Monday, July 19, 2010

San Francisco Employer Mandate Shows Potential Effect Of National Reform

Under the Patient Protection and Affordable Care Act, in 2014, certain employers will be assessed a fee for not offering health care coverage to employees. Employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium tax credit will be taxed $2,000 per full-time employee (excluding the first 30 employees from the assessment). Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit, will pay the lesser of $3,000 for each employee receiving a premium credit or $750 for each full time employee. Employers with 50 or fewer employees are exempt from penalties.

If the experience of San Francisco is any guide, this employer mandate will increase the number of individuals with access to health care and receive support for a public health care option, according to the National Bureau of Economic Research (NBER).

In 2006, San Francisco became the first city to enact a pay-or-play employer minimum health spending mandate. The city also created Healthy San Francisco, a “public option” to allow affordable, universal access to care. The San Francisco Health Care Security Ordinance (HCSO) went into effect on Jan. 9, 2008, for employers with at least 50 employees, and on April 1, 2008, for employers with 20 to 49 employees. For-profit employers with fewer than 20 employees and non-profit employers with fewer than 50 employees were exempt from the minimum funding requirement. Employers can meet the HCSO requirement several ways, including providing insurance, reimbursing individuals directly for their health care expenses, paying into employees’ health savings accounts (HSAs) or health reimbursement arrangements (HRAs), or paying into the Healthy San Francisco program.

Unlike the Massachusetts health reform law, the San Francisco HCSO does not include an individual mandate to buy health insurance. Healthy San Francisco is a restricted medical provider network (not insurance) within the city of San Francisco. The mandate applies to all employees working at least ten hours per week, and to temporary and contract workers.

Using the 2008 Bay Area Employer Health Benefits Survey, the NBER found that most employers (75%) increased health spending to comply with the law, yet the majority (64%) supported the law. In the first year after implementation, 21% of firms used Healthy San Francisco for at least some employees. It appeared that few, if any, firms dropped existing insurance offerings. However, 28% added new insurance options, including an HRA (14%), a new high deductible health plan (HDHP, 10%), and a mini-medical plan (9%).

As of April 2009, more than 902 employers (out of a total 5,000 covered employers) elected to pay into Healthy San Francisco. According the San Francisco Department of Public Health, among the employees being paid for, approximately half live within San Francisco and are eligible for health care access through the Healthy San Francisco program, and half live outside San Francisco and receive their payments through a city-run HRA. As of June 4, 2010, Healthy San Francisco enrolled 53,058. There had been 60,000 uninsured adults at the time the program was implemented.

“Lessons from the San Francisco mandates can help policymakers determine what to expect with implementation of a national-level benefit mandate,” the NBER concluded. “First, pay-or-play mandates of this size are feasible; employers in San Francisco have been able to absorb the extra cost of providing health benefits without significant negative effects on employment or earnings. Some firms in industries where most competitors are also subject to the mandate, such as restaurants, have been able to pass the costs of the mandate directly along to consumers.

“Second, employers are likely to choose the lowest-cost option available. In the San Francisco case, this has largely played out through use of HRAs, Healthy San Francisco, and mini-medical plans, which are designed to just meet the health spending requirement. Finally, despite most employers having to make changes in their benefit policies to comply with the mandate, most employers are supportive of the HCSO. This bodes well for implementation of the national employer mandate in 2014.”

The working paper No. 16179, How Do Employers React to A Pay-or-Play Mandate? Early Evidence from San Francisco, was published in July 2010. For more information, visit

For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.


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