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D. Calculating Health Care Expenditures

Health Care Security Ordinance FAQs
Administrative Code Chapter 14

A. HCSO Overview
B. Covered Employers
C. Covered Employees
D. Calculating Required Health Care Expenditures
E. Making Required Health Care Expenditures
F. Contributing to Reimbursement Accounts
G. Contributing to the City Option
H. Employer Notice-Posting Requirement

I. Employer Recordkeeping Requirements
J. Employer Reporting Requirements
K. Health Surcharges
L. Retaliation Prohibited
M. Filing a Complaint
N. Penalties
O. HCSO and the Affordable Care Act

 

    1. Q: How much is a Covered Employer required to spend on health care for its covered employees in 2014? 
    2. Q: Which health care expenditure rate applies in the context of a staffing agency, Professional Employment Organization, or similar agency? 
    3. Q: When do the Health Care Expenditures have to be made? 
    4. Q: How do I calculate the minimum Health Care Expenditure for a new Covered Employee? 
    5. Q: What are “hours paid”? 
    6. Q: Do hours worked by employees outside of the City count? 
    7. Q: Do “hours paid” include overtime hours? How are “hours paid” calculated for exempt employees? 
    8. Q: Must minimum Health Care Expenditures be calculated separately for each employee? 
    9. Q: How does an employer that provides uniform coverage to Covered Employees determine if its expenditures meet or exceed the minimum Health Care Expenditure rate? 
    10. Q: How does an employer with a self-funded plan determine if its expenditures meet or exceed the required Health Care Expenditure rate? 
    11. Q: What if the health insurance premiums that I currently pay for my employee do not reach the minimum amount required by the HCSO? 
    12. Q: What if the premiums I pay for my employees’ medical, dental, and/or vision insurance are greater than the minimum amount required by law? 
    13. Q: What if I am already paying my employees health and welfare benefits pursuant to a Prevailing Wage or Public Works Contract, or other Collective Bargaining Agreement? 
    14. Q: May I deduct the Health Care Expenditures from my employee’s paycheck? 

 

 

1. Q: How much is a Covered Employer required to spend on health care for its covered employees in 2014?

A: The minimum Health Care Expenditure for each Covered Employee is determined quarterly by multiplying the total number of hours paid to the employee in the quarter by the applicable Health Care Expenditure Rate.

There are two Health Care Expenditure Rates: one for medium-size employers (those with 20-99 persons performing work) and another for large employers (those with 100 or more persons performing work). The rates increase annually.

The two rates for the current and past years are as follows:

HCSO HEALTH CARE EXPENDITURE RATES

 Year  Medium-Sized Employers  Large Employers
 2008  $1.17 / hour  $1.76 / hour
 2009  $1.23 / hour  $1.85 / hour
 2010  $1.31 / hour  $1.96 / hour
 2011  $1.37 / hour  $2.06 / hour
 2012  $1.46 / hour  $2.20 / hour
 2013  $1.55 / hour  $2.33 / hour
 2014     $1.63 / hour    $2.44 / hour



2. Q: Which health care expenditure rate applies in the context of a staffing agency, Professional Employment Organization, or similar agency?

A. When the employee is jointly employed by a client and another agency, such as in the context of a temporary staffing, leasing, professional employer, or other entity serving the same or similar function, the applicable health care expenditure rate will be determined by the size of the larger employer.

 

3. Q: When do the Health Care Expenditures have to be made?

A: Health Care Expenditures must be made each quarter, within 30 days of the end of the preceding quarter. The first quarter of the year is defined as the period from January 1 through March 31; the second quarter, from April 1 through June 30; the third quarter, from July 1 through September 30; and the fourth quarter, from October 1 through December 31.

 

4. Q: How do I calculate the minimum Health Care Expenditure for a new Covered Employee?

A: For a new Covered Employee, the quarterly minimum Health Care Expenditure is calculated by multiplying the total number of “hours paid” to that employee from the first day of the calendar month following 90 calendar days after his or her first day of work through the end of that quarter.

An employee whose first day of work is January 15, 2013 will become eligible for coverage on May 1, 2013. Thus, the required quarterly minimum Health Care Expenditure is calculated by multiplying all “hours paid” to that employee from May 1, 2013 through June 30, 2013 (provided that the employee meets the “hours worked” requirement).

