by way of comparison as we were asked to do by the directive, the medical reimbursement accounts administered by the department of public health had a reimbursement rate of 60% in calendar year 2011, 25% in the fiscal year, i think a rep v*ent t if from the department of public health is here and can talk to those numbers in details if there are further questions. for the first time, we surveyed the employers about whether or not they placed restrictions upon their health reimbursement accounts, just so we're all on the same page, what we mean by this is do you restrict or prohibit an employee from using the health reimbursement account for any of the category of irs recognized medical expenses and we listed the most common of those as has been indicated, 53% of the 573

employees administered placed one or more restrictions on usage of those accounts. the individual things we looked at were restrictions on health insurance, healthy san francisco participation fees, use of these accounts for dependents, use of these accounts for dental care and use of these accounts for vision care, looking individually at those five restrictions, they placed those specific restrictions on the accounts. >> if i may. >> yes, supervisor compos? >> yes, just for purposes of information, when you find out what restrictions are placed, do you ever get a sense of why those prescribers -- restrictions put in place? why do they say, you can't use this money for health insurance?

>> supervisor, i would be reluctant to speculate about the motivations of employers in that respect. i think it's certainly been true as we've discussed here that employers retain or collect unused money, and there's been some indication or some belief that some employers have an incentive to reduce usage for the purposes that they retain a greater portion of them. >> i do have a couple of clarifying questions but i want to get back to the point of the surcharges, i do agree that no one here on this board even though we have differences of opinion on how to make that happen wants to see consumers charged for something and have that money be pocketed but the question that i have for you is given how you're approaching this issue, are you confident that going forward, we're going to have a situation where we

can guarantee every consumer in san francisco that when they go to a business and they have to pay a surcharge, that that money will actually be used as it's supposed to, so can we make that guarantee to consumers here in san francisco? >> i think with all due respect, supervisor, i think that's going be up to you whether you want to make that commitment to consumers in san francisco, i can tell you that we will do everything we can to enforce the new amendments to the ordinance and it will call on employers to provide surcharge data to us to the extent that they provide data that indicates that they are collecting money and surcharges for health care that they're not spending affirmatively and irrevocably spending on health care for their workers, we will do everything we can to ensure that they be require today spend that money as is laid out

to the amendment of the ordinance. >> but will you be auditing these businesses? >> at this point, i think the resources are such that we are going to look at the data provided to us, to the extent that the data provided to us shows non-compliance, we are going to force those employers to come into compliance. i think it may be unlikely or unrealistic to expect we have the resources to affirmatively audit employers and what they're reporting to us or dig into their financial books to find out whether that information was accurately reported to us. >> and i think that's the problem and i think i think the olse is committed to doing everything they can with the limited resources, but the challenge here, right, is that you're talking about businesses that for a number of years have been charging consumers a surcharge that supposedly was going to go to health care and we know for instance that the numbers as much as 80% was

never spent on health care and in terms of our enforcement strategy, the strategy p0 relying on those very business thaz were charge consumers and not spending it on health care, then trusting the information they give us because there's no way we can audit and verify the accuracy of that information, and so that is the challenge here, and even though i understand the intent and the spirit in which the amendment was made, i simply respectfully submit that that is not enough in terms of ensuring that when a consumer in san francisco pays more to provide health care ensuring that in fact that's what happens and it's not an issue of the olse doing what it can, it's simply the system is designed. >> i want to share with you briefly the information that we did collect from employers

about surcharges in 2011. this was the first data that's been collected systematically about surcharges, as we've said, this is regarding 2011 prior to the effect -- effective date of the amendments, 172 employers, approximately 5% imposed health care surcharges to the tune of 14.7 million dollars, that's an average of 86 thousand dollars per business in surcharges collected for health care. 78% of those employers made use of health reimbursement accounts, so that's a large discrepancy whereas only 20% of the general universe of employers utilized those. of those 172, 101 of them reported to us the surcharges they collected were greater nan the health care expenditures they made on their employees, that's the pool of employers,

if they reported that same exact data to us in 2012, we will in fact proactively or based on that supply of data ensure that that money get spent on workers. essentially, you know, that's the surcharges of that group of 101 employers who again were the surcharges exceeded the health care, 11.4 million dollars in surcharges were collected, their true spend khurs on health care were 5.1 million, thus there was a net difference there of surcharges collected in excess of health care spend khurs of 6.3 million dollars, so in essence, that's the summary of our report of the new data we've collected. i do want to emphasize that the olse in addition to doing the compliance data that we do -- the compliance work we do on a

