AGU San Francisco Limited Benefit Plan

PART I – QUESTIONS ABOUT THE HEALTH CARE SECURITY ORDINANCE

PART II - QUESTIONS ABOUT HEALTHY SAN FRANCISCO


Does this Ordinance apply to my business?

If you are a commercial business and employ a total of 20 people or more (regardless of where they work) and any of them work in San Francisco over 8 hours a week, it does apply to you. This means that if your company employs 21 or more employees nationwide, but only one works in San Francisco, you are subject to the ordinance. Moreover, the overall size of your workforce dictates what your hourly contribution will be. For example, if you have 80 employees in Oakland, and only 20 in San Francisco, you are considered a “Large” employer that must contribute $2.20 per hour per eligible employee working in San Francisco even though only 20% of your workforce is eligible.

Note: Not-for-profit organizations employing fewer than 50 people are exempt from this legislation.

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What do I have to do?

You must pay a set amount per hour toward health care for all your eligible employees that work in San Francisco. These payments cannot be deducted from the employees’ pay checks; it is the business’ sole obligation. The amount you must pay depends on the size of your business: $1.46 an hour if you are a “Medium-Sized Employer” (20-99 employees) or $2.20 an hour if you are a "Large Employer” (100+ employees).

Note: Business size refers to the total number of employees not just those working in San Francisco.

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To which of my employees does this new Ordinance apply?

All your employees that work over 8 hours a week in San Francisco and have worked for you over 90-days are considered “Covered Employees”. You are required to make at least the minimum contribution for each hour these employees work for you, not just for the hours that they work in San Francisco. However, if they earn over $80,397 a year ($38.65 per hour) they are exempt.

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When does the 90-days waiting period begin?

The Ordinance directs that a “Covered Employee” is one that “has been employed by his or her employer for 90 calendar days after his or her first day of work ....” It is not measured from the effective date of the Ordinance; for example, an employee who began working for the employer on or before October 9, 2007 would be considered a “Covered Employee” on January 9, 2008 and expenditures would be required for that employee from that date forward.

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What about 1099 Employees?

The Ordinance does not require you pay for true independent contractors. However, you do have to pay for employees paid off-payroll as though they were independent contractors, regardless of any contract you may have with these employees, and regardless of whether you issue a W-2 or 1099 form to them. The State of California has issued guidelines that establish whether a person is an independent contractor or an employee. These contain 11 separate criteria, and warn that “Even where there is an absence of control over work details, an employer-employee relationship will be found if (1) the principal retains pervasive control over the operation as a whole, (2) the worker’s duties are an integral part of the operation, and (3) the nature of the work makes detailed control unnecessary.” Remember, there are significant penalties for mis-classifying employees as independent contractors.

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Do I have to pay for eligible employees that don't want coverage?

Yes, unless the employee “opts-out” by submitting a waiver form stating that they are receiving health care coverage from another employer (this may be the spouse’s employer). Individual insurance coverage cannot be a basis for the waiver, it must be employer sponsored.

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What if I am already paying prevailing wage fringe benefits?

This does not exempt you from the ordinance. “Payment of the prevailing wage fringe benefit requirement in cash (as part of the covered employee’s paycheck or otherwise) shall not satisfy the Employer Spending Requirement of this Ordinance.” You must still make the hourly payments.

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Can I reduce my payroll in order to comply with the Ordinance?

Yes, there is no prohibition against doing so, as the City of San Francisco cannot dictate what you pay your employees (provided you do not run afoul of the minimum wage laws). For example, a "large" employer may choose to reduce each eligible employee’s wage by $2.20 and use that savings to pay the mandatory contributions so long as this does not reduce the pay below the minimum wage.

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Can an employer offer employees an incentive to waive out of coverage?

The Ordinance says that employees waiving out must do so “without pressure or coercion from the employee’s coworkers or the employer, including, supervisor(s), manager(s), or their agents.”

