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San Francisco alters rules on health reimbursement arrangements

San Francisco alters rules on health reimbursement arrangements

SAN FRANCISCO—San Francisco Mayor Edwin Lee has signed into law a compromise plan that will impose new restrictions on health reimbursement arrangements used to satisfy the city's controversial health care spending law.

The measure, approved Tuesday by the Board of Supervisors on a 6-5 vote, will require funds that employers contribute to HRAs to satisfy the health care spending law to be available for 24 months after the contribution. For employees being terminated, the account balance would have to be available for 90 days after the employee leaves. The legislation takes effect on Jan. 1.

“Every employer using account-based methods of meeting their obligation under the ordinance will have to make extensive—and quick—changes to their account administration,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

Under the 2006 spending law, employers with 100 or more employees are required to spend $2.06 per hour per covered employee on health care, while employers with between 20 and 99 employees must spend $1.37 per hour.

The overwhelming majority of employers satisfy the requirement by paying group health insurance premiums. However, the law offers an alternative in which employers contribute to HRAs, which reimburse employees for health care expenses. Employers can design their HRAs so that unused funds revert to them at the end of the year.

The drive to amend the spending law 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 compromise measure, proposed by Malia Cohen, a member of the Board of Supervisors, came after Mayor Lee vetoed an earlier plan—one strongly opposed by business groups—that would have required indefinite rollover of HRA balances.

Business groups earlier said the latest measure would be an acceptable compromise. Legal experts, though, question whether the new law runs afoul of a provision in the Employee Retirement Income Security Act that pre-empts state and local rules and laws that relate to employee benefit plans.

An aide to Supervisor Cohen said the new law is “legally defendable and does not violate ERISA.”