The San Francisco Health Care Security Ordinance (HCSO) provides those qualified employees who work in San Francisco with access to affordable health care through a Health Access Program that provides services to the uninsured. Specifically, the HCSO requires employers to spend a minimum amount of money each quarter on their employees' healthcare. See our Compliance Alert "2014 Health Care Expenditure Rates Just Released Under the San Francisco HCSO" dated August, 2013.
On September 13, 2013 IRS Notice 2013-54 provided additional guidance on the application of certain provisions of the Affordable Care Act (ACA) which impacted Health Reimbursement Accounts (HRAs) used to comply with the HCSO. This is a follow-up to our Compliance Alert concerning HCSO interim guidance dated November 21, 2013 available HERE.
The City of San Francisco previously released guidance on their HCSO. See our Compliance Alert on this topic that required employer funds be carried forward from year to year and be available to terminated employees. HRAs were the only plans that could accommodate the terms of the employers' spending requirements. Cafeteria plans could not be utilized to provide the required HCSO coverage needed.
San Francisco employers were in a quandary. Internal Revenue Service Notice 2013-54 narrowed the scope of the type of eligible HRAs that could be offered to employees.
In particular, to offer an HRA that reimbursed all or a subset of eligible medical expenses as required by the HCSO, participants of the HRA were required to also be eligible and enrolled in the employer's underlying ACA compliant health insurance coverage. Unfortunately, the HCSO was created so employers could make funds available to employees for obtaining their own coverages or to reimburse eligible medical expenses. The new rules outlined by the HCSO satisfy the HRA structure outlined in Notice 2013-54.
As a little background, IRS Notice 2013-54 outlined requirements for HRAs that could continue in 2014 due to ACA changes. Employers may continue to offer HRAs that are integrated with employer-sponsored ACA-compliant group medical coverage, retiree HRAs and HRAs that provide for excepted benefits such as vision or dental expenses.
On December 20, 2013 the City of San Francisco updated previously published FAQs that allow covered employers to provide required health care expenditures to covered employees and still adhere to federal Notice 2013-54 as it relates to HRAs.
The rules surrounding the Ordinance or obligations for covered employers and required contributions have not been changed by the City. These rules continue to require that:
If unused portions of contributions to an HRA revert to employers, then the contributions must:
The sample "Separation Notice" available at www.sfgov.org/olse/hcso MAY be used (but is not required to be used) and for any funds EARNED, but not yet CONTRIBUTED, as of the separation date, the Covered Employer may either make a reimbursement account contribution at the time of separation, OR make a post-separation reimbursement account contribution no later than thirty (30) days after the end of the quarter.
An HCSO HRA previously set up may continue with a "spend down" feature for remaining funds or be amended to be a limited-purpose dental or vision plan. A limited-purpose dental or vision plan appears to meet the rules for the HCSO and for the ACA.
In order to satisfy both IRS regulations and HCSO requirements, the current HRA set up to satisfy HCSO requirements must also qualify as "health care services" under HCSO. These are:
Employers may provide excepted benefits to employees directly, through insurance, or by providing HRAs.
For more information about the HCSO, check out their website.
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