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City cracks down on SF restaurant surcharge fraud

Wonder how many restaurants will get rid of it now that they know they will get punished and have to give the money to the city if they collect it and don't spend it on health care?


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  1. The city has defined three categories of businesses based on numbers of employees and requires they spend nothing, $1.46, and $2.33 per hour per employee on health care respectively. That creates a pretty strong incentive for restaurants not to factor that de facto tax into menu prices.

    The law explicitly allows restaurants to keep that money under certain circumstances if it goes unspent, so the district attorney crying fraud is political grandstanding.

    6 Replies
    1. re: Robert Lauriston

      "The law explicitly allows restaurants to keep that money under certain circumstances if it goes unspent"

      Restaurants had an incentive for the money to go unspent and from what I understand some made intentional efforts to ensure the money did go unspent by not informing employees that any money was available. So I don't really see this as the restaurants are innocent saints caught up in political grandstanding.

      1. re: Scott M

        If the city isn't happy with the results of that badly-written law they should improve the law, not sue struggling business owners who were following it.

        1. re: Robert Lauriston

          I believe everyone understood the intent of the law was to help provide healthcare for workers, it was even called the Healthy SF surcharge. Now to intentionally make it difficult for workers to get the money for it's intented purpose and then to pocket the money for your own benefit is by definition fraud. Feel free to look it up.

          1. re: Scott M

            I've read the law. The Board of Supervisors amended it in 2011 to regulate surcharges starting 1/1/2012, and to exclude surcharges prior to that—precisely the ones the DA is going after—from reporting or reconciliation.

          2. re: Robert Lauriston

            So what you are saying is if there is a building safety law that is hard to understand a construction company should just get to ignore it cause it will cost them more to follow the law?

            It's real simple. Restaurant can have their pathetic surcharges that NO other business owners would dream of adding to their bills (at least not me or any of the other business owners I know) so long as they actually use that money for healthy care. I would think this would clear to them considering they list it as SF health care charge. If the restaurant isn't maybe a profit from the charge then they have nothing to worry about.

            The problem isn't the law but dishonest business owners who are trying to use a law to make a buck.

            Not rocket science except for people that feel they have right to defraud either customers or employees which I am sure no ethical business person would want to do.

            1. re: tjinsf

              Read the DA's letter, he isn't accusing restaurants of breaking the law prior to the 2012 revisions.

              He's basically trying to apply the revised law retroactively back to 2009 by threatening them with prosecution for fraud.

      2. I have many issues with what is going on.

        1. This is not an easy law to be compliant with and there are not many resources to get answers. It appears to be black and white, however it is not. It essentially does not want the business to self administer this program. They encourage a TPA, which is an addition cost to any business.

        2. The money in HRA accounts must be used in 36 months. What is the business supposed to do with the left over money after 36 months. ???

        3. There is really poor press reporting on this issue. No where does it say what the money was being used for. In Paxti's case, it simply states "other purposes". Paxtis said they every employee who turned in a medical bill received a check. so where is the violation? Is it from the unused money after 36 months? were they refusing to pay certain employee claims?

        4. SF has the highest Min wage and no tip credit, and with the 2.33 per hour requirement, that brings min wage 12.88. On top of the many other expenses that are unique to restaurants. If a restaurant builds it into their prices, they risk that their menu items are now too expensive. And with an increased price per dish, the restaurant is now under even more scrutiny from the customer.

        5. Some companies, shocking enough, offer 100% health insurance for their employees. Now in addition to that they must participate in Healthy SF. Yes, they can take the cost of insurance out of the healthy sf account for each employee. This then becomes more work, and another expense to the business. Healthy SF was introduced in order to cover the uninsured. So if a business offers 100% health insurance, then why do they also have to provide healthy SF?

        6. The citizens of SF wanted healthy SF. The restaurant community tried to sue the city over it. If the citizens want this law, then they should pay for it. Why pass on the cost to the business?

        When the Affordable Care Act goes into affect, Healthy SF will become Null and Void as it does not meet the min requirements for the affordable care act. The Supervisors refuse to discuss this. and my theory is that SF realizes they have till 2014 to go after Health SF violators, because in 2014 Healthy Sf will not exist.

        44 Replies
        1. re: marthayou

          Thanks for writing up the details.

          One more bit, the city was constrained by ERISA from making compliance straightforward. That doesn't excuse writing a bad law but it does help explain why it makes so little sense.

          Correcting my earlier error, it's the city attorney that's doing this, not the DA.

          1. re: marthayou

            "When the Affordable Care Act goes into affect, Healthy SF will become Null and Void as it does not meet the min requirements for the affordable care act. The Supervisors refuse to discuss this. and my theory is that SF realizes they have till 2014 to go after Health SF violators, because in 2014 Healthy Sf will not exist."

            I'm not sure why you think this. HealthySF is legal and doesn't contravene the PPACA requirements. It's true that enrollment in Healthy SF will likely decline as a result of the PPACA going into effect, but that's not the same as saying it fails the PPACA's legal requirements. In fact, because many restaurant employees are undocumented, they are *precisely* the pool who will remain eligible for HSF - they can't go on Medi-Cal.


            "If the citizens want this law, then they should pay for it. Why pass on the cost to the business?"

            Because in America it is your responsibility as a business to provide health insurance coverage to your employees, and has been that responsibility since the introduction of tax breaks for employee health insurance during WWII. Stop shirking your responsibility.

            1. re: bigwheel042

              Healthy SF explicitly does not require any business to provide health insurance. It requires nothing at all of businesses with fewer than 20 employees.

              Businesses with fewer than 50 full-time employees are exempt from the Affordable Care Act's employer mandate, and the penalties for not complying with the mandate are probably lower than the cost of providing health insurance, at least in California.

              Saying that it's business's job to provide health insurance doesn't make it so. That's the kind of wishful thinking that leaves 45 million uninsured.

              1. re: Robert Lauriston

                Missing my point. The taxpayers have long paid for businesses to cover employee health care via tax incentives. In that context, arguing "you should pay for policies you want and stop punishing businesses" is beyond obnoxious.

                1. re: bigwheel042

                  Tax incentives don't come close to covering the high cost of providing health insurance. The small business tax credit, for example, is a maximum of 35 percent.