day in and day out basis, since there's been some discussion about it, the enforcement we've done to date on the health care security ordinance has resulted in over 7 million dollars, 7 million dollars going to over 6 thousand workers in health care expenditures to those workers that were previously not made in violation of the ordinance, so we have a very busy and active enforcement effort, in addition to the enforcement work, we've done a lot to do education and outreach around the amendment. there was a general consensus when the amendments were passed, the olse was very quick to put out guidance to the business community and the employee community about those changes, we have developed outreach strategies by e-mail, we have responded to thousands of e-mails and phone calls coming into our phone lines, we have done webinars to work with

employers to spread the word about these new provisions and ensure they will be robustly taken advantage of by employees and make sure employers will be in compliance to them >> you talked about more than half of the employers that self-proported placed specifications on how these reports can be used and there's been discussion on how we have to wait to see data for the 2012 year, my understanding is that the amendment that was passed does nothing for restrictions which is one of the biggest issues we were trying to address. do you think in light of the amendment that was passed, that the issue around the restrictions would be different a year from now or two years

from now? >> i'm reluctant to speculate, supervisor compos on what the outcomes are there, i do believe part of the amendments centered around federal preemtion, it is right that the ordinance now sets forth that all these hra contributions have to be" reasonably kl collated", which i think those provide some leverage or possible capacity on the part of olse, for example, hra couldn't bourses that were vastly and unduly restrictive would arguably run a foul of that provision when coupled with other factors would be not deemed calculated -- >> let me ask it to you this way x if the information for 2012 was for 2012 instead of 2011 and you have as you have

here 53% of businesses putting these restrictions on the use by these workers of these accounts, so if 34% of these businesses said you cannot use it for health insurance, i mean, if the data was for 2012, would that be in violation of the amendment that was introduced? >> well, it's not facially a violation, and so i think you're trying to etch size the point that the amendment did not directly outlaw or prohibit restrictions, to the extent that they must be reasonably calculated to benefit the employee, we can give that consideration and look at the totality of the circumstances to see if the violation is there but it is right that the amendment did not facially address prohibition or use of restrictions. >> thank you. >> thank you very much. do you have any other questions?

>> just one quick thing i want to mention, i want to thank the advocates for workers here in this room during the budget process brought to our attention that i think olse because we are putting more auditing and compliance requirements on you, i believe we increased our budget to your staff for these types of theft issues, enforcement of this statute to a tune of over half a million dollars and i want to again state to you as well as to advocates here in this room, if that is an amount that is not adequate for compliance education and outreach work, i certainly want to learn more about that, from my perspective, we are entrusting you with additional funds to you can go out and ensure that these laws we placed on the books are taken care of. >> and just a point on that, my understanding is that a lot of that money will deal with the backlog that olse has -- adding

additional resources. >> we have a number of other departments, olse had a lengthier presentation, hopefully we can move more expeditiously in the other departments. so, we'll now move to the department of public health. welcome. >> thank you so much, supervisors, i want to give you a sense of the city option we've been talking about, then go into the department of public health response tos the civil grand jury report, so we used the term healthy san francisco broadly within san francisco, but we're really talking about from the department's perspective in terms of our response, the city option. that is the option that allows an employer to indicate that they would like to contribute dollars to the city and county of san francisco and their

employees will get either eligibility for healthy san francisco and enroll in that program or their employee is not eligible for healthy san francisco either due to age or residency or perhaps they have dependent coverage and they will get a medical reimbursement account. to date, since the implementation to have employer spending requirement, a little over 1400 employers have selected the city option. of those employers and the funds that they've contributed, 62% have gone to medical reimbursement accounts, so most employees in the city option get medical reimbursement accounts during the 2011-12 fiscal year, there was a 13% increase in the number of employers that have selected the city option in order to meet the mandate. as was indicated before, in terms of the utilization of the

