the full benefit of health care funds intended by the health care security ordinance. our investigation found that a small but definitely growing segment of employers primarily in the restaurant industry but not exclusive to it are profiting from the practice of adding a surcharge to the bill of every customer. by using private reimbursement plans instead of the city's medical reimbursement account, these same employers are legally able to reclaim the ma jart amount of funds intended for employee health care, thus, increasing their profits even more. the jury feels that the blatant capture of funds is at the expense of employees who are not receiving money earmarked for health care, nor are the customer who is are paying the surcharge for what they honestly believe is for employee health care. in reviewing the armorial intent of the health care

program, we reminded ourselves repeatedly that this program is about providing health care for employees, not creating additional profits for businessess, the jury has no issue with restaurant eurs raising their surcharge, a significant number of restaurant owners are benefiting from the addition of surcharges which are represented to their customers as being for employee health care. this is a clear violation of public trust, despite the koe and chew legislation passed in 2011 which did not close the loophole ins the security ordinance but merely requires employers to wait two years instead of one to retain hra funds. it goes on to say that any

excess must be for the benefit of the employees. well, this is extremely vague and ambiguous and we weren't sure what that meant. does that mean a hawaiian vacation for the owners in which they bring back little gifts for the employees? just think about the cost of implementation and enforcement to say nothing of the unbelievably complicated auditing process, so as a result, the jury recommends the city totally eliminate hra's in favor of the city option. the jury strongly recommends the city bring an end to the gratuitous practice of allowing business owners to add surcharges for employee mandates to their customer's bills and the jury recommends the district attorney follow through with an investigation to review our survey findings for possible consumer fraud. the promise of the health care

security ordinance is to provide health care for workers in san francisco that is easily accessible. health reimbursement accounts do not fulfill this promise. when businesses use the health care surcharge to earn large profits, i must repeat, the public trust is violated. hra's may be technically legal, but are they ethical? we really don't think so. thank you. we'll take any of your questions. >> thank you very much. could you respond to the question that i raised earlier about the fact that this is 2011 data, 2012 data will presumably come out whenever -- you know, next year, and to just respond to the concern

that that data is from before the change of law took effect that places restrictions on the ability to give us the health surcharge when we're not spending the money on health care, etc.. >> i'm matthew cohen. i'm glad to be before the supervisors, for one thing, this is the information we had, and when we saw this information, we found that even though we knew more information was going to come out subsequent to that, this is really indicative of a process which we felt was not something that you can merely look away from even with the amendment that was passed, and for one thing, i am kind of concerned that even though money is supposed to be set aside for workers and if you're using the hra's, if the private employers and a considerable amount of them employ their own accounts, this discourages employees from

coming in and basically you're telling their employers what you need the medical expenses for, it's an invasion of privacy, i would rather, it's nothing we saw in the revised legislation that actually standardized guidelines, as far as we know, employers can still insist on whatever they can restrict their guidelines to whatever extent they want, and i think that this, in essence, limits the ability, limits the access of workers regardless of the amendment to the benefits that they're entitled to. >> frankly, supervisor wiener, if i might say, just to be more clear to your point, what you ask, i'm sorry, it could be more clear, we didn't see enough changes to warrant change our findings. >> just to be clear, i think it's perfectly appropriate to have a policy debate about the issue which we had and which is

ongoing and that's fine, i'm not critiquing that in any way, when you draw conclusions based on data when there's been a change when maybe in a year, it will come out, it will be similar, maybe it won't but i think that there's a question about whether the civil grand jury should have waited for that data to come out, but supervisor compos? >> thank you. well, we really couldn't. we could only access the data that was available, and i noted also that in response to some of our -- in the responses to the report that some departments provided that actually, i don't believe the forms for 2011 were sent out until march of 2012, so there was no way we could have access to this. furthermore, i think we found information, developed information on the surcharges

that the olsc didn't have and wasn't pursuing, so if we opened the door that subsequently may be closed, still i think we have to look at the chance that is it won't be and again also the cost of seeing that it's closed and that's why we really felt the best way to address surcharges which are deliberately intended which are seined to benefit health of the employees should not be allowed, we can't stop employers from surcharging for other things, for platters, for bread, for whatever, there's no reason why they have to use the surcharge based on -- there are all kinds of euphemisms they can use, we're not sure we can determine whether a surcharge is designated, whether it falls under the designation of a legislation, so, you know, we did what we could, we found a practice that we found was

