The Healthcare Security Ordinance was passed in 2006 by San Francisco Board of Supervisors with the intent of creating near-universal healthcare for San Francisco’s workers. At restaurants, consumers see it as a line item on your bill often called “SF Mandate” ranging usually as a 3-6% pre-tax addition to your bill. The way it works is that each employer with over 20 employees is on the hook for spending $2.27 per hour worked on that employee’s healthcare. If you have over 100 employees, it’s $3.40 per hour worked. What you see on restaurant bills is just an estimate by the owner to cover what’s essentially increased costs of labor and the percent they charge consumers is an arbitrary, free-market guess as to what won’t offend the consumer yet help them offset the costs. Employers need to keep accurate records to show that they are in compliance and spending that money on each employee’s individual healthcare.

The Problem

The HCSO is a well-meaning piece of legislation that just hasn’t worked out the way it was intended. Estimates are that over half of hourly employees in San Francisco have opted out of employer-provided health insurance through HCSO, most often because they’re an undocumented immigrant or they have a spouse or other family member that supplies insurance for them. For employees that opt out, the employer is still on the hook for paying that hourly charge into a program called “SF City Option.” With SF City Option, any employee can enroll in a Medical Reimbursement Account (MRA) to access their funds. It’s estimated that less than 20% of employees in SF have created an account much less used it. It is up to the employer to educate their employees that this program is there for them, but that education adoption has not been widespread. Also, many undocumented immigrants are leery of entering into any sort of database whether it’s employer-provided healthcare or the City Option Fund.

There are now hundreds of millions of dollars tied up in the City Option Fund and growing. In 2020, Mayor Breed freed up $138M of the fund for workers to use on food, rent and basic needs as part of the pandemic emergency. It appears that little of that was accessed or used and it’s only a fraction of what’s sitting in the full fund which was $775 million in mid 2022 and growing. Also, if money is sitting in an employee’s account unaccessed for three years, it will now be transferred to the city’s General Fund in April 2026 through an escheatment passed by the Board of Supervisors in January of 2023. There are also complications regarding the federal tax code the money has been collected under and whether it’s legal to use the money for non-healthcare purposes. The escheatment basically acts as a tax on businesses, and the city has estimated that even after the initial money grab, they will make approximately $38 million per year ongoing off the backs of our small businesses.

So why don’t we know exactly how much money is sitting in the fund right now, and how much has been paid out? One of our advisory board members met with the city HCSO department and asked these questions and was told they didn’t know because the accounting was too hard to do. This seems unacceptable at best and ripe for fraud at worst.

In summary, for all its good intentions, the Healthcare Security Ordinance has been a failure in practice. It needs to change.

The Solutions

There are a couple things we could be doing to adjust the HCSO. We could be doing one or more of the following:

1. We could repeal this broken ordinance entirely and start over with something new to ensure our workers are getting the healthcare they need. The HCSO was passed long before the Affordable Care Act but has not been revised since.
2. We could freeze or reduce the amount that employers must pay. The amount going to each employee per hour is going up yearly (as is minimum wage) and right now a worker at a company over 100 employees working 40 hours per week would receive about $550 per month in health benefits from their employer. In most cases, this can’t even be spent and the employer sends the remainder to the City Option Fund to later by escheated by the city.
3. Using the money for non-healthcare purposes is also exactly what we should be doing, and specifically for public transit. The state is bailing out BART and MTA, MTA is proposing parking meters and increased bridge tolls just to right their books. What if in addition to healthcare, employers could use some of that money to buy Clipper Cards or vouchers for taxis/Uber/Lyft? Let’s get people to work and getting them riding (and paying for) public transit. The over-50% of employees that have opted out of health insurance could use a portion of their allocation on transit. Employers could directly fund the Clipper Cards of undocumented immigrant employees.
4. Additionally, we should just carve small businesses out of the City Option requirement. Businesses under 100 employees should not have to be putting what’s essentially an additional tax into a fund that their employees largely never use. A large portion of the mountain of cash sitting in the City Option fund is coming from large employers like Walgreens, CVS, Wells Fargo and Bank of America. We could even leave access to City Option in place for every hourly employee and it would still pencil out for many years if the escheatment were stopped.

The transportation initiative would be a rare win-win-win for all involved. Workers get a free commute and an effective raise. MTA and BART get funded. Employers starved for labor and talent can better recruit from outside the city and especially the East Bay where many service industry workers can better afford to live. It’s also very pro-immigrant and anti-poverty. If we can additionally carve out small businesses from the City Option requirement, it will greatly help many social venue businesses running on tight margins be more successful and employ more people.