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Can I downsize to avoid payment?

No. "It is unlawful for any employer to reduce the number of employees in order to (1) avoid being considered a covered employer, or to (2) be subject to a lower health care expenditure rate."

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What if I don't comply with the Ordinance?

The penalties are severe. The penalty for non-payment per employee is 150% of the required expenditure plus 10% interest up to $1,000 per week per employee.

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When do my payments actually begin?

This depends on how many employees you have. If you employ over 50 people, the Ordinance is effective January 9, 2008. To be in compliance, you must make your first payment on or before the 30th day following the end of the first calendar quarter (i.e. April 30, 2008). If you employ between 20 and 49 employees, the Ordinance is effective April 1, 2008 and you must make your first payment by July 31, 2008. Remember, the number of employees you have is determined by your overall workforce, not just those that work in San Francisco.

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Can I choose where my payments go?

Yes, and this is the most important part of the Ordinance. San Francisco is not dictating how the funds are used to provide health care benefits for your employees. You have these basic choices:

1. Add a Limited Benefit Plan for the affected employees – By spending the funds to provide a group limited benefit insurance policy for your employees, you fully comply with the Ordinance. This way, all your employees have access to benefits, not just those that live in San Francisco and everyone may receive care anywhere, not just in the City. Plus, the tax status of employer-paid insurance premiums is favorable and clearly established by law. Any money you pay out for insurance premiums can be deducted as a business expense and will not be taxable income to your employees. Check with your tax advisor for the tax status of payments to the City.

2. Add the affected employees to your current health care plan – Your expenditure for the additional premium for each employee must meet or exceed the minimum payment under the law.

3. Establish and fund a medical reimbursement account for each affected employee – You may do this yourself or participate in the medical reimbursement accounts program that will be managed by the City. We strongly suggest that you contact your tax advisor if you are considering using any of the established federal health care accounts like HRAs (Health Reimbursement Arrangements), HSAs (Health Savings Accounts) or FSAs (Flexible Spending Accounts).

4. Send the money to San Francisco – These funds will be used to help pay your employees’ fees for participating in the City’s Healthy San Francisco program. Only your employees who live in San Francisco are eligible to participate in the program, however, and there is no reduction of your payments for those that do not qualify. For employees living outside San Francisco, the City will make the funds you pay in available (after deducting administration costs) to your employees to reimburse certain health care expenditures through a medical reimbursement account.

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Is there a benefit to purchasing a Limited Benefit Plan instead of sending the money to San Francisco?

Although the cost is the same, there are several advantages to purchasing insurance:
  • Choice of Providers - Anywhere In The USA: All your enrolled employees will receive health benefits regardless of where they live and can receive treatment from any provider, in or out of San Francisco. This is not true of enrollees in Healthy San Francisco who must live in San Francisco and must seek treatment within San Francisco from participating clinics and hospitals. Non-resident (commuter) employees are not permitted to enroll in “Healthy San Francisco.”
  • No Additional Cost To Employees: There is no cost to the employees for the insurance, while employees enrolling in Healthy San Francisco may have to pay to enroll depending upon their income (see below for their cost of enrolling).
  • Worker Retention: Employees understand and appreciate employer-sponsored insurance as a benefit of employment.

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Where an employer chooses to purchase health insurance in order to comply, but part of the premium is shared with the employee, what if the employee declines to pay his/her share?

In such a situation, the employer must still make the hourly contribution for that employee:
“A covered employer that maintains a health care program that requires contributions by a covered employee shall not have satisfied its obligation to make the required health care expenditures merely by offering a covered employee the opportunity to participate in such a program. Should the employee decline to participate in such a program, the employer shall not have satisfied its obligation to make the required health care expenditures.”
Obviously, in this situation, the employer will have to pay the expenditure to the City of San Francisco for that employee – thus there is no benefit accruing to the employer for employees that choose not to take the offered insurance coverage, the money must either go to premium or to the City. This is not a problem with AGU-SF Plan because the employer’s contribution funds the entire cost.

