San Francisco employers trying to balance requirements of the Affordable Care Act (ACA) with the City's Health Care Security Ordinance (HCSO) received a little more direction at the end of December when the City's Office of Labor Standards Enforcement (OLSE) incorporated recommendations from the Mayor's Universal Health Care Task Force into their OLSE guidance for employers. While welcome, the release of the revised guidelines is only the starting point for the work of interpretation and implementation by affected employers.
Two of the most commonly utilized methods used by employers to meet the City's expenditure requirement, Health Reimbursement Accounts (HRAs) and direct reimbursement programs, will require some significant plan design changes beginning in 2014 due to conflicts with the ACA. This is in large part because the ACA prohibits lifetime benefit maximums, and a stand-alone HRA (that is, one not integrated with a group health plan) by its very design would violate the ACA and expose the employer to penalties for non-compliance.
OPTIONS GOING FORWARD
As of the most recent FAQ from the OLSE, employers may now use the following options to comply with the SF HCSO:
- A group health plan that meets the ACA standards with or without an integrated HRA;
- Contributions to the City Option (Healthy San Francisco or a Medical Reimbursement Account (MRA). Healthly San Francisco will only be available after 2013 to individuals ineligible for Medi-Cal or Covered California tax credits);
- Self-funded adult dental and/or vision benefits; and
- A HIPAA "excepted-benefits" insurance plan and/or HRA (An excepted-benefit is one that is exempt from certain HIPAA requirements such as preexisting condition exclusion limits, certificates of creditable coverage, and special enrollment rights. Typical excepted-benefits include vision and dental coverage, long term care coverage, medical indemnity insurance and specific disease and illness policies.)
To comply with the HCSO spending requirement, an excepted-benefits HRA must be "reasonably calculated to benefit the employee" and meet all other HRA requirements (e.g. being available for 24 months after the date of contribution). An HRA will be deemed to be reasonably calculated if the contributions meet the amount required for an employee working an average of 20 hours a week. For employees working on average more than 20 hours a week, employers could elect to replace or supplement such an HRA with another funding mechanism such as medical indemnity coverage, the City Option, or a group health plan that meets or exceeds the applicable expenditure rate.
Excepted-benefit plans (including HRAs) however, are not without additional issues which employers will need to consider when deciding whether or not to use this option, including the IRS conditions for excepted-benefits that an employee have the right to opt-out of coverage if they choose to participate. (Just released proposed regulations from the DOL, HHS and Treasury eliminate the requirement for post-tax employee contributions for limited excepted-benefit vision and dental coverage.)
Since there is no one-size-fits-all solution and the timing of the City's guidance hasn't provided employers with much time to put changes into place, this issue will no doubt require some quick attention in the new year. For more on ACA/HCSO coordination, see the HCSO's FAQ on the topic.
2014 HCSO EXPENDITURE RATES
As is evident from the above, while the alternatives may end up looking a little different, the HCSO spending requirement has not gone away despite the ACA's individual mandate taking effect in 2014. In fact, the per hour spending requirements will increase in January to:
- $2.44 for all employers with 100+ employees
- $1.63 for businesses with 20-99 employees
- $1.63 for non-profits with 50-99 employees
San Francisco Mayor Ed Lee convened the Universal Health Care Task Force in July to develop solutions to some of the conflicts between the two mandates in order to continue meeting the HCSO's goal of providing universal health coverage to those not covered by an employer's group plan and yet who will also be ineligible for coverage and subsidies under the federal individual mandate, (about one-third of the 60,000 currently covered under Healthy San Francisco). Another of the key goals for the City was to find a way to prevent eligible employees in San Francisco from becoming disqualified for premium subsidies under Covered California, the state's insurance exchange.
From all of us at i2i Benefits and Insurance Services, we hope you and your family had a happy holiday season. We look forward to continuing to bring you important developments in employee benefits in 2014.