1. What is a Health Care Expenditure?
The Ordinance defines a Health Care Expenditure as any amount paid by a Covered Employer to its Covered Employees or to a third party on behalf of its Covered Employees for the purpose of providing or reimbursing the cost of Health Care Services for Covered Employees and/or their spouses, domestic partners, children, or other dependents. Health Care Expenditure also means an amount paid by a Covered Employer to the City on behalf of a Covered Employee to establish his or her eligibility to participate in the City’s Health Access Program (the SF City Option).
Amounts paid by employees shall not count towards the Covered Employer’s minimum Health Care Expenditure.
Updated February 21, 2018
2. What are some examples of Health Care Expenditures that meet the requirements of the HCSO?
All of the following examples meet the requirements of the HCSO:
- Payments to a third party to provide health care services for the Covered Employee, such as payments for medical, dental, or vision insurance, or payments to a health care provider;
- Payments on behalf of the Covered Employee to the SF City Option;
- Contributions on behalf of the Covered Employee to a reimbursement program (subject to the limitations in Section F);
- Payments to the Covered Employee to reimburse the employee for costs incurred in the purchase of Health Care Services; and,
- Costs incurred by the employer in the direct delivery of Health Care Services for the Covered Employee.
- Any of the above made on behalf of a Covered Employee’s spouse domestic partners, children, or other dependents
Payments made directly or indirectly for workers’ compensation or Medicare benefits do not qualify as Health Care Expenditures.
Updated February 21, 2018
3. Can an employer comply with the Employer Spending Requirement by increasing the employees’ pay or salary by the amount of the expenditure requirement?
No. Increasing hourly wages, or otherwise giving employees extra money in their paychecks, is not a valid Health Care Expenditure and does not satisfy the Employer Spending Requirement.
Updated January 6, 2016
4. What qualifies as “Health Care Services”?
Health Care Services means medical care, services, or goods that may qualify as tax deductible medical care expenses under Section 213 of the Internal Revenue Code, or medical care, services, or goods having substantially the same purpose or effect as such deductible expenses.
Examples of qualifying expenditures include medical, vision and dental coverage; nonprescription drugs, including, but not limited to, antacids, allergy medicines, pain relievers, and cold medicines; doctor’s fees; and necessary hospital services not paid for by insurance. Qualifying medical expenses include dental treatments and fees paid to dentists for x-rays, fillings, braces, extractions, dentures, and the like; eyeglasses and contact lenses needed for medical reasons; and fees for eye examinations and eye surgery to treat defective vision.
Updated January 6, 2016
5. As an employer, do I have to choose only one of the options listed above for making Health Care Expenditures?
No, an employer may choose more than one option to satisfy its obligations. An employer may, for example, pay for health insurance for its full-time employees while making contributions to the SF City Option for its part-time employees.
Updated February 21, 2018
6. Does the HCSO require employers that already provide health insurance to their employees to spend more money on their employees?
It depends. The premiums that a Covered Employer pays for medical insurance for its Covered Employees count toward its Required Health Care Expenditures, so if that amount meets the minimum required under the HCSO, the Covered Employer will have no further obligations.
However, if the amount spent does not meet the minimum expenditure amount set by the HCSO, the Covered Employer must decide how it will spend the difference. The employer could choose a health insurance plan that provides more comprehensive benefits, such as dental and visions benefits, or increase its contribution towards the health care premiums while decreasing the portion paid by the employee. Another way to spend the remainder of the minimum spending requirement is to contribute to the SF City Option.
Updated February 21, 2018
7. I currently provide benefits to all full-time employees, but only provide benefits to part-time employees who work more than 20 hours per week. Does the HCSO require me to do more?
Yes, if your part-time employees work eight or more hours per week in San Francisco, you are required to make health care expenditures on their behalf.