                  1. re: Robert Lauriston

                    So you're saying that tax subsidies no longer are sufficient to ensure that firms provide health care for their employees? Fine, I'll be more than happy to return to the good old days of sky-high corporate taxes and make good use of the extra revenue to provide proper health care for people.

              2. re: bigwheel042

                Who said they are skirting their responsibility? It is one thing for the Govt to say employers must provide health care. It is another thing for them to say WHAT healthcare must be provided.

                If a business offer 100% health coverage through Kaiser or Blue cross, then why do they also have to fund healthy SF?

                At least that is what I think the above poster was trying to point out.

                1. re: smatbrat

                  "If a business offer 100% health coverage through Kaiser or Blue cross, then why do they also have to fund healthy SF?"

                  They don't. You seem unfamiliar with how Healthy SF is funded.

                  1. re: bigwheel042

                    As I read the San Francisco Health Care Security Ordinance, if a business with 20 or more employees offers Kaiser, and any employees decline to participate in the plan, the business has to spend $1.46 or $2.33 per hour for each of those employees on one of the other health care expenditures allowed by the HCSO, even if the business would pick up 100% of the tab for Kaiser.

                    1. re: Robert Lauriston

                      I read it that way as well. IN addition if the 100% health insurance coverage, if that Kaiser insurance amounts to less then the 2.33 per hour, they have to offer the difference to the employee.
                      so if an employee works 40 hours a week X 4 weeks in a month(example) X 2.33 is 372.80.
                      What if the Kaiser cost is 250.00?
                      the remaining 122.8 must go to the employee for additional health care?

                      1. re: smatbrat

                        Yeah, it's ridiculous to put small businesses in the situation of having to do such complicated calculations.

                        The law should have been written in such a way that providing a health plan satisfied the requirements, and all the business would have to do would be provide copies of the paperwork. But that would probably have made it illegal under ERISA.

                        1. re: Robert Lauriston

                          The point, if I had to guess, is to ensure that businesses don't simply offer the crappiest possible insurance coverage to comply with the ordinance and save themselves money.

                          In the vast majority of cases a reasonable Kaiser plan will be superior to Healthy SF - and thus the vast majority of employees (if any) would not opt out of the group insurance plan. But if the offered plan sucks and turns out to be inferior to HSF, then you might see more opt-outs - in which case it's reasonable to expect the employer to foot the bill to allow the employee to obtain coverage that does not, in fact, suck.

                          From a public policy point of view this is more elegant than having a city agency decide which among the myriad insurance plans qualify and which are too crappy to provide good health care, and maintain an ever-changing list of the good and bad ones. You let the citizens make the decisions for you; if they're opting out it's probably a sign that their plans are not good.

                          1. re: bigwheel042

                            Under the HCSO, employees don't get to choose whether to go with Kaiser or an alternative (which are due to the ERISA business open-ended and undefined).

                            I believe that if an employee declines to participate in a health plan offered by the employer, the HCSO requires the employer to find some other way to spend the required amount for that employee. But it may be that the employer simply needs to spend the total amount. As noted above, the law is deliberately vague to avoid conflict with ERISA.

                            The City of SF is not taking reasonable steps to encourage employers to provide health care which employers are dodging. The law's a mess, employers have been struggling to comply, and the city has made no effort to help them comply or otherwise clean up the mess it made.

                            1. re: bigwheel042

                              Have you ever met anyone who has opted out? Spoke to them about why they opted out?

                              ETA: I really appreciate this discussion. Far more intelligent then what I have found on SFGate.com

                              1. re: smatbrat

                                I work in a restaurant that charges the fee. I hate the fee. Just raise the prices. I hate having the conversation with annoyed people. My job is to make people happy. That said, my employer offers Kaiser(and did before all this) and I decline it. My husband's company, which is also a food related business in SF, covers me with Kaiser. He is in a position that one of his benefits is my health coverage. That, too, was in effect before all this.

                                1. re: srr

                                  For cases like yours, your employer is specifically exempted from having to pay into Healthy SF, provided they file the necessary paperwork proving you are already covered.

                                  3.2 Covered Employee Exemptions
                                  (A) The following persons are not covered employees under the HCSO:

                                  (5) Persons who provide verification that they are receiving health care services through
                                  another employer, either as an employee or by virtue of being the spouse, domestic partner,
                                  or child of another person – provided that the employer obtains from those persons a
                                  voluntary written waiver of the health care expenditure requirements of the HCSO as
                                  follows. [etc]

                                  1. re: bigwheel042

                                    That's still pointless extra paperwork for the employer, and it's at the employee's discretion. Employees could choose not to join the health plan but refuse to sign a waiver.

                                    Employers should be able to offer a health plan that meets certain requirements, provide documentation on that to the city, and be done with it. But that would probably conflict with ERISA.

                                    1. re: Robert Lauriston

                                      Which is more likely?

                                      -That an employee who already has health coverage through a spouse/parent's plan will refuse to sign the form out of...spite for their employer (??)

                                      -That, freed from the requirement for their employees to prove they have coverage, businesses and insurers will work to make sure that they give employees the absolute minimum possible amount of coverage and try to constantly game a system that's weakened the competition piece of the equation.

                  2. re: bigwheel042

                    The citizens are paying for it: they pay the prices the restaurant sets.

                    If you put a surcharge on the menu and say it's for Healthy SF (or something similar) and then use it for something else, then that's fraud on the customer, whether it's breaking the law or not.

                    The surcharges are political, as many restaurant owners explicitly stated when they instituted them. Raising prices an average of four percent (i.e. your $25 entree now costs $26) is not going to make a significant impact on consumer decisions, especially if all your competitors are doing the same. Hiding your price increase in fine print at the bottom of the menu doesn't make the final tab any less, and is another form of fraud, since you're hiding your price increase instead of being upfront about it. The only difference between listing your prices as "$25 plus four percent Healthy SF" rather than "$26" is that the former is more deceptive and manipulative.

                    1. re: Ruth Lafler

                      Raising prices 4% would mean that dishes that were $9.50, $14.50, $19, or $29 would be $10, $15, $20, or $30. Those differences have a chilling effect on potential customers, or at least almost every restaurant in SF believes that's the case.

                      1. re: Robert Lauriston

                        So instead, they lie about the prices by listing the surcharge separately.