pretty onerous, and since there's money at stake, we didn't feel the amendment closed the loophole the way it should have. >> did the civil grand jury consider simply waiting to do its report until the 2012 data was available? obviously now you could btbacker nltbackern't predict that data. >> we couldn't, our mandate goes to june 30th. >> but the civil grand jury is perpetual. >> we were in there for a year, so we compile information, we have to do our report before june 30th and i don't believe this information would have been available to us in any way. >> and then new jurors would take over at this point. okay, supervisor compos? >> well, i want to thank the civil grand jury for their service, you know, the thing about civil grand juries is that over the years here in san francisco, they have played their important role and the point of civil grand juries is for them, these private citizens who are volunteering

their time to take on issues that in their view are of critical importance to the city and quite frankly issue that is many times they feel city hall is not dealing with, the latest example prior to this that i can think of is the issue of pension reform, the fact is that pension reform and i'll say that as xhn who was part of the elected family, i was guilty of that, i think all of us was guilty of that, not a lot was happening around pension reform until the civil grand jury issued its report, so i know there are times where there's going to be many of us at city hall to say to the grand jury, you should have waited to take on this issue, i'm glad you're taking on this issue, it continue tos bring in the fore mont something that remains unresolved. there are differences of opinion and i know there are some people in the audience whose opinions i respect that have a different approach, different perspective on

whether or not this loophole is closed. we believe it hasn't been closed but one thing i do worry about and i'm wondering if you could talk about that is the trend in terms of the usage of hra's that you saw, i'm wondering if you can taug about that because i think that a lot of health experts will say that the hra is the worse kind of health care in terms of what -- how it protects an employee and so i want to know a little bit more about the trend that you see in terms of businesses using hra. >> well, i believe that we found that they're increasing because this is to the employer's advantage if they can recapture this money , and the other thing, one of the questions i had was if you're designating money to an hra and let us say an employee doesn't come in or is discouraged from coming in to cover medical

costs and i assume there are a lot of employees who are reluctant to go to their employee and i know some of them are third parties, but what happens to that money? why isn't that money designated anyway to go to health care if not for that specific employee or for employees in general. the way we see the schemes that are set up with hra's is that it does tend to discourage the use and there are a number of reasons, the lack of standard guidelines, there are other employees who don't want to approach their employer and is say they need coverage and don't want to disclose what they need it for and no matter how many private employers actually administer their own accounts and we don't really know specifically, i know one of the reports, it was 15%, but certainly that's 15% too many. this would tend to increase the amount of money that can revert

back to the employer after two years, and what happens, you know, you talk about surcharges have to be paid -- what does designate mean? what does it mean to designate funds that were intended for the health care of employees? designate, was that identify? well, what happens to it? what is the resolution -- how does the city respond if these monies are not paid for health care and what do you mean by the benefit of employees, there's terms in there that discuss, well, it has to go to the benefit of employees, it doesn't say medical benefit of employees which is one of the points we brought up, so those were the things we felt were -- there's also another issue and that is there are part time workers that work for more than one employer and this also is a confusing and complicated issue that could be resolved, this is what we mean by eliminating the

hra's and requiring the money to be deposited directly with the city under the sf option which we feel would be a better way of providing these services and delivering these services to employees in the city. i don't know to what extent that -- >> thank you, president chu. >> i have one comment, first of all, i want to echo what supervisor compos said, i want to thank you, you have a big job and a number of reports coming from this past year that we'll be considering and i appreciate the work that you have done on that, from my perspective and i think this is probably no surprise, we heard a lot of testimony last year that echoes what you have laid out in your report, it was the fact that hra's seem to be on the rise, the fact that there did seem to be restaurant that is were abusing surcharges with regards to employees and consumers, that caused me to spend quite a bit of time after last year's vito to craft the legislation that as we all know

just went to in effect this year, so from my perspective, i didn't hear necessarily any new data different pr the testimony that we heard last year, it really confirmed the problem that we heard about which is why we moved forward with the legislation at the end of last year and certainly if this data, if we hear data like this a year from now or two years from now as i stated before, i will have great concern and i will be working to think about how to continue to refine the law in this area, but because the data which i hear again is simply to me appears to be a bit of a rehash of the data we heard last year, that's why i really have some questions about how this old information is trying to be used in a new way to criticize legislation that just went into effect. >> there's a report that just came out, is that what we're talking about, doesn't that follow the same, you know,

