San Francisco Considers HSA Mandate

Published March 1, 2006

San Francisco Supervisor Tom Ammiano (D) introduced a revised “Health Care Security Ordinance” to the Finance Committee of the city’s Board of Supervisors on February 1. Although an earlier version of the proposal was soundly rejected by the city’s Small Business Commission last year, Ammiano hoped to garner enough support through changes to the bill.

Ammiano’s proposal would force employers with as few as 20 employees to provide health insurance for all workers.

A day earlier, San Francisco Mayor Gavin Newsom (D) had proposed his own legislation for the uninsured, calling it “a real solution to our health care crisis.” Newsom recommended easy access to primary and preventative care for uninsured patients at any of San Francisco’s 20 public and nonprofit community clinics.

The California Health Plan, which currently provides care to 50,000 poor residents in the city, would sponsor the mayor’s program. Jean Fraser, CEO of the San Francisco Health Plan, said, “We’re very proud of the fact that San Francisco has universal health insurance for children. … But it’s not realistic to pay for commercial health insurance for 80,000 adults. I applaud the mayor for taking a fresh approach.”

At the time the mayor proposed the legislation, there was no indication of how the program would be funded. The mayor was said to be developing a Health Access Council to determine the costs.

Lawmaker Revises Plan

Upon hearing the mayor’s plan, Ammiano deemed it better than his own, saying he intended to amend his legislation to include elements of the mayor’s proposal that he suggested would make his plan more palatable to employers. Ammiano presented his revised plan the next day.

Ammiano’s 2005 proposal included a provision requiring employers to pay up to $345 per month into Health Savings Accounts (HSAs) for employees who work more than 80 hours per month. HSAs are special accounts designed to work with high-deductible insurance plans and give individuals more control over their health care spending. After a backlash from the small business community, Ammiano capitulated. Under his revised plan, small businesses would be required to pay between $50 and $75 per month per employee for HSAs.

Universal Health Care

Ammiano and Newsom share an urge to make universal health care a reality in a city that already spends over six times more than the nationwide average per capita on public health. The details of Newsom’s plan are still pending, but the fine print of Ammiano’s plan shows unexpected potential.

Though government mandates are cumbersome for small businesses, HSAs are not. Employers can already open HSAs for their employees, who would take a pay cut each month in exchange for having employers deposit the amount in an HSA. When received as wages, income is fully taxable. If deposited into an HSA, those dollars are tax-free as long as they are spent on health care.

“Although HSAs have only existed for two years,” points out Sally Pipes, president and CEO of the Pacific Research Institute, “there is already evidence that employees with HSAs are responsible managers of their own health [care]. HSA purchasers pay close attention to the variety of health plans available, and choose only what they truly need; most important, HSAs help the poor and the uninsured. Around 29 percent of HSA purchasers earn less than $50,000 a year. Around 40 percent of HSA purchasers were previously uninsured.”

HSAs Overregulated

The employer-provided health care system is drowning in government mandates. Employees have few health plan options to choose from; the system undermines the doctor/patient relationship because employees rarely deal directly with their physicians to determine costs and health benefits; and employees opt for employment-based coverage with extensive benefits that cover much more than they need. Consequently, health care costs rise, and patients and small businesses that cannot afford employer-based health care suffer.

HSAs are similarly overregulated. For example, a high-deductible, inflexible insurance plan must be purchased in order to open the account, and small businesses may not be able to afford that. In his January State of the Union address, President George W. Bush proposed strengthening HSAs through tax credits, so the self-employed and small business employees can buy insurance with the same tax advantages as people working for big businesses.

California law, however, will hinder the San Francisco reform plans. The Golden State does not allow tax-deductibility of HSAs. Last year, an unnamed doctor, in a comment to the San Francisco Chronicle, mentioned Proposition 72 (a failed state referendum similar to Ammiano’s proposal), in favor of tax-deductible HSAs: “One would think that a state that tried to force companies to provide health care coverage to employees [Proposition 72] would be willing to provide a tax break to those who voluntarily do so.”

Diana Ernst ([email protected]) is a senior fellow at the Pacific Research Institute.