Updated January 6, 2016
8. What if my employees have other insurance? Am I still required to make Health Care Expenditures for those employees?
It depends. Covered Employees who already have health care benefits through another employer may voluntarily waive their right to Health Care Expenditures under the HCSO by signing the OLSE’s Employee Voluntary Waiver Form. If an employee who is receiving health care benefits from another employer chooses not to sign the waiver, the employer must make the minimum Health Care Expenditures for that employee. But an employer will not be required to make Health Care Expenditures for employees that choose to sign this form. Keep in mind, however, that the waiver will not be valid unless the health care benefits are provided either by another employer of the Covered Employee or by the employer of that Covered Employee’s spouse, domestic partner, parent, or guardian. If a Covered Employee has health care benefits that are not provided by another employer (i. e., the employee is purchasing it themselves or receiving MediCal), the employee may not sign a waiver and the employer is still required to make the minimum Health Care Expenditures for that employee.
Updated January 6, 2016
9. What if my employees choose not to participate in the health plan that I offer?
A Covered Employer that maintains a health insurance program that requires premium contributions by a Covered Employee must do more than offer the Covered Employee an opportunity to participate in such a program. Pursuant to Rule 5.3, if the employee declines to participate in Employer’s insurance plan, the employer must satisfy its Employer Spending Requirement in another manner, as outlined in E.2.
However, if an insurance plan (1) requires no premium contributions from the employee for at least one tier and (2) that tier satisfies the HCSO expenditure requirements at the time it is offered, then the employer is not required to make alternate expenditures for employees who opt out of this plan.
The insurance plan must be fully-insured, and the medical plan on its own must meet the expenditure requirements (i.e. not a combination of medical + dental +/or vision). Self-funded plans where employers calculate their health care spend based on annual claims paid, as described in Rule 5.9(b), cannot satisfy prong (2) above.
Covered Employers should be able to produce verification of the cost of the plan, that it was offered to the Covered Employee at no cost to the employee, and that the employee opted out of that plan. Separate HCSO Waiver forms are not required for these employees. The employer must still file the Annual Reporting Form each April.
OLSE recommends communicating to Covered Employees that the plan meets or exceeds the HCSO expenditure rates, and that the Employer need not make alternate health care expenditures.
Updated September 10, 2024
10. If an employer makes payments to satisfy its obligations under the Employer Shared Responsibility provisions of the federal Affordable Care Act (ACA), do those payments also count toward the Employer Spending Requirement under the HCSO?
The answer depends on whether the employer’s payments also fall within the definition of Health Care Expenditures, which are generally amounts actually paid for Health Care Services for Covered Employees or their spouses or dependents. For example, if the employer satisfies its ACA obligations by offering health insurance, the premiums it pays for those employees who enroll in the insurance program are Health Care Expenditures that count toward the Employer Spending Requirement.
On the other hand, if the employer satisfies its ACA obligations by paying additional taxes (sometimes referred to as “penalties”), those payments do not count toward the Employer Spending Requirement because they are not Health Care Expenditures.
The amount paid for Health Care Expenditures that satisfy the ACA may not fully satisfy the Employer Spending Requirement of the HCSO. For example, if the amount actually spent on health insurance for a Covered Employee to satisfy the ACA is less than the Required Expenditures under the HCSO, the employer will have to make additional Health Care Expenditures to comply with the HCSO.
11. What should I do if a Covered Employee stops working for me before I’ve made the quarterly Health Care Expenditure?
Covered Employers must comply with the Employer Spending Requirement for all Hours Payable to a Covered Employee, even if the employment relationship is terminated before the end of the quarter. Covered Employers that have not yet made the quarterly Health Care Expenditure for a Covered Employee may make the expenditure in the same manner as was done in the immediately preceding quarter. Where an employer has chosen to purchase health insurance for its Covered Employees, COBRA payments to continue health insurance coverage shall also qualify as valid Health Care Expenditures. The Covered Employer may also comply by making payments to the SF City Option, even if the employer had previously complied with the Employer Spending Requirement in some other manner.
If a Covered Employer meets the Employer Spending Requirement by making “Revocable Expenditures,” as defined in Section F, there are additional rules that apply when a Covered Employee leaves employment.
Updated February 21, 2018