 

5. Q: What are “hours paid”?

A: “Hours paid” includes both the hours for which a person is paid wages for work performed within San Francisco and the hours for which a person is entitled to be paid wages, including, but not limited to, paid vacation hours, paid time off, and paid sick leave hours, but not exceeding 172 hours in a single month or 516 hours in a single quarter.

Note that “hours paid” is the figure used to calculate the expenditure required for each Covered Employee, but “hours worked” is used to determine whether an employee is covered by the HCSO.

 

 

6. Q: Do hours worked by employees outside of the City count?

A: No. Under the HCSO, “hours paid” includes only those hours during which the employee is working within the geographic boundaries of the City and County of San Francisco.

For Covered Employees who perform some work outside of San Francisco, “hours paid” that are not hours actually worked (e.g., paid vacation hours, paid time off, and paid sick leave hours) will be calculated on a pro rata basis.

 

7. Q: Do “hours paid” include overtime hours? How are “hours paid” calculated for exempt employees?

A: For employees who are not exempt from the overtime provisions of the federal Fair Labor Standards Act (FLSA) and California law, the Health Care Expenditures is calculated based on all hours worked, including overtime hours worked.

Keep in mind, however, that “hours paid” for all employees is capped at 172 hours per month.

For employees who are exempt from the overtime provisions of the FLSA and California law, OLSE will assume that the minimum Health Care Expenditures should be calculated based upon a 40-hour work week, unless there is evidence that the Exempt Employee’s regular work week is less than 40 hours. In instances where there is evidence that the Exempt Employee's regular work week is less than 40 hours, that figure shall be used in calculating the minimum Health Care Expenditures.

 

8. Q: Must minimum Health Care Expenditures be calculated separately for each employee?

A: Yes, subject to certain exceptions described below. The employer must make minimum Health Care Expenditures to or on behalf of each Covered Employee. Payments to or on behalf of one Covered Employee that exceed the required minimum Health Care Expenditure for that employee will not be considered in determining whether an employer has met its total required minimum Health Care Expenditures for all employees.

Note the exceptions that apply to plans providing uniform coverage to Covered Employees and self-funded plans.

 

9. Q: How does an employer that provides uniform coverage to Covered Employees determine if its expenditures meet or exceed the minimum Health Care Expenditure rate?

A: As set forth in Regulation 6.2(B)(1), a Covered Employer that provides uniform coverage to some or all of its Covered Employees will be deemed to comply with the spending requirement of the HCSO if the average hourly expenditure rate per employee meets or exceeds the expenditure rate required under the HCSO.

Employers shall calculate the average hourly expenditure rate by (a) dividing the total monthly premium paid for all employees covered by the uniform plan by the total number of employees covered by that plan, then (b) dividing that number by 172 hours paid (“hours paid” per employee is capped at 172 hours in a single month or 516 hours in a single quarter).

The employer has the option of including only those employees covered by the HCSO or including all employees participating in the uniform plan, provided that all such employees receive the same health coverage or product.

Aggregation of expenditures shall be limited to plans with a uniform design, i.e., the plans must have the same benefit design (same co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, eligibility criteria). Thus, an employer that offers an HMO and a PPO may aggregate expenditures for all of the employees covered by that HMO, but then it must calculate a separate average expenditure for those covered by the PPO. Similarly, an employer that offers two HMO options may not aggregate the expenditures unless the benefit design for both plans is exactly the same. Because amounts paid for dependent coverage do count towards the minimum health care expenditure required under the HCSO, differences in contribution levels that correspond with different coverage tiers can be calculated using a weighted average. However, differences in contribution levels based on other criteria, i.e., in situations where the amount an employer spends varies depending on the number of hours worked by employees, the employees' status as union/nonunion, the employees' salary, waiting periods, or work site/location, the expenditures cannot be aggregated.

If the Covered Employer’s expenditure rate fails to meet or exceed the minimum expenditure rate set forth by the HCSO, that employer must spend the difference (or shortfall) within 30 days of the end of the quarter.

Note that amounts paid by employees shall not count towards the Covered Employer’s minimum Health Care Expenditure.