                        1. re: Ruth Lafler

                          But the same argument, not including sales tax in the menu prices is fraud and lying. While most Americans are used to having sales tax added, many European visitors are not.

                          1. re: nocharge

                            Except that sales tax is required by law and is the same for every restaurant, and the surcharge is not.

                            1. re: Ruth Lafler

                              Are you saying that the health care costs are not required by law? A business is legally obligated to pay sales tax, but nothing prevents it from having the cost of doing so baked into the price of the goods it sells. Are you saying it's fraudulent not to do so?

                              1. re: nocharge

                                Health care costs are required, but not a specific percentage of sales, nor are they pegged to sales at all. Health care surcharges are an arbitrary amount determined by the restaurant owner at the choice of the restaurant owner.

                                1. re: Ruth Lafler

                                  That still doesn't address whether it's fraudulent not to have the restaurant's costs for sales tax included in the menu prices.

                                  If a restaurant had upfront costs for health care at the level of the surcharge or higher at the time period the City Attorney is going after and charged the surcharge to meet those costs, where is the fraud?

                                  1. re: nocharge

                                    Sales taxes are set by the government. Technically, sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority. Although some merchants include sales tax in their prices for convenience, my understanding is that the government actually frowns on that, since it's harder to determine how much tax was actually collected. The exact amount of the tax is public knowledge, and 100 percent of the amount collected goes to the taxing authority.

                                    "Healthy SF" surcharges are an arbitrary amount established voluntarily by businesses to pass along an increase in their cost of doing business while keeping their listed prices deceptively low, making a political point and then profiting from it.

                                    1. re: Ruth Lafler

                                      "Technically, sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority."

                                      Really? Are you sure about that? I don't claim any expertise on this subject but the BOE has the following:

                                      Retailers engaged in business in California must register with the BOE and pay the state's sales tax, which applies to all retail sales of goods and merchandise except those sales specifically exempted by law.

                                      From that paragraph, it sounds like any business is responsible for paying the sales tax and that would contradict your idea that "sales taxes are not paid to the merchant at all, they are collected by the merchant on behalf of the taxing authority".

                                      In any case, I still don't get why charging a health-care related surcharge is fraudulent while a tax related surcharge is not.

                                      1. re: nocharge

                                        Not a contradiction, but a semantic difference. There are two transactions that colloquially we call "sales tax", but only one is legally mandated:

                                        1) from consumer to retailer
                                        2) from retailer to the state

                                        Transaction 2) is the legally required transaction. Transaction 1) is why they have to pay transaction 2), but literally it is true that consumers do not pay sales taxes. Retailers do. Consumers are simply reimbursing the retailer for the tax (let's leave out a wonky discussion of true tax incidence and elasticity).


                                        Can I collect sales tax from my customer?
                                        Yes. Although you are required to pay and report sales taxes to the Board, you may be reimbursed by your customer for the amount of tax you owe on a sale. For example, if you are required to pay $1.75 in sales tax on a sale, you may pass that cost on to your customer, provided it is agreed to as part of the sale. It is presumed that the customer agrees to pay the addition of the tax if:

                                        You list a separate amount of sales tax reimbursement on your receipts or invoices;
                                        You post a sign on your premises stating that sales tax reimbursement will be added to all prices of taxable merchandise, or make a similar statement on price tags, advertising material, and other printed material directed to the purchaser; or
                                        The sales agreement specifically calls for the addition of sales tax reimbursement.

                                        1. re: bigwheel042

                                          So sales tax and Healthy San Francisco are similar. The restaurant is legally on the hook for paying up, but often tries to pass on the cost to its customers. Still don't see why that would be inherently fraudulent in one case but not in the other.

                                          1. re: nocharge

                                            It's fraudulent if you collect more tax than you pay. Unlike sales taxes, the surcharges are not a direct reflection of the money that is actually being paid by businesses for the stated purposes -- they are arbitrary, as is demonstrated by the fact that different restaurants charge different amounts, ranging from nothing to a percentage that is clearly excessive for the stated purpose: you have restaurants where the average check is $40 and restaurants where the average check is $200 and are both charging the same percentage, even though the amount they are required to pay per employee is a flat amount.

                                            1. re: Ruth Lafler

                                              Restaurants that charge more generally have more employees per customer and the employees may also work longer hours.

                                              1. re: Ruth Lafler

                                                Restaurants commonly have labor costs in the 25-35 percent range and a lot of employees at or near minimum wage. Add a $2.33/h mandate to the $10.55/h minimum wage and it bumps up the labor cost by 22 percent for a minimum wage employee. Multiply that by the labor cost percentage and add the cost of administration and it doesn't seem like a 4 percent surcharge would leave a huge surplus for the restaurant to defraud customers with.

                                              2. re: nocharge

                                                The question is whether you know about the charge before ordering.
                                                In america, sales tax will be added to the bill - at the grocery store, when buying an airline ticket, at amazon.com, everywhere. The amount added the legally required amount, exactly.
                                                An obligatory surcharge other than sales tax is not expected, and should be announced when ordering.
                                                Since Healthy San Francisco is not tied to the price of the check, it is not the same as sales tax.

                                                1. re: bbulkow

                                                  A health surcharge is similar to a sales tax surcharge in the sense that it's the restaurant's attempt to pass on a cost to its customers separately rather than have the cost covered by the menu prices. Nothing stops a restaurant from having the menu prices cover everything, including sales tax. Sometimes stores do when they have "we pay the sales tax" promotions.

                                            2. re: nocharge

                                              Charging more sales tax than you paid could be fraudulent, though the BOE would go after you for underpayment, not fraud.

                                              The city attorney can't go after restaurant owners for underpayment since they complied with the law. Nor can he honestly charge them with fraud if the surcharge notice on the menu said something like "comply with SF law" rather than "provide health services."

                              2. re: Robert Lauriston

                                "Those differences have a chilling effect on potential customers"

                                As does a bill arriving that's got an extra charged tacked on to it. If you're dining on a budget, or with a group, it can be frustrating. What about a single patron being charged a flat fee? Suddenly an item like a pizza is unaffordable, and the establishment collected a surplus they aren't equipped to process towards the benefit of the employee.

                                It's no shock the city wrote a poorly executed law, and it's a tough city to own a restaurant in, but I have to agree, fraud is rampant.

