San Francisco Lawmakers Compromise on HRA Rules

November 17, 2011 ( - San Francisco legislators have approved a compromise plan to impose new restrictions on health reimbursement arrangements used to satisfy the city’s mandate on employer spending for employee health care.

Business Insurance reports that the proposal, unveiled by Malia Cohen, a member of the San Francisco board of supervisors, would require that funds employers contribute to HRAs to satisfy the health care spending law be available for 24 months after the contribution. For terminating employees, the account balance would have to be available for 90 days after the employee leaves.  

A previous measure providing that unused amounts contributed to health reimbursement arrangements for employees would be rolled over from year to year was voted against in August (see San Francisco Lawmaker Withdraws Health Care Proposal).  

The proposal was generated by a June report by the city’s Office of Labor Standards Enforcement that found that only 20% of the $62 million allocated to the plans last year was actually reimbursed to employees.    

Most employers satisfy the minimum spending requirement through payment of health care insurance premiums; however, employers also can contribute the required amounts to HRAs for employees, from which, at the end of the year, unused funds revert back to the employer.  

 Business Insurance says benefit experts have questioned the legality of the Cohen HRA proposal, arguing that by mandating that HRAs meet certain requirements, it runs afoul of a provision in the federal Employee Retirement Income Security Act, which pre-empts state and local laws and rules that relate to employee benefit plans.  

An aide to Supervisor Cohen said: “We believe that this proposal is legally defendable and does not violate ERISA.”  

The provision takes effect January 1, 2012.