Looking for a potential source of revenue? There's an opportunity for brokers doing business in and around San Francisco to pick up some incremental business based on a recent court decision. Hopefully dedicating five minutes to read this will result in you picking up an extra nugget or two.
In reversing the district court's ruling in early October, the 9th Circuit Court of Appeals surprised no one and unanimously found no ERISA pre-emption in Golden Gate Restaurant Association v. City and County of San Francisco. The reason for the lack of suspense was that the same three-judge panel that ruled on this case also issued an order in January requiring employers to make contributions pending the outcome of this appeal. Their lengthy opinion in January was more than a little foreshadowing as to the likely result here. And while the 9th Circuit explicitly states they do not believe their ruling is contradictory to the 4th Circuit's ruling in Retail Industry Leaders Association v. Fielder, the 9th seems to be alone in that belief. Most pundits believe that because these rulings are inconsistent, the U.S. Supreme Court ultimately will decide the fate of this case.
By way of a refresher, the 4th Circuit's opinion dealt with a Maryland law that required employers with 10,000 or more Maryland employees to spend at least 8 percent of their total payrolls on employees' health insurance costs or pay the shortfall to the state of Maryland. Ostensibly, this law only affected Wal-Mart and eventually was overturned when the 4th Circuit found that ERISA pre-empted the law.
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At issue in the 9th Circuit's case is San Francisco's Health Care Security Ordinance, which requires employers to make a qualified health care expenditure on the behalf of their employees working 10 or more hours per week. Right now, employers with 100 or more employees have to contribute $1.76 per "hours paid" to cover an employee's "health care services." As of Jan. 1, 2009, this will jump to $1.85 per hour paid. Health care services can include medical, dental or vision care, as well as services or goods that qualify as tax deductible under Section 213 of the IRS code.
While the 9th Circuit's opinion gets into their justification for why this is not an ERISA issue — and therefore not subject to ERISA pre-emption – the result is that until decided otherwise by the Supremes, Bay Area employers are subject to the requirements of the Ordinance. And while it would be easy to turn this into a referendum on government involvement in the private sector — especially during election season — we need to turn to potential solutions given the current landscape.
According to the Office of Labor Standards Enforcement for the City and County of San Francisco, there are nearly 85,000 uninsured adult residents of San Francisco. Of those, more than half of them are employed. That means there are roughly 50,000 potential insureds employers need to suddenly make health care expenditures for.
Further, in a footnote to its opinion, the 9th Circuit states that as of May 1, 2008, 734 employers — covering 12,900 employees –already have elected to comply with the ordinance by paying the city directly. Therefore, it's clear this situation is screaming for some professional assistance.
Think of the opportunity here: Thousands of employers and tens of thousands of employees, all being forced into the health care marketplace. What better place for a benefit broker or consultant to provide value to their client than by helping them get into an appropriate health plan? Rather than an employer taking the easy way out and merely dumping money into the city's plan, you have the opportunity to help your client develop a plan that not only will comply with the ordinance requirements, but as importantly, become a positive for the employer. By proactively shaping a benefit package that attracts and retains employees, you will be adding value to an expense your client is incurring already.
Specific solutions and plan designs will depend on several factors — including the likelihood an employee consistently will work a certain amount of hours. However, if you know you have an employee population that will likely work 20 hours each week, you can design a program tailored around a $37 per week premium (based off the Jan. 1, 2009 $1.85 per hour requirement). Clearly enough premium to cover that employee with a 100 percent employer-provided limited benefit plan, while having some dollars left over for ancillary coverage. If the employees usually work more hours per week, you design richer benefit levels — approaching what some are calling "middle-meds" — and put any remaining funds into an HRA to cover things like plan deductibles. The possibilities and potential are endless.
By offering plans to their employees in lieu of turning them over to the city's health plan, employers will be showing their employees that they are looking out for them, not just going along with what the government requires.
However, in order to gain this goodwill, employers need to be armed with the best possible solution for their employee population — and that's where you, as a benefits expert, come in.
Given that an appeal for an en banc hearing before the 9th Circuit is likely, as well as a potential showdown in front of the Supreme Court, a final determination on this case is still a couple of years away. In the meantime active brokers can stake out their own claim. While this gold rush is nowhere near as great as the one that eventually brought five Super Bowl championships to the Bay Area, it could still prove to be a fruitful one for an active, knowledgeable producer.
Tom Blomberg can be reached at [email protected].
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