                                1. re: sugartoof

                                  How can you form an opinion about whether fraud is rampant when there's as yet no proof that any restaurant spent surcharge funds on anything other than complying with the HCSO?

                                  1. re: Robert Lauriston

                                    Seems pretty much the same way you formed yours, minus the pages of posts.

                                    1. re: ML8000

                                      I don't have an opinion except that the incomplete and unsubstantiated information available so far doesn't provide a basis for reasonably accusing any business of fraud.

                                      The city attorney's letter makes it clear that they don't have the necessary facts, either. They're asking the restaurants to provide them.

                                  2. re: sugartoof

                                    If passing on health care costs to customers makes a pizza unaffordable, does it matter if the restaurant passes on the cost through raised menu prices or a surcharge? San Francisco has a very high minimum wage without tip credit plus the health care mandate. If dining out on a budget is frustrating, maybe the right people to blame are the voters who elected the politicians whose shoddy laws are causing the high cost of labor.

                                    1. re: nocharge

                                      I agree about shoddy laws, but something is wrong if you're charging the same fee whether a patron spends $12 or $120.

                              3. re: bigwheel042

                                After a look at the Civil Grand Jury report, it's clear that marthayou's post is very confused at best.

                                The PPACA does not proscribe HealthySF (the "City Option", aka option 2 for employers) as a health care plan. What it **does** do is make option **3** under the HCSO, the employer-created Health Reimbursement Accounts that are the source of most of the problems with shoddy reimbursement detailed in this thread, out of compliance with federal guidelines.

                                IANAL so I can't comment on precisely what happens to options 1 and 2 if option 3 becomes illegal or otherwise unavailable, but it doesn't look like anyone thinks it will make HealthySF disappear. Rather, barring some weird complication the phaseout of option 3 will be good for employees, the city, and anyone who's not a greedy restaurateur or a financial services firm paid to handle setting up the accounts: employees will be handled by more orthodox and less problematic sources of health care dollars, the city will have much less of a reimbursement headache like it's dealing with now, and customers will have more confidence that any price increases are actually benefiting employees. Sounds like a win-win-win to me.

                                1. re: bigwheel042

                                  Yes, the relatively well-written and pragmatic law from Washington should moot the worst of the local HCSO mess.

                            2. "If you put a surcharge on the menu and say it's for Healthy SF (or something similar) and then use it for something else, then that's fraud on the customer ..."

                              Not necessarily. What if a restaurant used the surcharge receipts to comply with the requirements of the HCSO, but a couple of years down the road has a bunch of money sitting in health savings accounts that former employees did not use and that, per the rules of the accounts, cannot be disbursed to the ex-employees?

                              I think so long as the restaurant was acting in good faith, the fraud charges are baseless. The city should focus on improving the law and stop being so counter-productively hostile to an industry that does a lot to bring tourists to town.

                              17 Replies
                              1. re: Robert Lauriston

                                Not necessarily? It's true that there are gray areas in every case but the basic principles of fraud are clear. You cannot profit from KNOWINGLY telling your customers a lie or misleading them when soliciting money. In this case explicitly stating you are collecting money to comply with a statute and then KNOWINGLY not using that money as the statute directs.

                                If you are bumbling around, don't know what you are doing etc. you are not committing fraud.

                                Now one can say the City of SF is incompetent - they won't know fraud from non-fraud and a lot of innocent business owners are going to get caught in the crossfire....and that may or may not be true.

                                But - this is not as complicated as the discussion suggests.

                                1. re: goldangl95

                                  As the HCSO was originally written, complying with it in good faith could quite easily result in a lot of the money put aside not actually being spent on employee health care. Businesses who ended up in that situation probably had no idea that that would be the case until they'd been doing it for a couple of years. Accusing them of fraud is, well, fraudulent.

                                  The 2012 revisions may have reduced that possibility somewhat.

                                2. re: Robert Lauriston

                                  If it goes on for years, then they're knowingly collecting more for the surcharge than necessary. If the restaurants really wanted to they could find ways to spend the money on health care -- or at least, for the benefit of the employees or the customers -- instead of just pocketing it as a windfall. Raise the prices and you can use the money for whatever you want without lying about it. It's not legal fraud I'm interested it, it's moral fraud, especially since, as I noted, for many restaurateurs it was motivated politically rather than economically anyway. It more than defeats the purpose of taking a stand on principal if you end up profiting from it!

                                  1. re: Robert Lauriston

                                    I very much want law enforcement to go after any business that says to consumers that there is a government tax they need to collect from us if they don't specifically use that money for that tax.

                                    If they do anything at all to mix the accounts, or account for the money separately then only talk about an intent to use it for health care somewhere in the future, then they should be punished.

                                    As the quote above states, if they don't keep it completely separate, that's consumer fraud. Nobody is forcing them to add that line item, but if they do so they have to be 100% transparent.

                                    1. re: calumin

                                      There is no proof of fraud or wrongdoing. This policy was put into place and the restaurants added the charges to compensate. The numbers didn’t add up but does that mean there is a vast conspiracy among the restaurant owners? Unlikely. The country is coming out of recession and business is up at most restaurants compared to previous years. More likely they miss estimated how much money they needed. Going after them legally is a waste of resources. Why demonize these business over faulty bookkeeping?

                                      1. re: Ridge

                                        So it's okay to rip off customers by claiming they need to charge this and then keeping the money? It's not the money that bothers me -- as I said, I think they should just have raised prices -- it's the "oh, we're poor restaurants, we have to charge this because the law is so onerous" claims that turn out to be totally false. Every restaurateur complains about how unfair the compensation system in restaurants is, and yet very few of them do anything about it. Yes, "the way it's done" is unfair. It's your damn restaurant, if you don't like "the way it's done" do it differently and stop whining to me about it!

                                        1. re: Ruth Lafler

                                          If they were intentionally overcharging and pocketing the money that’s wrong. But I don’t think that’s the case. The thing is it is difficult to be 100% sure how much of a charge to add to pay for the employee health insurance fees. And they got it wrong. But no evidence of intentional wrongdoing. I have never run a restaurant but have friends who do. All I can say is that they work like dogs and do not make very much money at the end of the day. I don’t know the statistics but most restaurants do not make their owners rich and most restaurant owners are not greedy. Especially in SF. The city of SF and the board of supes in particular, treats it’s restaurant owners abysmally.

