The San Francisco Health Care Security Ordinance (HCSO) requires “covered employers” to make certain health care expenditures for their “covered employees.”


Who is a Covered Employer?

Employers are subject to the HCSO if they:

  • employ one or more workers within the geographic boundaries of the City and County of San Francisco;
  • are a for-profit business with 20 or more employees worldwide or a nonprofit with 50 or more employees worldwide; and
  • are required to obtain a San Francisco Business Registration Certificate.


Who is a Covered Employee?

An employee is covered by the HCSO if they:

  • are entitled to be paid the minimum wage;
  • have been employed for at least 90 calendar days;
  • perform at least 8 hours of work per week in San Francisco; and
  • do not meet an exemption.


What are the new HCSO rules for self-insured employers?

The HCSO office implemented new rules for self-insured employers in late 2017.  The San Francisco Office of Labor Standards Enforcement (OLSE) will only be enforcing these updated rules from 2018 forward.  The new rules address expenditure calculation methods for self-insured employers as described in Rules 5.9 and 5.10. The major change in the rules is that the “COBRA equivalent rate” for a health plan may no longer be used to determine whether a Covered Employer has met the spending requirement if the employer is self-insured.  The health care expenditures must instead reflect amounts irrevocably paid to third parties.  An “irrevocable” health care expenditure is one that has not been retained by and cannot at any time be recovered by or returned to the employer. This means that the employer cannot recover any portion of the funds, even if the employee leaves the job or if the business ceases to operate.  For example, a Flexible Spending Account (FSA) may not be considered because those funds may be returned to the employer if unused at the end of a calendar year.

Specifically the rules require the following:

  • Self-insured employers may comply with HCSO by offering a self-insured uniform health plan, so long as the plan satisfies one of the following:
    1. The employer pays premiums and/or fees to a third party to administer the plan; no portion of those premiums or fees are returned to the employer; and the premiums and fees paid for a calendar quarter meet or exceed the required health care expenditure for each Covered Employee for that quarter.  If this method is used and the expenditures fall short of the requirement, any shortfall payments must be made to the City Option on a quarterly basis (as is currently the case for fully insured plans); or
    2.  The employer pays claims as they are incurred, and the preceding year’s average hourly expenditures meet or exceed that year’s expenditure rate for that employer.
      • This option is limited to uniform health plans, meaning the plan must have the same benefit design for all covered employees, including co-pay requirements, out-of-pocket maximums, deductibles, coverage tiers, and eligibility criteria.
      • The average hourly health care expenditure for employees in a uniform health plan shall be calculated by dividing the total amount of required health care expenditures for employees in the plan by the total number of hours payable to each of the employees in the plan during that calendar quarter (capped at a maximum of 172 hours per month).
      • The employer shall receive credit toward the employer spending requirement in the amount of the average actual irrevocable expenditures made per Covered Employee.  If the average expenditures fall below the requirement, the employer will still owe the remaining balance, which can be paid to the City Option.
      • If an employer is using this calculation method, they do not need to make quarterly expenditures.  They would need to “top-off” any shortfall expenditures (if needed) by the last day of February of the following year (in this case, February 28, 2019).  This top-off would generally be made to the San Francisco “City Option.”


What are examples of irrevocable expenditures?

Examples of Health Care Expenditures include, but are not limited to:

a. Payments to a third party to provide health care services for a covered employee, such as health, dental, or vision insurance premiums;

b. Expenditures made by self-insured and/or self-funded insurance programs;

c. Expenditures made to a union trust fund, counting only the part contributed for healthcare;

d. Irrevocable contributions to medical reimbursement accounts, such as a health savings account;

e. Costs incurred in the direct delivery of health care services for a Covered Employee; and

f. Payments on behalf of a Covered Employee to the City Option


Are there any changes to the HCSO rules for fully insured plans?

No, there are no changes to the quarterly expenditure requirements or calculations for fully insured plans.


What is the employer spending requirement?

The amount that is required to be spent on each employee is dependent on the size of the company and the number of hours an employee works.


  • For large employers (with 100+ employees), the 2018 expenditure rate is $2.83 per hour payable.
  • For medium employers (with 20-99 employees), the 2018 expenditure rate is $1.89 per hour payable.
  • This amounts to $486.76/month for full-time employees at a large company or $325.08/month for medium sized employers in 2018 (capped at 172 hours per month).



  • For large employers (with 100+ employees), the 2019 expenditure rate is $2.93 per hour payable.
  • For medium employers (with 20-99 employees), the 2019 expenditure rate is $1.95 per hour payable.
  • This amounts to $503.96/month for full-time employees at a large company or $335.40/month for medium sized employers in 2019 (capped at 172 hours per month).



  • Self-insured employers must collect HCSO waivers from employees who are waiving coverage in order to avoid the expenditure requirement; however, an employer may not retaliate against or force any employee to sign the waiver form.
  • If an employee does not sign the HCSO waiver form, the employer must still make the required employer contributions.
  • Contributions should still be made for employees who are waiving health coverage (and who do not sign waiver forms) on a quarterly basis, as usual.


Employer Action Items:

  • Employers should check in to see how their plans have been running throughout the year to determine if expenditures might be owed by the end of February.
  • Employers should reach out directly to the HCSO office at or 554-7892 if they have specific questions about their plans or how to comply with the new rules.
  • Sign up for future HCSO emails to stay up to date on the rules.


The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current legal developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog.

Joanna Castillo– Joanna is the Client Compliance Manager for Sequoia, where she works with our clients to optimize and streamline benefits compliance. In her free time, Joanna enjoys live music, college football, travel, and walking her dog in Golden Gate Park.