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S.F. civil grand jury slams restaurant health care surcharges

SF Public Press
 — Jul 19 2012 - 5:49pm

UPDATED 6:53 p.m. with response from the mayor.

San Francisco’s civil grand jury on Thursday chastised many of the city’s restaurants for profiting from surcharges they add to customers’ bills under the name of paying for health care and recommended that the city ban the practice.

In its report the civil grand jury recommended that restaurants no longer be allowed to add health care surcharges or be allowed to offer health reimbursement accounts as a way to comply with a city law requiring businesses to help workers with health care expenses. The San Francisco Public Press reported on this problem last November as part of a team report on the city’s universal care program, Healthy San Francisco.

In a summary of its investigation into compliance with the Health Care Security Ordinance, the civil grand jury said most of the restaurants adding surcharges made money off those charges. The ordinance requires most San Francisco businesses and nonprofit employers to spend some money on health coverage for employees.

“The Jury found that a growing segment of restaurant establishments are profiting from the practice of adding a surcharge to the bill of every customer,” the report said. “These same employers are legally able to reclaim funds intended for employee health care thus increasing their profits even more. This blatant capture of funds is at the expense of their employees, and their customers who believe they are paying surcharges for healthcare.”

The civil grand jury directly looked at a small number of restaurants. Of 18 restaurants adding surcharges to customers’ bills, 16 profited, said the chairman of the committee that looked into the issue. He said their average profit on the surcharges was 46 percent. The two that didn’t profit offered standard health insurance instead of health reimbursement accounts, said the committee chair, Mark Busse.

“On HRAs, the jury concluded that the system is broken when less than 10% of the HRA funds make it to the employees,” Busse said.

“The jury calls for the end of this gratuitous practice of allowing business owners to add surcharges to recover the cost of employer mandates,” the group stated in releasing its report. “Additionally, the jury recommends the elimination of employer Health Reimbursement Accounts (HRAs) in favor of the city option since the city cannot effectively police the rampant abuse of HRAs.”

The Health Care Security Ordinance took effect in 2008 and requires that every business with 20 or more employees and every nonprofit employer with 50 or more employees contribute to financing health care for those who work at least eight hours a week. The ordinance allows them to choose from three methods to comply. One is to offer standard health insurance. A second is to enroll their employees in Healthy San Francisco, the city’s health plan for the uninsured. A third is to offer health reimbursement accounts that employees can draw from to pay for medical expenses. A number of employers with mostly part-time staff, such as restaurants and retail shops, chose this option.

If employees don’t get sick or don’t draw from health reimbursement accounts, the law has allowed employers to recoup unspent funds in those accounts.

The city’s Labor Standards Enforcement Office started getting complaints about the reimbursement accounts and last year. It studied employer compliance with the ordinance over the last three years and found that four-fifths of those using health reimbursement accounts were recouping funds.

Supervisor David Campos proposed an amendment to the Health Care Security Ordinance last year to disallow businesses to recoup unspent money. The measure passed, but Mayor Ed Lee vetoed it. Early this year, supervisors passed a compromise amendment that requires businesses using the reimbursement accounts to keep money in those accounts for two years before recouping unspent health funds.

The mayor and various city agencies will be required to respond to the civil grand jury report in coming months.

On Thursday, Donna Levitt, manager of the Office of Labor Standards Enforcement, said, “The civil grand jury tackled a complex issue and raised some serious concerns.” Levitt said her office planned to issue a report next week analyzing data submitted by employers about their 2011 compliance with the Health Care Security Ordinance.

“Mayor Lee will review the Civil Grand Jury report that is sitting on his desk when he returns from the US Conference of Mayors Leadership meeting in Philadelphia,” said Francis Tsang, a spokesman for Lee. “The mayor has already taken steps through legislation to change some aspects of the Health Care Security Ordinance and will continue to examine strengthening workers access to health services.”

Read the complete report from the civil grand jury here.


Owning a home care agency that services two adjoining counties San Mateo and Santa Clara, I witnessed my good competitors have to deal with the cost Healthy San Francisco that puts well over $1.00 an hour onto the hourly cost of a privately paid home care aide. The administrative tracking and related costs is yet another nightmare. Then I watched as two San Mateo county supervisors planned to do the same to those companies that were located in county areas (unincorporated areas) and found it of great interest to note that one of the supervisors owned a pool service but because he treated his workers as Independent Contractors, he would not have to pay the cost of this tax. In reality such imposed costs often keep salaries down and drive services into the underground economy. This is true with bike messengers, many housekeeping, tree, lawn, painting, pool and home care aide services. In the end the workers are left without Medicare and Social Security, unemployment, disability benefits and workers compensation coverage. It is a trade off that should not be taken lightly.


Yes, there is abuse as with any regulation/ordinace. However, I encourage you to ask your waiter/waitress what s/he thinks about this next time you dine. I asked a waitress what she thought. She said she didn't like the surcharge because it reduced the tips she received. I replied, "But you now have health care benefits!" She said there was a meeting to tell employees about the benefits, but she didn't go. And, she really likes the free clinic near her home.
I don't like the surcharge, but I also don't like the idea that an employer must pay into a system for a benefit that isn't going to be used. Many part-time restaurant workers have other coverage (via school, parents up to age 26, individual policy, other full-time job, etc.). The employer must make contributions, even if the employee is covered elsewhere (unless covered by a "group" plan and a voluntary waiver is signed).
The issue isn't that the employers may keep unused funds, it is that those up in arms want the unused funds to be kept in the Healthy San Francisco program. If less than 10% of the funding is being used, then at least a portion of those who are covered, don't need the benefit (or aren't motivated enough to take advantage of it).
Employers were given an option, many legally chose the HRA. Funds are made available to employees as required. If unused, they revert to the employer rather than to Healthy San Francisco.

Well that watress doesn't sound very bright.

Also the surcharge is typically around a dollar, big deal.

Who didnt see that one coming? Thats called "Passing on costs" and businesses do it all the time. The only thing surprising here is that people are surprised.

I work at a restaurant in San Francisco and our restaurant has a surcharge added customer's bills. I think it is shameful that owners have profited from this practice. However, I know for a fact that at my job the surcharge is put into a large fund to pay for our healthcare and there is no profiting. We receive great coverage through Kaiser, at no cost to us. This year the owner of the restaurant informed us that there was a such a great surplus in the fund that they we able to offer us Dental insurance as well. That is amazing because dental care is so important and so very expensive. Our restaurant also offers us a retirement saving plan.
The owners of the restaurant I work have stepped up to the plate and really take care of their employees. I hope the practice isn't banned because it seems unfair to penalize everyone because of a minority of violators. Why can't the city's Labor Dept. simply track the HRA funds to ensure that they are being used correctly, and slap penalties only on the employers who are in violation of the law?

Your restaurant's owner sounds like a solid citizen. Please name the place, so we can give it more business.

We are investigating possible fraud and potential legal action related to the Healthy SF surcharge. If you believe you have been a victim of such fraud, please contact us at All messages will be kept confidential.

 Hi, could you please clarify who you are or what group you represent in your investigative capacity? I think the public would want to know. Thanks.

Ambulance-chasing attorneys. But possibly for a good cause here.

We are attorneys investigating the case. Please contact us should you desire more information. Thank you.

Clearly they aren't an actual city agency. If they were, they wouldn't have a gmail account for this.