Healthy San Francisco, held up as a model employer “pay or play” strategy, is two years old today—and its supporters view the program as a possible solution to the nation’s 47 million uninsured.
The program has added 43,000 of 60,000 targeted San Franciscans to its rolls since it began and has been adding about 1,800 people per month.
The earliest participants in the program appear to have reduced their need for the most expensive kinds of healthcare, such as ER care. For example, the number of hospital admissions declined from 28.2 per 1,000 participants to 18.4, and the number of hospital days declined from 103 to 61 per 1,000 participants.
“San Francisco’s Health Care Security Ordinance has a number of features that should serve as a model for a national policy,” says Ken Jacobs, chair of the Labor Center at the University of California at Berkeley and coauthor of the report How to Structure a “Play-or-Pay” Requirement on Employers: Lessons from California for National Health Reform.
But it is not yet clear about the financial portion of the program, and there are two other questions too:
Also unclear is how much support will continue to come from employers, especially those dependent on tourism, if the economy continues to slide. Some businesses fear that scheduled 2010 increases in the amount they will have to pay for each employee hour will provoke some companies to move out of town.
Jacobs, who has studied the city’s program, says so far, the program is operating well. “Employers have adapted to the SF ordinance relatively easily,” he says. “The earliest evidence is that employers are by and large keeping the coverage they have for those workers who were already covered on the job and paying into the city for those jobs that did not previously provide coverage.”
Healthy San Francisco, a program run by the city, provides primary, mental health, and acute care, as well as substance abuse treatment for adults under age 65 who have been uninsured for the most recent 90 days, regardless of immigration status. It does not pay for dental or vision care and it is not an insurance program. All care is provided through medical homes in a network of 30 community clinics throughout the city plus Kaiser Permanente as of July 1.
In a nutshell, here’s how the program works: Employers with at least 20 employees must either “pay” the city based on the number of hours their employees work, or “play,” which means finance employee health plan coverage at a similar value for their employees. If the employer chooses to pay, but employees do not qualify for Healthy San Francisco, the funds are deposited into a Medical Reimbursement Account that the employee can use for out-of-pocket healthcare expenses.
The city’s Health Care Security Ordinance of 2006 established the employer mandate that took effect January 9, 2008, for large employers, and April 1, 2008, for medium-sized employers, six or nine months after the start of Healthy San Francisco. Employers with 20 or more full- or part-time employees must spend $1.23 per worker hour. Employers with 100 or more employees must spend $1.85 per hour; those rates will go up to $1.31 and $1.96 next year.
As of December 14, 2008, more than 850 employers covering nearly 33,000 employees had elected to use the city option, contributing $37.3 million to the city, roughly half to Healthy San Francisco and half to the Medical Reimbursement Account. However, it is too early to know whether all the employers who are required to pay or play are actually doing so.
Applicable employers had until just two months ago, April 30, to file a “mandatory annual reporting form,” indicating precisely how they complied and whether they had “paid” into the city’s Healthy San Francisco plan or “played” by spending at least that amount on an employee health plan.
Two months after that deadline, employers returned 5,000 of those forms to the city, says Joannie C. Chang, contract compliance officer at the city’s Office of Labor Standards Enforcement. However, some of the employers were apparently confused and did not fill out the forms correctly, requiring the city to make follow-up calls to verify the accuracy of the data they submitted.
“Overall, I believe there’s been good rates of compliance,” Chang says, adding that the city has conducted 70 presentations to employers and HR consultants as well as mailings, “so most employers are aware of their obligations.”
For those employers found to be out of compliance, she says, “the biggest challenge is making sure they understand the legal requirements, but once they do, they comply.”
Chang says the city has 187 open investigations, about half initiated by employees who realized they were not receiving benefits, and the other half involving employers who recently learned about the law and sought assistance from her office to come into compliance.
“Given the city’s budget and our limited staffing at this time, we definitely have our work cut out for us,” Chang says.
Restaurant group suit
Another looming issue is the staunch objections to the ordinance now being litigated by the Golden Gate Restaurant Association. A three-judge panel with the Ninth Circuit Court of Appeals ruled in favor of San Francisco in September 2008, but the association has appealed that decision to the U.S. Supreme Court.
The association, which represents 800 restaurants in the city limits, including some of the city’s largest, supported the original legislation that created Healthy San Francisco but takes issue with the employer mandate, saying it is much too excessive.
Kevin Westlye, the association’s executive director, says that many restaurants are already having to limit their hours or days of operation and let go paid staff members not just because of the economic downturn, but because of the expense of this ordinance.
One way to look at it, Westlye explains, is that an employer with 100 workers, half full-time and half part-time, would be spending $100,000 on health insurance plans for their employees before the ordinance. Today, he says, “that same restaurant is spending $250,000. And that’s on a payroll of $2 million. We just don’t think this is affordable.”
For many of the younger workers in the food service industry, says Westlye, a Kaiser plan can be purchased for $250 with dental and vision. Under the city’s ordinance, businesses and their employees are spending a total of $450. Westlye says until the case is heard or rejected, restaurants will continue to uphold the law, but he worries that some restaurants may leave the city or be forced to reduce their quality.
City officials are cautious despite early successes.
Outlined in the March 17 report are some apparent successes. The average number of health visits went down between the first year and the first six months of the second year on an annualized basis. So did the number of surgeries, need for radiology, average number of prescriptions filled, hospital admissions, number of hospitalization days, and average lengths of stay.ED visits also declined. Visits for urgent, mental health, and substance abuse treatment reduced as well.
However, city officials are cautious.
“Any changes in utilization or costs that are observed are most likely due to how participants were enrolled in the program (in this case, at the point of service),” the program’s administrators said in the March 17 report. “Changes in health seeking behavior (emergency department utilization) due to system changes take time, perhaps two to three years to observe.”
Although most of the enrollees are the neediest, earning below 100% of the federal poverty level, the maximum annual earning for eligibility has been expanded over the two years, from 100% of the federal poverty level to 300% and now 500%.
One of the early fears was that many patients who had long deferred healthcare would suddenly become eligible and swarm the clinics. So far, that hasn’t happened, says Tangerine Brigham, director of San Francisco’s Health Access Program. Of the 30 clinics, only five are no longer accepting new patients.
Other clinics have been expanded, and wait times have been dramatically reduced, Brigham says.
Another stumbling block that has proved challenging is the requirement that patients renew their standing as participants each year, something many have neglected to do, Brigham says. “We’re implementing a number of strategies to get people to renew their eligibility on time so there’s no break in their coverage,” she said.
As far as whether the San Francisco plan can be adopted nationally, one concern is that employers will cut workers’ hours to part-time to avoid having to pay health insurance costs. San Francisco’s plan, however, requires employers to pay a rate for all employees, part- or full-time.
“This is a real strength in avoiding any perverse incentives for firms to lower hours of work to avoid the requirement,” said Jacobs. “Not having such a requirement was a notable flaw in the original Senate Finance Committee options paper. The House bill prorates the requirement for part-time workers.”