You can see the Office of Labor Standards Enforcement website for more Questions & Answers about compliance with the Ordinance by clicking on this link:

http://www.http://sfgsa.org/Modules/ShowDocument.aspx?documentid=6776


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Can all of my employees enroll in Healthy San Francisco?

Probably not, as only your employees who are permanent residents of San Francisco are permitted to enroll in Healthy San Francisco. Non-residents are not permitted to enroll, so even if you are making hourly contributions on their behalf, they are not eligible for medical services through Healthy San Francisco.

Payments for Workers’ Compensation, State Disability Insurance, Social Security, Medicare or prevailing wage fringe benefits paid in cash do not qualify as valid health care expenditures.

The Office of Labor Standards Enforcement is responsible for ensuring that employers meet the spending requirements. The legislation provides substantial fines for failure to do so – up to $1,000 per week per employee.

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Is Healthy San Francisco the same as health insurance?

No. The City warns that: “Healthy San Francisco is not insurance. If you have insurance, do not drop it. Insurance is always a better choice because Healthy San Francisco has limited services and places you can go to get medical care. The program does not include vision or dental care, and services are confined to San Francisco only. If you receive medical care outside of San Francisco for any reason, Healthy San Francisco will not pay for it. “

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Assuming they are residents, what must my eligible employees pay to enroll in Healthy San Francisco?

Even if you are making the hourly payments on their behalf, your employees may still be required to pay an additional amount to enroll in Healthy San Francisco. The employee’s cost is dependant upon their income; the lower their income, the less they must pay.
“A Covered Employee who is determined to be eligible for Healthy San Francisco shall receive a discount of 75% off the participation fee that s/he would otherwise be required to pay to participate in Healthy San Francisco. If as a result of the discount the fee is less than $50 per quarter, the participation fee shall be waived.”
For example, a full-time employee earning only $8.00 per hour ($1,387 a month) would pay nothing per quarter while an employee earning $3,000 a month would pay $112.50 per quarter per enrolled family member. They also must pay a per-visit co-pay of about $10 per visit.

  Federal Poverty Level Percentage by Monthly Income
Family Size 100% 133% 150% 200% 250% 300% 400% 500%
1 $851 $1,132 $1,277 $1,702 $2,128 $2,553 $3,404 $4,255
2 $1,141 $1,518 $1,712 $2,282 $2,853 $3,423 $4,564 $5,705
3 $1,431 $1,903 $2,147 $2,862 $3,578 $4,293 $5,724 $7,155
4 $1,721 $2,289 $2,582 $3,442 $4,303 $5,163 $6,884 $8,605
5 $2,011 $2,675 $3,017 $4,022 $5,028 $6,033 $8,044 $10,055
6 $2,301 $3,060 $3,452 $4,602 $5,753 $6,903 $9,204 $11,505
7 $2,591 $3,446 $3,887 $5,182 $6,478 $7,773 $10,364 $12,955
8 $2,881 $3,832 $4,322 $5,762 $7,203 $8,643 $11,524 $14,405
For each additional Person Add $284 $377 $426 $567 $709 $1,278 $1,136 $1,420

If you are at this percentage of the Federal Poverty Level 0-100% 101-200% 201-300% 301-400% 401-500% 501+%
The quarterly Participant Fee for each family member is likely to be: $0 $60 $150 $300 $450 $675

POINT OF SERVICE FEES

In addition to the quarterly Participant Fee, program participants may pay a Point of Service Fee to their clinic at the time services are received. For example, an additional fee (usually no more than $10) will be paid each time a participant visits a physician, emergency room, or picks up a prescription.

For more information, go the Healthy San Francisco program website by clicking on this link: http://www.healthysanfrancisco.org (Note: Activating the link will result in opening a new window.)

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