follow the same reasoning we have? >> i think the olsc report which came out which is 2011 data is a great base line for us to compare, but it doesn't suggest that the law that went into effect on january 1, 2012 isn't going to have its impact, its positive impact. >> the only response that i would have to you, supervisor, is that we'll know more in april when the new data comes out, but we continue -- we've been so invested in this for a year, so naturally we still when we go into restaurants, we ask questions despite your well intended amendment, we still hear the exact same stories, there doesn't seem to be a change that we have noticed so that's all i can say. we're more interested than i think most people, so we ask the questions when we go into

restaurants and there are people that still don't know that despite needing signs now and it's -- i think your intention was -- your amendment was very well intentioned, i just don't think it went far enough with the jury. >> which i appreciate and i have asked this of the business community and we have leaders of the small business community here to engage in that education effort and they have been engaged in that effort and we will see nr the coming months and years if it does have the impact that it does, i hope that it does but that will be seen. >> we do too. >> our position is to raise issues, we look at various things that are going on, there are programs and processes, and when we see something we think needs to be addressed, we address it. we don't always have the ability to get all the information we need on a timely basis, but we do the best we can and we try to stay as up to date as much as possible, so

regardless of how that works out, if we bring this to the attention of the bore, of the city, of the public, then at least we know it's getting addressed to some extent. >> absolutely. and we appreciate that, absolutely, and supervisor chiu, you have a question? >> i don't have a question, i want to thank you for your comment and is your presentation. i wanted to address a separate issue, supervisor compos talked about the value of the civil grand jury, i think we agree with that and i don't think it's a question about any one of us value the civil grand jury more or less, but i think it helps to highlight some of the issues we do face, with regards to the pension, there were a lot of people thinking about the pension fund and how we would deal with it moving forward, i think what really critically happened was the civil grand jury report, but in

2008 when we had the major crash in the stock market, we saw the pension fund drop drastically, which really served to highlight the need to implement reforms immediately, and so i absolutely value the civil grand jury's work, i think the different events that happened highlighted to bring it to the forefront. there were a lot of things happening around pension. >> colleagues, any additional comments before we go to the departments? >> no. >> so, we have -- i'm going to call up, we have a number of departments, first we'll start with olsc given that it was both the respondent to the civil grand jury as well as the creator of the report at issue and wanted the hearing request, and then after olsc and if the departments want to go in different order, na's fine, we have the department of public health, the district attorney,

the treasurer tax collector, the city attorney, the mayor, and then after the city departments, we do have someone from the board of equalize sashes that will address us around the tax issue and is the golden gate association which voluntarily responded to the civil grand jury. so, we'll start with olsc. and olsc is office labor standards enforcement. >> good afternoon, members of the committee, i appreciate your time and the opportunity to be here. i'm going to try to do a couple of things in quick succession, i will recap our responses to the civil grand jury report and then i was going take a moment to summarize the report that we issued in august on the 2011 data that was submitted to us, much of that has been discussed already so i'll try to get through that quickly and high lying a few things that haven't

been addressed so far. with that, we were asked to respond to just six of the 13 findings from the civil grand jury so i'm going walk through those, the first finding indicated that the jury couldn't identify any government investigations tracking surcharges, we partially disagreed with that finding i think unbeknownst so the grand jury, we had commenced our process of na process of compiling that which we've since issued in our report in august, so we have done that. moving to the fourth finding, the grand jury indicated that the city didn't have a plan nor sufficient staff at olse to audit surcharge compliance with the regulations. the olse's response in summary is that we absolutely intend to

at least facially respond to as has been indicated already, employers are going to be required to report to us their surcharge data, how much they collect in surcharges, whether or not that's more or less the amount they spend in health care, those who report to us affirmatively that they have collected more on surcharges than they spent on health care, we will enforce the provision that they be required to spend that money irrevocably on health care, we intend to do that and have a plan to do that. at the same time, i think it's also right to say we do not have the resources to proactively investigate or to on our own velysing report to they have collected more on surcharges than spent on health care. fnt supervisor compos? >> thank you very much, mr. gold berger and -- gold berg,

thank you to your and your staff with the limited resources you have, do you verify the information that's provided to you? >> in general with the reports that come in every year as you know, supervisor compos, we're statute toiler obligated, we issue reports each year on the data that is self-reported by the employers, we do not verify the data before issuing our reports. >> and following the amendment that was passed, was there any plan or strategy to begin to audit and verify that data? >> well, as you know, the amendments are effective january 1, 2012, so in early 2013, we're going get the first batch of data from employers about the surcharge information they imposed in 2012, i think it's to be determined whether or not we're going have any ability to go beyond looking at the information provided to us.