 

10. Q: How does an employer with a self-funded plan determine if its expenditures meet or exceed the required Health Care Expenditure rate?

A: The calculation method set forth in Regulation 6.2(B)(2) applies to Covered Employers with self-funded plans. With respect to those employees covered by the self-funded plan, a Covered Employer will be deemed to comply with the spending requirement of the HCSO if the preceding year’s average hourly expenditure rate per employee meets or exceeds the expenditure rate required under the HCSO.

In addition to the calculation method outlined in Regulation 6.2(B)(2), for both administrative ease and accuracy, employers may calculate the average hourly expenditure rate by (a) dividing the current COBRA equivalent rate (minus any administrative fees) for all employees covered by the self-funded plan by 172 hours paid (“hours paid” per employee is capped at 172 hours in a single month or 516 hours in a single quarter).

The employer has the option of including only those employees covered by the HCSO, or including all employees participating in the self-funded plan, provided that all such employees receive the same health coverage or product.

Aggregation of expenditures shall be limited to plans with a uniform design, i.e., the plans must have the same benefit design (same co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, eligibility criteria). Thus, an employer that offers an HMO and a PPO may aggregate expenditures for all of the employees covered by that HMO, but then it must calculate a separate average expenditure for those covered by the PPO. Similarly, an employer that offers two HMO options may not aggregate the expenditures unless the benefit design for both plans is exactly the same. Because amounts paid for dependent coverage do count towards the minimum health care expenditure required under the HCSO, differences in contribution levels that correspond with different coverage tiers can be calculated using a weighted average. However, differences in contribution levels based on other criteria, i.e., in situations where the amount an employer spends varies depending on the number of hours worked by employees, the employees' status as union/nonunion, the employees' salary, waiting periods, or work site/location, the expenditures cannot be aggregated.

If the Covered Employer’s expenditure rate fails to meet or exceed the minimum expenditure rate set forth by the HCSO, that employer must spend the difference (or shortfall) within 30 days of the end of the quarter.

Note that amounts paid by employees shall not count towards the Covered Employer’s minimum Health Care Expenditure.

 

 

11. Q: What if the health insurance premiums that I currently pay for my employee do not reach the minimum amount required by the HCSO?

A: Employers must make the full expenditure required by law; thus, if the monthly premium paid by the employer does not meet the minimum expenditure amount, it must make up the shortfall. It is up to the employer to decide how to make up the shortfall; it may do so by reducing the employees’ share of the premiums for the existing plan, choosing a more generous plan with higher premiums, complementing the existing plan with a health spending or medical reimbursement account, making payments to the City (which will then be used to set up a Medical Reimbursement Account for the Covered Employee), or making other expenditures that qualify as health care expenditures within the meaning of the HCSO.

 

12. Q: What if the premiums I pay for my employees’ medical, dental, and/or vision insurance are greater than the minimum amount required by law?

A: Covered Employers that are spending at or above the required Health Care Expenditure rates have no further spending obligations under the HCSO.

 

 

13. Q: What if I am already paying my employees health and welfare benefits pursuant to a Prevailing Wage or Public Works Contract, or other Collective Bargaining Agreement?

A: If the health and welfare benefit payments required under your contract are at or above the expenditure rate required under the HCSO, you will have no further spending obligations under the HCSO. However, payment of the prevailing wage fringe benefit requirement in cash (as part of the covered employee’s paycheck or otherwise) shall not satisfy the Employer Spending Requirement of the HCSO because the employer must ensure that the health care expenditure is spent on health care services for the Covered Employee.

Note that any portion of the health and welfare benefit payment that is for life insurance, death benefits, or disability payments shall not count towards the employer’s minimum expenditure because such payments do not serve the purpose of providing access to health care.

 

 

14. Q: May I deduct the Health Care Expenditures from my employee’s paycheck?

A: No, the minimum Health Care Expenditure must be paid by the employer; thus, a deduction from the employee’s earned wages for deposit in the employee’s health savings or flexible spending account, for example, shall not satisfy the employer’s Employer Spending Requirement. Likewise, an employee’s contribution towards his/her health insurance premium shall not be credited towards the employer’s minimum Health Care Expenditure.

 

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Last updated: 1/15/2014 12:25:39 PM