                                          1. re: Ridge

                                            What justification is there for itemizing a separate charge in the first place? They don't itemize charges for the equipment, the ingredients, the rent, or the furniture, yet these expenses are "costs of doing business" and, just like health care costs, can be highly variable.

                                            Restaurant investors must be utter dolts, because for such a supposedly hostile regulatory climate, they sure seem to have a lot of enthusiasm for opening new restaurants lately.

                                            1. re: bigwheel042

                                              The main justifications I see for a separate charge is that effectively it's a payroll tax, some restaurants in SF don't have to pay it at all, those that do are taxed at two different rates, and restaurants outside of SF don't have to pay it.

                                              1. re: Robert Lauriston

                                                These are the flimsiest of justifications. Restaurants do not typically itemize their other payroll taxes. There are lots of production inputs that are more expensive for some restaurants than other restaurants, and those aren't itemized either. I fail to see how the combination of these two factors justifies itemization.

                                                1. re: bigwheel042

                                                  I don't think there's anything else that increases labor costs by a significant amount based only on whether the business is located in SF and has more than 19 or 39 employees.

                                        2. re: Ridge

                                          It really doesn't matter if they are intentionally overcharging or not.

                                          The problem is that they are misreprenting a tax to consumers.

                                          Even if they are well-meaning but just naive, they can't represent a tax to consumers as a specific amount and then just leave it to accountants later to hope the numbers come somewhat close. And if they pocket a bit on the side it's okay because they were making a generally honest effort,

                                          That is still consumer fraud.

                                          1. re: calumin

                                            Reading the latest update to the linked article, it appears that what a lot of them were trying to do was defraud their landlords (not that I have any love for SF restaurant landlords, who seem to be, on average, greedy and short-sighted), since the "surcharge" doesn't count against the restaurant's gross for rent purposes. Why not, then, just break all your costs down into surcharges. Here's a "clean glassware" surcharge. A "good wine list" surcharge. A "this is a high rent district" surcharge. Etc.

                                            When you're collecting three times what you're spending, it shouldn't take three years to figure out your surcharge is too high!

                                            1. re: Ruth Lafler

                                              The HCSO does not allow restaurants to decrease the amount they spend just because they accumulate a surplus.

                                              1. re: Robert Lauriston

                                                Not strictly true. The law specifies a minimum amount that must be spent per employee-hour, but it doesn't say that that you're not allowed to reduce your spending at all if you happen to be spending **over** the minimum of $2.33/$1.55. Isn't overpaying into the accounts through sloppy handling of surcharge funds the only way restaurants can halfway justify their rock-bottom reimbursement rates compared to the city's? Otherwise, a typical HRA would contain roughly the same dollar amount as a typical MRA, and it would be hard to avoid the conclusion that the differential reimbursement rate is coming from owners simply refusing to pay out employee claims.

                                                1. re: bigwheel042

                                                  They're not overpaying into the accounts. The employees just aren't filing enough claims to draw them down to zero. If somebody works 40 hours a week all year, that's $3224 or $4846. How many people spend that much on health care?

                                                  Normal flex accounts are opt-in and the contribution level is set by the employee, so anybody that opens one is likely to make sure they spend it down to zero.

                                                2. re: Robert Lauriston

                                                  They can decrease the amount of the surcharge if they are collecting more than the amount they're supposed to put aside for each employee.

                                      2. What is the spirit of the law? Seems like it's to provide workers with health coverage.

                                        Was the spirit and letter of the law broken? I'd say both but the City Attorney and the Mayor have decided to take the "attract more flies with honey than vinegar" approach. In other words, if the City decided to hammer the restaurants, it could be bad all the way around...and hurt the real point: to get health coverage for workers.

                                        Instead with a "compromise" settlement more might be gained because shut down restaurants don't pay fees.

                                        3 Replies
                                        1. re: ML8000

                                          The law was revised in 2012 and the practices the city attorney is complaining about are no longer compliant with the HCSO.

                                          Suing restaurants for things they did in 2008-2011 that were compliant with the original HCSO is not going to help anyone get health care, especially since fraud hinges on the precise wording of the explanation of the surcharge.

                                          The law only mandates expenditures. It does nothing to promote health coverage (i.e. insurance). If anything, it discourages it, since that's probably the most time-consuming and expensive way to comply.

                                          1. re: Robert Lauriston

                                            The City should just lower the hammer and push the laggers out if they can't be compliant. It'll create new store front space for other restros that will work with the spirit and letter of the law.

                                            I mean seriously this isn't some kind of nickle and dime situation, the settlements are in the $300k dollar range. That's not lunch money.

                                            1. re: ML8000

                                              The city isn't accusing restaurants of not complying with the HCSO.

                                        2. Doesn’t really make any sense. Can they really prove intentional fraud? Most restaurants are just trying to make ends meet. Why is SF wasting resources taking them to court and demonizing them? Really sad example of SF politics run amok. Why can’t the board of supes just leave restaurant alone?

                                          1. The city has not alleged that any restaurant collected money as required by the HCSO and spent it in ways not allowed by the HCSO. Most if not all of the unspent money is still sitting in health reimbursement accounts.

                                            1. Front-page article in the Chron with responses from owners of restaurants on the city attorney's list of 93 that "collected more money in employee health care surcharges in 2011 than they spent on health care for their workers."

                                              Most say they've complied with the law and the "unspent" money is in HCSO-compliant accounts.


                                              1 Reply
                                              1. re: Robert Lauriston

                                                Correcting my own post, the city attorney did not prepare that list. The Chron article seems like it might have been deliberately misleading on that score, trying to sensationalize some possibly quite innocent and boring data.

                                              2. Here's Paxti's statement about their settlement with the city attorney:


                                                "Patxi’s has never spent money collected through surcharges on anything other than healthcare for our employees. Unused surcharge funds were set aside to pay future healthcare claims filed by Patxi’s employees. Additionally, no employee was ever denied reimbursement for a Healthy SF claim submitted to us."

                                                Chron article on the settlement:


                                                48 Replies
                                                1. re: Robert Lauriston

                                                  See this just makes me more upset.

