New Health Care Law Effective for Employers Doing Business in San Francisco

The San Francisco Health Care Security Ordinance requires certain employers doing business in San Francisco to make minimum health care expenditures for their covered employees working in San Francisco. “Covered employee” includes all employees (except highly compensated managerial, supervisory and confidential employees and those eligible for Medicare or veterans’ health care benefits) who have worked 90 days and performed 10 or more hours of work (in 2008) within the geographic boundaries of the city and county of San Francisco. (The definition includes part-time, seasonal and other employees who may not presently be eligible under existing employer plans.) Employers may make the required health care expenditures in a variety of ways, such as purchasing health insurance coverage for their covered employees, making payments to the City of San Francisco Health Access Plan, or establishing health spending or medical reimbursement accounts. Covered employers will also be required to comply with certain recordkeeping and reporting requirements regarding their health care expenditures.

A U.S. District Court initially ruled that the San Francisco ordinance was preempted by ERISA and could not apply to self-funded employer plans, but in January the U.S. Court of Appeals for the 9th Circuit temporarily stayed that decision allowing the law to go into effect immediately. Although the full Ninth Circuit will review this decision on an expedited basis, covered employers have to decide whether to currently comply, or not comply and risk incurring penalties. Penalties include administrative penalties of up to 1½ times the total required expenditures plus simple annual interest up to 10% (not to exceed $1,000 per employee for each week), and civil penalties in like amounts, plus attorneys’ fees and costs of enforcement. The law was effective January 9, 2008 for employers with 50 or more employees, and as of April 1, 2008 it will apply to for-profit employers with as few as 20 employees.