In 2006, San Francisco passed the Health Care Security Ordinance, which requires employers to provide health care coverage for employees working in San Francisco, or else pay a fee to the city. The Ordinance is scheduled to take effect on January 1, 2008 for most employers, but it may be preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"), a federal law that regulates employee benefits. The main impact is on employers that do not provide health insurance or that exclude part-time employees from health insurance coverage. A number of technical compliance questions relating to the Ordinance have been raised since its passage. On December 7, 2007 the City posted new Frequently Asked Questions resolving a number of ambiguities. The FAQs can be accessed at http://www.sfgov.org/site/uploadedfiles/olse/hcso/HCSO%20FAQs,%20released%2012-7-2007.pdf.
In November of 2006, the Golden Gate Restaurant Association filed a lawsuit challenging the Ordinance. The lawsuit claims that the Ordinance's Employer Spending Requirement is preempted by ERISA. The case is Golden Gate Restaurant Association v. San Francisco, 06-6997. A similar Maryland law was struck down earlier in 2006 on the grounds of ERISA preemption. On November 2, 2007, a federal court heard arguments regarding the implementation of the Ordinance. The court has yet to issue a ruling as to whether the Employer Spending Requirement portion of the Ordinance is preempted by ERISA. Because no injunction pending the resolution of the case has been filed, the City is expected to implement the law as of the applicable effective date.
San Francisco employers should prepare for compliance with the Employer Spending Requirement. This requires covered employers to make quarterly "Health Care Expenditures" on behalf of each employee who has been employed for at least 90 calendar days and performs at least 10 hours of work per week within the geographic boundaries of the City and County of San Francisco. Employers who do not provide a health plan may pay their Health Care Expenditures to the City and those payments will fund health coverage known as "Healthy San Francisco." The Employer Spending Requirement takes effect on January 1, 2008 for employers with 50 or more employees and April 1, 2008 for for-profit employers with 20 or more employees.
The health care expenditure rates for 2008 and 2009 are as follows:
Covered employers who do not wish to comply with the Ordinance may take the position that the Ordinance is preempted by ERISA.
The Ordinance is an example of state and local laws known as "pay or play laws." These laws impose fees on employers that do not provide certain minimum levels of health coverage. Maryland, Massachusetts and Vermont enacted similar laws in 2006, requiring employers either to pay an assessment to the state or to contribute to employee health premiums. In 2007, several states are considering imposing fees or taxes on employers that do not finance employee health care. Most states require health insurance carriers doing business in the state to provide certain types of mandated coverage, but these "play or pay" laws are different in that they are not limited to regulation of insurance, but impose fees or penalties based on the employer's ERISA plan coverage. Opponents argue that this type of state and local influence over ERISA plans is preempted by federal law, but employers may be forced to comply with state and local regulation of their health plan expenditures until the federal courts resolve the legality of these "pay or play" laws. More information about San Francisco's Health Care Security Ordinance is available at http://www.sfgov.org/site/olse_index.asp?id=45168.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