                                                  No where is it clear what the violation against Paxti'as was. So they recognized an error in their reporting and corrected it. and their penalty for being honest and actually doing the right thing???

                                                  In the beginning of 2011, we noticed that we’d made a reporting error in 2009 and 2010 on the health insurance account balances for our employees. When we found this error, we corrected it immediately and in accordance with Healthy SF regulations. When the city contacted us about this matter in late 2012, we had already been in full compliance for over a year.

                                                  In addition, we will actually be increasing the money we spend on employee healthcare by about $100,000 – which is above and beyond what Healthy SF regulations ordinarily require.

                                                  So for doing the rite thing, correcting a mistake they are not only financially given a penalty, but the PR nightmare they are going through, awful press, thousands of families swearing to never eat there again.

                                                  I feel like a really intelligent litigator could spin this into a lost revenue law suit.
                                                  Thankfuly that is not me!

                                                  1. re: smatbrat

                                                    Given the things that Ammiano ("If it was up to me, I'd throw them in jail") and Campos ("These diners thought they were paying for workers' health care. Instead these owners were gaming the system") have said, if the businesses are in compliance and this is just some bureaucrat being confused about the law's requirements, I hope the businesses sue.

                                                    1. re: smatbrat

                                                      I really find it hard to be sympathetic with Patxi's.

                                                      They billed consumers a surcharge, and yet they denied healthcare coverage to 115 employees through 2011. The only reason they "noticed" the reporting error is that the city forced them to send in numbers so they could be audited.

                                                      They can say they never spent the money on anything else but what they should have done was 1) actually provide their employees healthcare, and 2) reimburse the excess dollars back to employees instead of keeping it in a private fungible account.

                                                      Now they couch this in a happy press release saying how wonderful they are. They should be fined (in fact they were fined and are paying it) - and other violators should be fined too.

                                                      A lot of problem gets solved by restaurants not putting the service fee in the bill in the first place, since what's driving this story is consumer fraud - the fact that restaurants are claiming to pass an expense to consumers that they don't actually spend on their employees.

                                                      1. re: calumin

                                                        Quick sanity check: If restaurants aren't putting the required money into employee health accounts, why would the City go after them on consumer fraud charges rather than just for violating the ordinance, something that would seem to be much easier to prove?

                                                        As for your claim that they bill customers more than they spend on health care, that's already been dissected to death.

                                                        1. re: calumin

                                                          Patxi's didn't deny coverage to anyone. The HCSO does not provide for paying accrued benefits to employees, only for reimbursement. The employees who got no benefits filed no claims.

                                                          Paxti's didn't have a surcharge in 2009 and 2010, which were the years the settlement with the city is about. The apparently direct disbursement of the remaining funds negotiated in the settlement with the city is not something allowed by the HCSO.


                                                          1. re: Robert Lauriston

                                                            That's just not true:


                                                            From the article:
                                                            "The restaurant chain also will distribute about $205,000 among 115 current and former employees who were eligible for health care benefits between 2009 and 2011 but didn't receive any."

                                                            "The settlement came after a city investigation found that Patxi's had been collecting a 4 percent surcharge from customers to cover the costs of the health care law but was using most of the money for other purposes. The company agreed to change its practices without the city resorting to a lawsuit." Even Patxi's admits that this practice occurred in 2011.

                                                            Patxi's is admitting that they screwed up and went afoul of the law. I don't understand why people seem to think that this is somehow the fault of SF politicians.

                                                            The problem of charging consumers these fees & pocketing the excess cash is widespread. The SF grand jury report from last summer presents compelling evidence of fraud:


                                                            1. re: calumin

                                                              Paxti's stated flatly that they never used the money for other purposes, that it stayed in the accounts.

                                                              The grand jury report does not say any restaurants used the money for other purposes.

                                                              1. re: Robert Lauriston

                                                                It's hard to defend a company that doesn't provide healthcare to employees when they are mandated to do so. They have admitted failing in this law.

                                                                It's hard to defend a company that charges a service charge to consumers for healthcare, and doesn't spend that money on healthcare for employees -- regardless of whether they spend the money on something else or not. It was not until the city audited them that they "noticed" a problem.

                                                                If you put money in the bank account, it becomes fungible. You can't say one part of the money wasn't spent on other purposes if you are spending money at all -- it's all the same cash at the end. People can wordsmith it all they want but if companies collect money for healthcare & don't spend it for that purpose, they need to be fined.

                                                                Patxi's eventually agreed with that conclusion -- which is the only right thing they've done in this process.

                                                                1. re: calumin

                                                                  The law is not its legislators' intent: the law is the words on the books, period. Offering 100% paid health insurance for all employees would in many cases not comply with the HCSO; paying money into unused health reimbursement accounts does.

                                                                  I find it easy to defend a company that follows a bad law to a stupid but predictable result. I don't understand why people don't blame the politicians for writing the bad law. Sure, the pols' intent was good. You know what the road to hell is paved with, right?

                                                                  Health reimbursement accounts are not fungible. They're similar to escrow accounts. The employer pays in, only the employee can get it out.

                                                                  1. re: Robert Lauriston

                                                                    Again, that's not true. The report linked above shows the problems with HRAs & that employees can take money out of them.

                                                                    HRAs are one of three ways restaurants can provide healthcare coverage to employees. Most restaurants provide HRAs because it is the least expensive option and payouts only happen at time of actual medical reimbursement. Employers can reclaim HRA funds after two years or after 90 days of an employee's termination. Also, employers have been generally free to set their own policies regarding how employees use HRA funds.

                                                                    The reimbursement rate for HRA has been abysmal. Only 6% of funds earmarked for HRA was actually paid out, compared with 50% for the city plan. Five companies paid zero dollars! That is not because their employees are just very healthy people - it is because they are not adequately providing healthcare.

                                                                    Again, this is separate from the issue of this thread, which is the consumer charge that restaurants put on the bill. Until last year, there was no regulation at all that forced companies to record this charge separately or correlate charges to actual health care spend. The study from last summer showed that almost half of the consumer surcharges were not used as health care expenditures. That is fraudulent behavior.

                                                                    1. re: calumin

                                                                      I see no evidence of either fraud or violation of the HCSO in the grand jury report.

                                                                      It says that in 2010, the total amount paid into HRA accounts was $62.5 million. Those were employer expenditures as required by the HCSO.

