The San Francisco health care security ordinance: universal health care beyond ERISA's reach?

• Author: Goldman, Brian P.

INTRODUCTION

While Congress, presidential candidates, and pundits continue to debate health care reform in the United States, local and state governments have moved to expand health care access on their own. Common to these initiatives are "pay or play" provisions that compel employers to choose between providing health care for their employees, typically by offering health insurance plans, or paying a fee in support of government-provided health care for the uninsured. (1) Despite these innovative efforts to keep ahead of the slow pace of national reform, state measures have been held back by a federal law requiring uniform national regulation of employee benefit plans. (2) But a recent San Francisco ordinance, the first ever initiative by a municipal government to provide universal health care, may become the first "pay or play" plan to survive federal preemption challenges. (3) If it succeeds, the San Francisco plan should serve as a model for other cities and states seeking to bring about more rapid health care reform.

1. LEGISLATIVE PURPOSE AND HISTORY

   The San Francisco Board of Supervisors passed the San Francisco Health Care Security Ordinance unanimously on July 25, 2006. (4) The statute launched a program to provide universal health care access to all adults who live or work in San Francisco, regardless of employment status, immigration status, or preexisting medical conditions. (5)

   The city's motivation was twofold. First, it regarded universal access to care for the estimated 73,000 uninsured city residents as "morally incumbent" upon the government. (6) Second, by emphasizing access to preventive care, the city also sought to reduce the "burden on San Francisco taxpayers for providing health care for the uninsured" by promoting earlier, more cost-effective medical attention. (7) Currently, many uninsured who cannot afford to seek help sooner wait until their conditions are more serious and therefore more costly--to seek attention in public hospital emergency rooms, which are required by federal law to treat critical conditions regardless of patients' ability to pay. (8) San Francisco estimates the annual cost of providing "unnecessarily expensive" emergency and other health care to the city's uninsured to be $104 million. (9)

   Nearly two years earlier, California voters had defeated Proposition 72, a statewide "pay or play" initiative. (10) San Francisco voters, however, had supported the proposition with sixty-nine percent approval. (11) Seeking to capitalize on this strong local support, Mayor Gavin Newsom and Supervisor Tom Ammiano proposed municipal universal health care programs of their own in early 2005. (12)

   The ordinance originated as two separate proposed programs: (1) Supervisor Ammiano's "employer spending requirement" and (2) Mayor Newsom's Health Access Plan. (13) Ammiano's proposal mirrored the failed California initiative by adopting a "pay or play" approach. (14) Recent city surveys had shown that most employers wanted to provide health benefits but feared being put at a competitive disadvantage by doing so. Citing these surveys, Ammiano sought to level the playing field by making such expenditures mandatory. (15) The program's scope, however, was limited to uninsured employees, not universal coverage of all adults.

   The mayor's Health Access Plan, on the other hand, sought universal coverage for all uninsured adults in the city. Originally, however, it did not mandate employer contributions. (16) Rather, it emphasized the "voluntary nature" of the plan, relying on elective contributions from employers to support the plan along with city funds. (17) The proposal noted that "success will depend upon attracting individuals and perhaps their employers who believe that access to comprehensive health services is valuable." (18) This "voluntary" approach reflected the presence of the San Francisco Chamber of Commerce and small business associations in a working group assembled by the mayor to craft the plan. (19)

   In July 2006, the city's influential head of the Department of Public Health, Dr. Mitchell Katz, encouraged the Board of Supervisors' Budget and Finance Committee to merge the two plans, noting that Ammiano's employer spending requirement would be necessary for the Mayor's more expansive coverage plan to succeed. (20) Ultimately, the Board of Supervisors and the Mayor accepted a unified plan that mandated employer spending. (21) The compromise was reached despite the objections of city business associations, who quickly signaled that a lawsuit would follow. (22)

   The final version of the ordinance both launched the "San Francisco Health Access Program" (HAP) and provided for the enforcement of required employer health care expenditures. (23) The HAP provision outlines a new social service program that is innovative in its design. Because the HAP provision does not directly address funding, however, it has not generated the controversy sparked by the second, "pay or play" provision. These two components--the successors of Newsom's and Ammiano's original proposals--will be examined in turn.

