San Francisco mayor vetoes measure to restrict HRAs

SAN FRANCISCO—San Francisco Mayor Edwin Lee has vetoed a measure that would curb the appeal of health reimbursement arrangements, one way that employers can satisfy a 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 $1.37 per hour. Employers with fewer than 20 employees are exempt from the requirement.

The overwhelming majority of employers satisfy the requirement by paying group health insurance premiums.

However, the law also offers an alternative in which employers contribute the required amounts to HRAs, which 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.

This month, the San Francisco Board of Supervisors gave final approval to a proposal by Supervisor David Campos that would have required funds remaining at the end of the year to be rolled over automatically to be used the next year. Terminating employees would have access to the funds for 18 months.

While Mayor Lee had described the HRA approach in which unused funds are forfeited at year-end as a “loophole,” he vetoed the Campos proposal on Tuesday.

The proposal “aims to solve an important problem, but imposes an overly broad approach to solving a discrete set of issues,” Mayor Lee said in his veto letter.

Previously, Mayor Lee said he would work with business and labor groups to develop an alternative proposal and said in his veto letter that he is “confident there is a legislative path forward that closes all loopholes, increases health access and protects jobs.”

Observers say it is unlikely that supporters of the Campos measure can muster the eight votes needed to override a mayoral veto.

Rep. Campos' proposal was generated by a June report by the city's Office of Labor Standards Enforcement, which found that just 20% of the $62 million allocated to HRAs 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 report.

The legality of the overall 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.