                                                                      The report also says that only $12.4 million was paid out to the employees. The report gives no clue what happened to the rest, and offers no evidence that any employer did anything other than follow all laws and regulations regarding HRAs.

                                                                      The report has no hard information about why this happens, only speculation that it might be was lack of notice by the employers, stricter guidelines for HRAs than city-managed MRAs, or that employees may not file for reimbursement from HRAs because they would have to disclose their medical conditions to their employers: all factors caused by the way the HCSO was written.


                                                                      1. re: Robert Lauriston

                                                                        Except that there is a provision in the law that the employee may not look at the claims in order to protect the workers confidentiality. They just reimburse in "good faith".

                                                                        1. re: bdl

                                                                          Per the grand jury report, even after the 2012 revisions the HCSO "still allows businesses to adopt their own guidelines and manage their own HRA plan. This still forces employees to disclose their medical conditions to their employer in order to obtain reimbursement for medical expenditures."

                                                                          1. re: Robert Lauriston

                                                                            Oops, I stand corrected. It turns out that my employer voluntarily chose to keep the reimbursement requests confidential in order to minimize the risk of intimidating employees who might otherwise be reluctant to make healthy SF claims. My employer is on the list of "scofflaws", BTW.

                                                                        2. re: Robert Lauriston

                                                                          If you can't see the evidence even when the data is there, and when Patxi's itself agrees to pay restitution plus a fine to address the fact that they were caught, then I can't help you.

                                                                          The fraud does not come from the fact that only a portion of funds earmarked (note: not "paid" as you suggest since no cash is actually transferred) ever get paid out. That may be unethical (and certainly not a practice to defend) but is not consumer fraud.

                                                                          The fraud comes when restaurants charge a fee to consumers saying that it's for government-imposed healthcare, but then they don't spend it on healthcare. The evidence is clear that that is what is happening. At that point, it doesn't matter what the reason for the discrepancy is, and the report doesn't need any "hard information" to prove fraud.

                                                                          From the report: "...everyone we interviewed agreed that profiting from surcharges could be considered consumer fraud."

                                                                          There are ways to impose the surcharge that are not fraudulent. If restaurants did what most other companies do which is enroll in traditional healthcare insurance programs, then they would make cash payments up-front and could make sure that the surcharges to consumers don't exceed the costs they pay out.

                                                                          Or they could just not bother with the surcharge.

                                                                          But if they do impose a surcharge, and then don't actually spend the money on healthcare, they don't get to hide behind the problems of HRA by just saying it's the government's fault that they pocket the excess revenue.

                                                                          1. re: calumin

                                                                            Intentionally profiting from surcharges could be fraud, but the grand jury report has no evidence that any business did that.

                                                                            Patxi's didn't admit to fraud. They say they made a reporting error and the surcharge money they didn't disburse was set aside for future claims.


                                                                            1. re: Robert Lauriston

                                                                              They have more evidence than Travis Taggart did when taking down Lance Armstrong.

                                                                              When only 46% of the revenue from health care surcharges actually go to health care reimbursement, there is a problem of misrepresenting this charge to consumers.

                                                                              Seriously, when 5 companies pay zero in health care reimbursements (meaning zero cash outlay) regardless of the HRA allocation, there is a problem.

                                                                              When a company voluntarily chooses to pass its financial commitment for healthcare to consumers via surcharge, it becomes the company's responsibility (not HCSO) to ensure that they are fairly representing this surcharge to consumers. HCSO is not forcing them to implement a surcharge, and being HCSO-compliant on the back-end is not sufficient.

                                                                              The fraud here isn't any different from a company charging 20% sales tax and pocketing the difference.

                                                                              1. re: calumin

                                                                                Healthy SF surcharges are different from charging 20% sales tax and pocketing the difference in that the businesses aren't pocketing the difference.

                                                                                Most of the surcharge notices I recall said something about "Healthy SF," in which cases any misrepresentation was on the part of the people who wrote the law.

                                                                                1. re: Robert Lauriston

                                                                                  I think we will agree to disagree. The facts are out there for people to come to their own conclusions.

                                                                                  But I think if Patxi's agreed with you, they would not have paid restitution and a fine as part of settling with the city.

                                                                                  1. re: calumin

                                                                                    Disagree about what? There are to date no facts to back up the claim that any restaurant has pocketed any money.

                                                                                    Patxi's is on the record:

                                                                                    "... Patxi's believes the statements released by the city and the details surrounding the surcharge have been presented unfairly. The chain points out that there was no shortchanging of employees, as funds collected from a surcharge were actually set aside for employee health care costs. Other claims by the city, Patxi's says, were simply the result of a clerical error that was immedialy rectified upon discovery."

                                                                                    I think the settlement cost them little or nothing since the money was sitting in a liability account.


                                                                                      1. re: ML8000

                                                                                        So it's come to this? Stating facts about a situation means you must work for them, while speculating about possibilities is the voice of fairness?

                                                                    2. re: calumin

                                                                      "If you put money in the bank account, it becomes fungible. You can't say one part of the money wasn't spent on other purposes if you are spending money at all -- it's all the same cash at the end."

                                                                      I don't know how much anybody cares about these details, but no, this is not how it works (assuming that this Patxi money actually was placed into a proper HRA and they weren't committing outright fraud). Because there are tax advantages involved in contributing to an HRA, as well as privacy rights issues involved in healthcare claims, this money is essentially handed over to a third-party administrator who then administers hospital claims and so on. Sometimes the third-party administrator will actually have access to the employer's primary bank account, so in that sense it sort of is like one big pool of money, but either way this money is no longer the employer's to control, although unused funds do revert back to the employer at the end of the plan year. If, as often happens, a female employee becomes pregnant and needs to spend every last dime in her personal HRA to pay for all the related expenses, then the employer can do nothing to stop it (and some have tried on my watch). In most cases, even fired employees can claim the money, at least for a few months.

                                                                      That is, in fact, what I don't understand about the restaurant law, or about the percentage surcharges -- an HRA amount is set annually; it's not like you can contribute more to your HRA in the busy months and less in the down season. And it's not like they can stop anybody from claiming funds that have already been placed in an HRA. So I don't know what's going on with restaurants, exactly (although it must be said that at least half of all participants have absolutely no clue how any of this stuff works). In a general sense, I am okay with them charging more money to pay for this stuff.

