SAN FRANCISCO—Lawmakers in San Francisco are moving to curb the appeal of a funding option employers can use to satisfy a city law that requires them to spend a certain amount of money on employees' health care coverage.

Under the law, employers with 100 or more employees are required to spend $2.06 per covered employee on health care, while employers with 20 through 99 employees must spend at least $1.46 per hour. Employers with fewer than 20 employees are exempt from the requirement.

The overwhelming majority of employers satisfy the requirement through the payment of group health insurance premiums.

However, the law also offers an alternative in which employers contribute the required amounts to health reimbursement arrangements, which are used to reimburse employees for health care expenses. Employers can design their HRAs so that unused funds revert back to them at the end of the year.

On Tuesday, the San Francisco Board of Supervisors tentatively approved on a 6-5 vote a proposal by Supervisor David Campos that would require funds remaining at the end of the year to be automatically rolled over to be used the next year. Terminating employees would have access to the funds for 18 months.

The proposal still would require a second vote before it would be sent to San Francisco Mayor Edwin Lee.

“It has been a long road and this is the first step toward achieving the original intent of the Health Care Security Ordinance—to provide access to meaningful health care for San Francisco workers and relieve the burden on taxpayers who foot the bill of uninsured workers,” Rep. Campos said in statement.

Mayor Lee, who described the HRA approach in which unused funds are forfeited at year-end as a “loophole,” on Wednesday said he intends to work with business and labor groups to develop a compromise proposal.

“I am committed to continuing the collaborative effort to ensure health care access to workers while protecting jobs,” he said in a statement.

Rep. Campos’ proposal was generated by a June report by the city's Office of Labor Standards Enforcement that found that only 20% of the $62 million allocated to the plans last year actually was reimbursed to employees.

In all, about 13% of employers last year used the HRA approach to satisfy the spending requirement, according to the Office of Labor Standards Enforcement report.

The legality of the 2006 law, which went into effect in 2008, was affirmed by the 9th U.S. Circuit Court of Appeals. In 2010, the U.S. Supreme Court declined to review the appeals court ruling.