2. THE ORDINANCE'S TWIN PROGRAMS

   1. The Health Access Program

      Without actually creating a new insurance plan or managed care organization, the HAP provides many of the benefits of managed care to San Francisco's uninsured residents and workers. It accomplishes this through five frugal and creative structural features.

      First, the HAP links existing community clinics and the county hospital into a provider "network" that serves program participants. (24) This integration allows for easier access to the most critical services of a traditional managed care plan, such as preventive, primary, hospital, emergency, and prescription drug care. (25) By limiting HAP services to this network of providers, the program is also able to contain costs. Unlike traditional insurance, HAP coverage does not travel with participants; services rendered by providers outside the established network in San Francisco are not covered. (26) As a result, the HAP's administrative costs should be significantly lower than those of a typical health plan, due in part to avoiding costs that insurers would incur such as out-of-network claim processing and high reimbursement rates to out-of-network providers. (27)

      Second, HAP administration is delegated to the Department of Public Health, rather than to a newly created bureaucracy, thus leveraging existing staff and resources as much as possible to avoid unnecessary administrative costs. The ordinance leaves most implementation details, such as identifying additional providers for the network and defining specific medical services to be covered, to the Department. (28)

      Third, the program adopts the "Medical Home" model, which assigns a primary care provider, such as a physician or nurse practitioner, to each program participant to facilitate their timely and coordinated medical care. (29) From a patient's perspective, this model represents an industry best practice. Patients benefit from a single point of entry into the health care system, as well as the comfort and continuity of a relationship with a primary care provider. (30) From a systemic perspective, emphasizing primary care and preventive services is widely recognized as producing fewer hospitalizations, improved health outcomes, and lower health care costs. (31)

      Fourth, by limiting coverage to core services provided within the designated network, the HAP deliberately positions itself as an inferior substitute for true health insurance--though a substitute that is superior to no coverage at all. (32) As a result, it aims to attract the unserved segment of the health care market without also taking on people who could otherwise obtain health insurance.

      Fifth, the HAP is carefully designed to supplement, not replace, existing state and federal health services. By providing universal health care access, not universal health care insurance, the HAP does not de-qualify program participants from receiving federal and state benefits that are available only for the uninsured (e.g., subsidized antiretroviral medications for HIV/AIDS patients). (33) Moreover, HAP participants are still counted in the city's uninsured population, so the city continues to receive approximately $44 million in state and federal funding for caring for this group. These funds are now used to directly subsidize the HAP. (34)

      Additional funding for the HAP comes from existing city funds designated for the uninsured, program participant fees, and employer contributions. In 2007, the city budget provided $123 million for care for the uninsured; moving forward, these funds are being redirected to the HAP. (35) Participants themselves are required to pay quarterly participation fees, set on a sliding scale according to household income, as well as point-of-service fees for each service received. (36) Finally, the HAP budget is topped off by contributions from employers who opt to "pay" the city, rather than "play," to satisfy their employer spending requirement.

   2. The Employer Spending Requirement

      The second component of the ordinance mandates that "covered employers ... make required health care expenditures to or on behalf of their covered employees each quarter." (37) The amount of "required health care expenditures" is a function of the hours for which a covered employee is entitled to be paid "for work performed within the City." (38) As of January 2008, businesses with over one hundred employees must spend $1.76 per hour per employee, and those with twenty to ninety-nine employees must spend $1.17. (39)

      While the ordinance sets the minimum health care expenditure requirement, it is careful to avoid mandating how those funds are spent. It is entirely at the employer's discretion whether it chooses to pay the required amount directly to the employee for the purpose of acquiring health care services, to buy health insurance on behalf of the...