The Impact of San Francisco’s Employer Health Spending Requirement

Initial Findings from the Labor and Product Markets

In late 2006, San Francisco enacted ambitious healthcare legislation with a goal of attaining universal access to health care for the city’s residents. This legislation, which went into effect in January 2008, provides families with access to a medical home to coordinate health care delivery in clinics and hospitals in the city through “Healthy San Francisco.” Enrollees with incomes under 300 percent of the federal poverty level have heavily subsidized access, and those with higher incomes may buy into Healthy San Francisco at rates substantially lower than what they would pay for an individual policy in the private-insurance market.

As part of the reform package, San Francisco implemented a version of a “pay-or-play” employer mandate to finance health care for their employees. It requires employers with 100 or more employees to contribute $1.85 an hour in health spending towards each employee. For smaller firms between 20 and 99 employees, the hourly requirement is $1.23 an hour; firms with fewer than 20 employees are exempt. This is a substantial requirement—more stringent than the plans currently under consideration in Congress or the employer requirement in Massachusetts, and is similar in cost to the mandate in Hawaii. Employers can meet this requirement by paying for insurance directly, paying into medical reimbursement accounts, or by paying into the City’s Healthy San Francisco public option.

Healthy San Francisco was met with great demand. Thus far, 45,000 adults have enrolled,iii compared to an estimated 60,000 who were previously uninsured. Among covered businesses, roughly 20 percent have chosen to use the city’s public option for at least some of their employees.

In this research note, we provide evidence on the initial impact on the employer health spending requirement on jobs as well as costs to consumers. This is part of a multi-year research project we are conducting to better understand the effects of San Francisco’s reform efforts.