S.F. Adopts Health Plan for Residents

Published September 1, 2006

On August 7, San Francisco Mayor Gavin Newsom (D) signed into law an ordinance establishing a health coverage plan for city residents. The San Francisco Board of Supervisors had unanimously passed the law on July 25.

The San Francisco Health Access Program–a combination of two plans offered by Newsom in June and Supervisor Tom Ammiano (D) earlier this year–establishes a city-run health insurance program. Individuals who want to participate must pay a fee.

The measure also requires businesses to make “reasonable expenditures” for their employees’ health care or pay a fee to the city. The amounts of required expenditures for firms of various sizes are specified in detail in the ordinance. According to the text of the ordinance, 82,000 San Francisco residents are uninsured, and more than half of those are employed.

The plan, to be implemented by July 1, 2007, makes the city the first in the country to offer such coverage to all residents.

“[This plan] is the model for the country, and other cities should follow our lead,” said Zachary Tullero, Ammiano’s legislative aide.

Burdening Businesses

But John R. Graham, director of health care studies at the Pacific Research Institute, a free-market think tank in San Francisco, echoed the concerns of the Chamber of Commerce and other business groups when he called the ordinance “another step in the vicious cycle of anti-business activity.”

“The problem with the plan is quite clear: It will create an exodus of small businesses out of the city and an influx of low-productivity workers looking for free health care,” Graham said.

Covering the Uninsured

The new ordinance establishes an insurance program that any resident of San Francisco, regardless of pre-existing conditions, can purchase for a fee ranging from $3 to $200 a month, based on their personal income.

“If you’re homeless or very poor, it’s likely that that person won’t pay anything,” Tullero said.

The Health Access Program will provide “testing and specialty services” and have an “emphasis on wellness, preventive care, and innovative service delivery,” according to the ordinance. The program does not cover vision or dental services, infertility treatments, or cosmetic surgery.

Requiring Expenditures

The program’s second major element requires businesses to spend a specified amount on health care for all employees except for managers who make more than $72,000 a year. Nonprofit organizations and businesses with 19 or fewer employees are exempt.

Firms with 20 to 99 employees must spend $1.06 per hour worked for the health care of each hourly employee who works 10 or more hours per week. Businesses with 100 or more employees must spend $1.60 per employee per hour on health care expenditures. All will be required to demonstrate they did not reduce their workforce to evade the requirements.

The hourly expenditure amount will increase 5 percent each year until 2010, when it will be based on a survey of health care costs in the region. No survey determining the current average per-hour expenditures for firms of the sizes mentioned above has been conducted yet, according to the San Francisco Department of Public Health.

For businesses with 50 or more employees, the ordinance’s requirements will go into effect July 1, 2007; those with 20 to 49 employees can wait until March 31, 2008.

“This will give them nearly two years to get ready for the program,” Tullero said.

If businesses are not spending the requisite amount, they will be required to pay the difference to the city. But the new law doesn’t mean employees will get better health care, Graham said.

“This just means that businesses will be required to hire a creative accountant,” Graham noted.

Funding the Program

According to a July 17 memo from the budget analyst of the Supervisors’ Budget and Finance Committee, the Health Access Program will cost between $200 million and $230 million per year. Employer “contributions”–the amount they must pay to the city if they don’t cover their employees’ health care–will cover between $30 million and $50 million of that amount, while the city will put in approximately $100 million from other tax sources.

The Budget and Finance Committee budget analyst also projected co-pays by individuals using the plan will lead to about $50 million collected per year, and federal and state programs will support the program with about $10 million to $20 million.

Graham noted San Francisco taxpayers already pay for uninsured people who seek emergency services at San Francisco General Hospital.

“I respect that [the board is] trying to resolve this problem, but this is not the solution,” Graham said. “They are just passing on more costs to taxpayers.”

Lawsuit in the Works?

Business organizations, including the San Francisco Chamber of Commerce, said the plan would harm businesses in the city. Chamber Vice President Jim Lazarus told the San Francisco Chronicle on July 26 the group might challenge the ordinance in court.

Tullero rejected their concerns.

“All the people who complained [about the health care ordinance] were the ones who complained when a living wage was introduced [in 2000]. They cried ‘wolf’ then, saying it would put them out of business, but they are still here,” Tullero pointed out.

The San Francisco Chamber of Commerce’s public policy director could not point to evidence of lost jobs or bankrupt businesses attributable to the living wage ordinance, which applies to airport employees and city contractors.

Nevertheless, the San Francisco Office of Economic Analysis, based in the city Controller’s Office, issued a report on June 20 indicating some small businesses will not be able to bear the burden of the extra labor costs required by the new health care mandate. Individuals might have problems with it as well, Graham said.

“The plan only treats you in San Francisco, and so if you’re hurt anywhere else, you won’t have coverage,” Graham explained. “This will not solve the health care problem in San Francisco.”

Michael Coulter ([email protected]) teaches political science at Grove City College in Pennsylvania.

For more information …

Worker Health Care Security Ordinance, http://www.sfgov.org/site/uploadedfiles/bdsupvrs/bosagendas/materials/051919.pdf

“Economic Impact of the Worker Health Care Security Ordinance,” http://www.sfgov.org/site/uploadedfiles/controller/oea/oea_wrkhlthord0606.pdf

“Dreaming by the Bay: Why local politicians should stay out of the health insurance business,” by Sally C. Pipes, http://www.pacificresearch.org/press/opd/2006/opd_06-07-14sp.html