Reviewing San Francisco contractor-lessee health plan, pay rules 

February 22, 2024

San Francisco contractors and lessees (and their subcontractors and subtenants) may have to provide covered employees health coverage meeting minimum standards or make an alternative payment under the Health Care Accountability Ordinance (HCAO). The Department of Public Health (DPH) has clarified how these standards apply to covered employers. Minimum standards and alternative payments also apply for covered employees at the San Francisco International Airport (SFO) under the Healthy Airport Ordinance (HAO), which amended the HCAO in 2020. Finally, covered service contractors and airport tenants are subject to minimum compensation rates and time-off requirements under the city’s Minimum Compensation Ordinance (MCO). The Office of Labor Standards Enforcement (OLSE) enforces all three ordinances.

An employer may have HCAO compliance obligations if it has a service contract with San Francisco city and county, or a lease at SFO or the Port of San Francisco. These obligations also apply to subcontractors and subtenants under the contract or lease. The contract or lease must be for at least $25,000 annually ($50,000 for nonprofit employers). Covered employers include for-profit employers with 20 or more employees anywhere in the world (50 or more employees for nonprofit employers).

A covered employee includes any employee working for a covered employer on an HCAO-covered contract or leased property for at least 20 hours a week, anywhere in the United States. San Francisco contractors and tenants must offer minimum health benefits at no cost to covered employees under the HCAO and HAO.

HCAO requirements should not be confused with San Francisco’s Health Care Security Ordinance (HCSO), which applies to employers that must obtain a San Francisco business registration certificate and have at least 20 employees globally if at least one works in San Francisco city or county, regardless of whether the employer contracts with San Francisco. For information on the HCSO, see San Francisco Health Care Expenditure rates released for 2024 (Aug. 25, 2023).

The DPH-issued 2024 HCAO minimum standards (unchanged from 2023) require plans to cover all services listed in California’s current essential health benefit (EHB) benchmark plan (CA Benchmark Plan). The standards apply to employee-only coverage and do not require dental or vision benefits. Employers must also conspicuously display an OLSE poster at each San Francisco worksite.

Employers must annually obtain covered employees’ signed acknowledgment of receiving and understanding the HCAO Know Your Rights notice. Employees may waive their coverage rights by signing an approved waiver form. Employers must retain signed notices and waivers for four years after the applicable contract expires. All notices and posters must be available in English, Spanish, Chinese and any other language spoken by at least 5% of employees at the workplace or job site. Templates are also available in Filipino.

Besides covering EHBs, a contractor's health plan must comply with these 16 standards:

All gold- and platinum-level plans offered on the ACA’s HealthCare.gov platform are compliant if they meet requirements #1, #5 and #8 through #16 above. Employers may offer other health plan options but must make at least one option that meets HCAO standards available at no cost to covered employees. A compliant plan option may be self-funded or fully insured.

DPH has published a FAQs and common clarifications document addressing key issues, including:

• The alternative payment described below does not count as insurance and is not a direct benefit to San Francisco employees.
• Employers with coverage written in another state should seek an insurance rider for the San Francisco-required services not covered or obtain a compliant plan written in California.
• Any quantity limits on coverage must meet the specifications in the CA Benchmark Plan. For example, the CA Benchmark Plan does not have quantity limits on bariatric services.
• The HCAO does not require pediatric dental or vision coverage. However, adult routine eye exams must be covered.

HCAO-covered employers that do not provide minimum benefits must pay the city an additional hourly amount for covered employees who live or work in San Francisco. For covered employees who live or work outside San Francisco, employers must make these payments directly to the employees. The payment is capped and changes annually for inflation, effective July 1. The current rate is $6.35 per hour with a weekly maximum of $254.

Employers should remit these amounts along with the HCAO payment option form. Employers selecting this option need not collect waivers from covered employees.

The HAO amended the HCAO in 2020 to include employers and employees covered by SFO’s Quality Standards Program, which provides comprehensive safety and security rules for the airport. Covered employers must provide health plan coverage meeting these standards:

• The employer pays 100% of the employee-only portion of medical coverage.
• The plan option is actuarially equivalent to a platinum-level plan on HealthCare.gov (i.e., at least 90%), allowing for a de minimis variation permitted under the ACA rules.
• The plan option coverage includes benefits in the CA Benchmark Plan, including pediatric dental and vision benefits (which can be on a stand-alone basis). Beyond that, no other cost-sharing requirements apply.
• Coverage must be available to the following dependents: spouses or registered domestic partners and the covered employee’s children (including any legally adopted child, recognized natural child, stepchild, foster child, and minor legal ward).

Alternatively, employers may contribute to the City Option program. The current City Option contribution rate is $10.30 per hour, subject to a $412.00 weekly maximum. The HAO also has its own versions of the notice, poster and waiver, similar to the HCAO.

Besides the health coverage requirements, a separate set of standards for minimum compensation and time off may also apply. The MCO covers most service contractors, as well as tenants at SFO. The law generally requires covered employers to provide their covered employees:

• The minimum MCO hourly wage currently in effect
• 12 paid days off per year (or the cash equivalent) for vacation, sick leave, or personal necessity (prorated for part-time employees)
• 10 unpaid days off per year (again, prorated for part-time employees)

Minimum hourly pay rates vary by employer type and change annually for inflation, effective July 1. Here are the changes currently in effect through June 30 (rates starting this July 1 have yet to be announced):

Covered employers should evaluate whether they and their workers are covered by the HCAO, HAO and/or MCO. These employers need to ensure appropriate coverage or payments for 2024. Other tasks include evaluating 2024 plan designs against HCAO standards, especially for employers sponsoring a self-funded plan (or a fully insured plan issued in another state). These employers should review the CA Benchmark Plan, which includes coverage of services that might normally be excluded (for example, bariatric surgery, acupuncture and temporomandibular joint disorders). Employers may reach out to DPH at maxwell.gara@sfdph.org or 415-554-2621 for any questions about compliant plan designs.

Even employers that are not subject to the HCAO, MCO or HAO but have San Francisco workers should review potential HCSO compliance requirements.

• California's Essential Health Benefit (EHB) Benchmark Plan (Centers for Medicare & Medicaid Services)
• Healthy Airport Ordinance (OLSE)
• Health Care Accountability Ordinance (OLSE)
• Minimum Compensation Ordinance (OLSE)
• San Francisco labor laws for city contractors (OLSE)
• HCAO Know Your Rights notice — July 1, 2023 (OLSE, Jan. 2, 2024)
• HCAO minimum standards effective Jan. 1, 2024 (DPH, Aug. 17, 2023)
• HCAO minimum standards: FAQs and common clarifications (DPH, Aug. 17, 2023)
• HCAO Notice to Employees poster — July 1, 2023 (OLSE, May 23, 2023)
• HCAO payment option form (OLSE, June 2, 2022)
• HCAO Waiver Form (OLSE, June 20, 2019)
• HAO Know Your Rights notice — July 1, 2023 (OLSE, May 23, 2023)
• HAO Notice to Employees poster — July 1, 2023 (OLSE, May 23, 2023)
• HAO Waiver Form (OLSE, Jan. 26, 2021)

• San Francisco posts 2024 Health Care Expenditure rates (Aug. 25, 2023)