realistically based on staffing, i think the intention or expectation is that we're going to take the data at face value, i think it's also fair to say though that when we do our normal investigations of employers, as a general matter, we're investigating employer compliance based on complaints that are brought to us by employees and when when we do those normal investigation, we'll dig into the details of any surcharges. >> just a final request related to this point, are there employers that do not turn in information? >> yes, and that's moving ahead a little bit, but with respect to the 2011 report that we just issued, that was information related to us from many employers, that was the number of the cutoff date up to the

report, there are numbers that trickled in, the exact numbers of employee that is are covered by the ordinance and thus required to report to us, our best estimates working with the treasurer and tax collector's office is that we receive about 80 or 90 percent of annual reporting forms. >> and what happens to those employers that do not provide that information? >> traditionally or historically, nothing. it is right that the board among the amendment that the board made that went into effect on january 1, 2012 was an increase to a penalty that is imposed upon employers that fail to submit their annual reporting form and based on that amendment to the ordinance websinger have commenced the pilot project this year where we're trying to dig into the

sub s*et of employers who do not submit their annual reporting form and go back to those employers and they have in violation, we have engaged in that on a pilot project. >> what does that mean, pilot. >> we selected a pool of 100 employers who we believed based on the data we had was based on the ordinance and were required to submit an annual report to us, we submitted them a notice that said they were required to submit the form and pay a 500 dollar penalty, we're at the conclusion of this pilot project, but approximately 30% of those in fact paid the penalty and submitted their annual reporting form, another third indicated to us that they were not required to submit the reporting form as we sort of anticipated would be the case, as you know, there's a various requirement and eligibility

issues about who's required to submit the forms and we have not heard from the remaining. >> i'll let you continue, sorry. >> it's okay. moving on to the next finding from the grand jury was finding number 5, similar to finding number 1, this indicates that businesses were not required to report or reconcile to the city their surcharges, as we've all alluded to, we did in fact collect the surcharge data for 2011, we didn't reconcile it in the sense that the amendments regarding surcharges were not in effect at that time and so we collected the 2011 surcharge data for statistical purposes only. finding number 6 indicates due to the varied wording in describing sur channeled on customer bills, the auditing of surcharges will be difficult. just to clarify, i think it's

right and what we highlighted in our response is that we are going to do the absolute best we can to audit and ensure employer compliance with that provision, it is also at the same time correct that an employer who imposes a general mandate or employer mandate surcharge, it will be at the discretion of that employer to indicate what if any portion of that surcharge was designed for health care. i will say in some respects the amendment tos the ordinance around surcharges were to combat consumer fraud and to the extent that some employers have shifted the nature of their surcharge from a health care surcharge to a more general surcharge, i think that that is a positive outcome and speaks to and addresses the possible consumer fraud there. that's finding number 6. the final two --

>> is that requirement any different than what state law already required in terms of consumer protection laws? >> you know, this is now of course a new provision that's put directly into the health care security ordinance. i can't really speak to what consumer protection or consumer fraud provisions are in place in state law or in tortes that are permitted. >> although just to be clear, i think it's probably fair to say before the amendment that is we passed at the end of last year, there wasanted anything at city law that said to your office, you need to refer cases that you find to the appropriate authorities whether they be for criminal penalties or consumer fraud penalties so my guess is your staff is probably looking at this more seriously and will absolutely consider referral cases bh necessary? >> yes, i think that's absolutely right. >> and i want to take a moment and thank your office for the efforts you're making here. i think there's been some

distortion ins the debate of this issue whether those of us who supported this amendment thinks this is a practice that should be supported, i don't think anyone believes that if an employer say tos a consumer that money's supposed to be used for health care, if that money doesn't go to health care, that money needs to be recouped from the employer, put into health care accounts and if there is any activity that suggests that an employer's not doing that, we want your office to investigate and appropriately pursue authorities. >> thank you. moving on to finding number 8, the civil grand jury has essentially repeated a statistic that came out of our 2010 report which again is now sort of a year behind, they indicated that 62 million dollars was allocated to hra's, 12 million was reimbursed, 50 millio