medical reimbursement account for fiscal year 2011-12, it was 55%, so 55% of employees use those accounts to reimburse for a range of health care expenditures. we have structured the medical reimbursement account so that there is not fi kaition that is multilingual, allows for wide base reimbursement for health care services including use of the medical reimbursement account to pay for health insurance premiums, we provide quarterly statements to employees so that they're aware of the funds that are in their account and we try to encourage them on a regular basis to use that account for health care expenditures. now, turn tog the civil grand jury's report, there were 9 requests for responses from the department of public health, 7 related to findings and two

related to recommendations, the department affirmatively responded to three of those and i'll go through them. one had to do with just giving some perspective of the different participation rates of the medical reimbursement account and the health reimbursement account. we partially disagreed with the finding in part because it was based on the unbacker understanding of the dem ragpickers of both population, those with hra's and mra's and the sdpt of public health has no information with respect to the demographics of those individuals in hra's, we did however indicate as i just mentioned the range of provisions that we had in our mra's to facilitate high utilization, the second finding ak humbly is finding 112 which related to whether or not hra's were allowable or are allowable under the affordable care act.

we were unable to respond to that finding, and finally we did disagree with the recommendation r5 which is essentially requested that there be an elimination of time limits for the medical reimbursement accounts under the city option. there are no time limits for the medical reimbursement accounts under the city option, therefore we disagreed. of the remaining findings and recommendations, we're not in urn the purview of public health so we appropriately referred and deferred rather our comments and/or perspectives to the appropriate departments, they were findings f1, f8, f11, f13 and f13 to the office of labor standards and enforcement and finally recommendation of 4 which related to whether or not hra's

should be disallowed under the health care security ordinance, we felt was more appropriate for the city attorney to be able to respond to that from a legal perspective, so we did not respond to those. let me close by saying that the department of public health has worked closely with the office of labor standards enforcement from orders of the executive order which was signed in the latter part of 2011 and specifically we have worked to target those employees who work for employers for whom the office of labor standards has identified or were investigated in terms of perhaps not inappropriately, providing information or lack of information to their employees with respect to the health reimbursement account option, we have sent letters tho those employees advocating and stressing two areas, one, their

rights under the hra and then number two, stressing how they can use their hra to advance and use it for primary care, preventative care and understanding the range of subsidized service that is are available in the city and county of san francisco, so with that, if the board has any questions, i would be happy to answer them. >> colleagues, are there any questions, president chu? >> not so much a question, just a comment for the public, i know there were questions raised about why we decided to move from a one year calendar requirement to a two year rolling requirement, and the rational is -- come from the affordable act, president obama's health care bill is merited to go into effect, so it's to ensure that dollars that employers are supposed to put into these accounts go to health care and then the idea was we were going work with your office to determine once

these federal regulations that come down, if there are additional changes that be made, if they come down, if you could brief those of us working on this issue, some recommendations that we should think about when president obama's health care law goes into effect, we would love to get that information. >> we will certainly do. >> we'll next ask the district attorney to -- office of the district attorney to present, followed by the treasurer, tax collector and then the city attorney, so welcome. >> good afternoon, members of the committee, i stated in our response to the grand jury report the district attorney opened a preliminary review into possible consumer fraud issues related to the collection of surcharges back in 2011. in that review is still open and pending. we read with great interest the report of the grand jury and

have requested that the foreperson provide us with the underlying documents from which the data were derived. our understanding is that he is consulting with the grand jury's counsel to work out privilege issues to determine whether this information can be related to us. we look forward to working with the grand jury and hopefully we'll be receiving as much as they can possibly provide to us without having any privilege issues. going forward, it is our understand hating the olse will be auditing employee's surcharges in the course of investigating employee complaints, about evaluations of the hcso, section 14.3 subsection d, the olse may refer consumer fraud to our attention, we will upon any receipt of such complaint review the matter to see if there is a basis for any further investigation, however, under the current wording of

the ordinance, we believe it would be difficult if not impossible to maintain a criminal prosecution for consumer fraud based on the collection of excessive surcharges in many cases. as the grand jury pointed out in its report, employers are increasingly using surcharges labeled in a way that is not limited to offsetting the cost of the chso, those broadly labeled surcharges seek to offset a variety of costs of doing business in san francisco. including but not limited to complying with the minimum wage and sick pay ordinances, both the city attorney and the olse grie with the grand jury that administrative enforcement of section 14.3 subsection d against employers who use these more broadly labeled surcharges will be extremely difficult. criminal enforcement by means of a consume fraud prosecution, charging a business with not properly spending the money collected for the broad purpose

stated in these surcharges is obviously even more challenging. >> thank you very much, supervisor compos? >> i do want to thank the district attorney for looking into this and i'm glad there is an investigation. i do have to say that i feel that even though there are efforts on the part of the local government to address this issue, i do think there are already in the books state laws that might get to the heart of what's happening here and i just, i really hope that there is a thorough investigation that goes beyond what olse is doing because i do think they have limited resources, and it's not a good thing to hear that it would be almost impossible to bring a case forward based on the wording of the law because we -- even though i did not support the amendment, i was hoping that the amendment would

give the city the tools to be able to at least prevent fraud, so it's not good to hear that tha* the current wording of the law does not give the d.a. the tools to do what i would hope it would be able to do. >> and the d.a.'s office would be happy to work with the members of the committee to talk about the ways in which the laws may be able to be change sod we can have an enforcement tool that works. >> because i think this adds something that hasn't been a part of this discussion, you know, all along with respect to this amendment, we've been saying why from a public policy standpoint we don't believe the amendment goes far enough, but what we are hearing now from the d.a. is the amendment as worded does not give the district attorney the tools needed to prevent consumer fraud and i think that's a problem. >> and i just want to make sure that i'm understood as far as where i'm going in terms of which types of surcharges would

be problematic under the current wording of the ordinance. for those employers who use a surcharge for health care benefits as an scho mandate surcharge, the work that's going be done by the olse is going to be helpful in determining whether or not that money is in fact being used for health care, the problem comes with the more loosely worded surcharges which are basically trying to state to the customers, we are going to be surcharging you for the added cost of doing business in san francisco. there's not going be a whole compendium of tax receipt of what that means, so then it's the job of our office or other prosecutors to try to say, well, it's consumer fraud because you're misrepresenting to the customer what you're using it for when in fact if you look at the loosely worded

language on the receipt, you can't really say that in fact it was a misrepresentation and that's where the problem lies. >> well, i think -- i don't want to -- because we have a number of people that want to speak, but i think what the district attorney just said i think proves the point that i have been trying to make is that you may play with lang wamg, you may say we don't want them to do this or that but at the end of the day, so long as the law allows them to collect money and not necessarily spend it and you don't define expenditure the way we were trying to do, this is going continue to be a problem because there are ways that they're always going to be able to manipulate the wording of the surcharge, so i think that's a problem and i think that the d.a. only confirms what we've always said. >> president chu? >> i had two observations as i compared our city attorney's response to the same question,

our city attorney said, yes, consumer fraud is committed, you clarified the burden of proof required in the criminal context from my perspective, i think that makes sense, these type of consumer fraud cases are pursued from our civil attorney, i wanted to make that first point, but secondly, i think what ms. crevette was saying, rather than having a surcharge for health care, they broaden that language and said it was a surcharge for the cost of doing business in san francisco, that's a very different set of issues and it might be a set of issue that is we may want to tackle at a later point but it gets us beyond the health care situation, it could be surcharge that businesses justify because of our city's

living wage law, sick leave, health care and all the compendium or payroll tax, all of the variety of cost of doing business and this is why i think i understand from what you're saying, that would be harder to prosecute, i completely understand that. we may decide that's a problem, but i think that's what i hear you saying, you're not necessarily saying if the surcharge was on health care and that money was not used for health care, that that would be -- to me, that's much more clear cut situation. >> that's exactly what i'm saying but i do want to say it's not theoretical, without going into the open investigation that we have, i will say that it was obvious to me as i think it was to the grand jury that they're moving to a broader surcharge language, at least a number of them are and that trend may continue, so that the ability to track exactly what they're taking in and what they're

paying out and whether or not they're making any type of misrepresentation to their customers is more difficult. >> thank you, logs, any -- colleague, any additional questions. er >> we'll hear from the tax collector's office, thank you very much. >> good afternoon, supervisors, san francisco treasury tax collector's office, our office was asked to respond to one finding and one recommendation regarding investigating the potential and the reporting of sales tax in accordance with these health care surcharges, unfortunately, those were not appropriate findings or recommendations because our office does not collect the sales tax, under state law, the board of equalization is the agency that collects sales tax, so while we do share the