                                                                      1. re: dunstable

                                                                        @dunstable: I think you are missing the fact that the funding of the HRA is not done with actual cash, but with credits. It's just an accounting treatment. The cash transfer doesn't happen until the claim is actually submitted. Here is the way one TPA handles HRA:


                                                                        A company can say that the earmarked funds aren't used for any other purpose, but it's really meaningless because what matters isn't the accounting but the cash flows. If the cash is all in the same place, it doesn't mean much to say that you're not spending the earmarked money for other purposes. All it means is that you have accounting records for the funds.

                                                                        The real issue is whether the money is actually being spent on healthcare or not. In many cases it is not.

                                                                        1. re: calumin

                                                                          If the surcharge was described as "Healthy SF" rather than something like "for employees' health care," then the real issue is whether the restaurant was spending the surcharge receipts to comply with the HCSO, which as originally written and as was in effect from 2008 to 2011 did not require that one cent be spent on actual health care.

                                                                          1. re: Robert Lauriston

                                                                            Again, that isn't true.

                                                                            There is always a requirement that all the revenue collected from the consumer surcharge be represented correctly, meaning that the revenue is actually used to pay for health care.

                                                                            The surcharge amendment last year added an audit mechanism to let the city collect data & be better able to see how employers are actually using the funds. It also included a reconciliation measure that spells out how to deal with excess funds. None of that is related to the broader issue of consumer fraud -- which is collecting revenue for health care & not spending it on health care.

                                                                            The link below shows the letter that was sent to offending restaurants, detailing the issue.


                                                                            If a restaurant felt that, as you believe, HCSO "did not require that one cent be spent on actual health care" -- then any revenue collected from the consumer surcharge was obtained fraudulently.

                                                                            You have to wonder why a restaurant would have the gall to adopt a position that that HCSO "from 2008 to 2011 did not require that one cent be spent on actual health care" (quoting your statement above) -- and then also charge consumers at the same time! Nevertheless, it is right that the city punishes employers who have that view.

                                                                            I hope the effect of all this is that restaurants just stop imposing the surcharge.

                                                                            1. re: calumin

                                                                              The Inside Scoop piece about the city attorney's letter is what started this discussion.

                                                                              I don't follow your argument. A surcharge that's represented as paying for the requirements of the HCSO aka Healthy SF tells customers the restaurant's collecting money to pay for that government program. It's to "pay for health care" only to the extent that the HCSO succeeds in its intentions.

                                                                              The HCSO still does not require that any money actually go for health care, only that it be paid into an HRA. Prior to the 2012 revisions, there was no requirement that employees be given any notice of the HRA or that, as the revisions put it, the HRA program be "reasonably calculated to benefit the employee."

                                                                              I'm not suggesting that restaurants deliberately set out to minimize payouts, only that in hindsight it's clear that following the path of least resistance to comply with the HCSO was likely to result in most of the money being parked in HRAs and little actually going to employees to reimburse them for health care expenses.

                                                                              Why did it take the city four years to recognize how bad the law was and take steps to make it more effective?

                                                                          2. re: calumin

                                                                            "A company can say that the earmarked funds aren't used for any other purpose, but it's really meaningless because what matters isn't the accounting but the cash flows."

                                                                            No, they can't. An HRA is not simply another column in the accounting ledger; by legal definition, an HRA is an actual account of money allotted to specific participants (although not necessarily an actual individual bank account, as I pointed out above). Because of HIPAA requirements, it's probably impossible for the employer to self-administer an HRA, but either way, if anyone tries to spend HRA money on anything other than participant healthcare, the IRS considers that outright tax fraud, and people are probably going to prison.

                                                                            Who'd have thought I'd ever have to whip out this knowledge again. Anyway, here is the HRA section of my old employer's website, for clarification:


                                                                            1. re: dunstable

                                                                              "A health reimbursement arrangement ... is often referred to (incorrectly) as a health reimbursement account. Health reimbursement arrangements are notional arrangements; no funds are expensed until reimbursements are paid. Through health reimbursement arrangements, employers reimburse employees directly only after the employees incur approved medical expenses."


                                                                              1. re: Robert Lauriston

                                                                                Robert -- in your argument you don't address the issue of what employers do with surcharge revenue if it's not being used for its intended purpose -- healthcare for employees.

                                                                                A company cannot just pocket the revenue. That's fraud.

                                                                                Remember that it wasn't the HCSO's idea to have employers try to pass the financial burden of healthcare to consumers. Employers decided to do that. The HCSO got dragged into the practice of having to police this after-the-fact.

                                                                                If employers voluntarily choose to add a surcharge, then it's their responsibility to use the revenue correctly. You can say the HCSO doesn't require any money to be spent at all -- which would be fine (legally) if restaurants weren't collecting a surcharge.

                                                                                What happened instead is that the restaurant industry opened up a new revenue line which was to pocket healthcare fees. This is why the quote below from the grand jury report was important:

                                                                                "I have been on both sides of the fence as a consumer and a restaurateur. I knew about “pocketing” unused money since 2010 (in fact, a restaurant consultant suggested that I do it), but I personally hated the idea and decided not to charge the fee. Yes, I recognize that it cost more money to do business in SF, but I also know that we often charge more money for dishes than other Bay Area cities. Maybe I am not smart for gaming the system, but I just think it is a disservice to our customers, our employees, and our beautiful city."

                                                                                Employers will eventually all come to the same conclusion above.

                                                                                1. re: calumin

                                                                                  "Robert -- in your argument you don't address the issue of what employers do with surcharge revenue if it's not being used for its intended purpose -- healthcare for employees."

                                                                                  All the restaurant owners I've seen quoted so far say it's held in accounts and used only for health care. There's zero evidence to date that any HRA money was spent on anything but reimbursing employees' qualifying medical expenses (as is required by the IRS to treat the income as non-taxable).

                                                                                  Of course it was presumed that the cost of the HCSO would be passed on to consumers. Its authors didn't consider that businesses might do that with a surcharge, and took three or four years to get around to rewriting it to deal with that explicitly.

                                                                                  1. re: calumin

                                                                                    "A company cannot just pocket the revenue. That's fraud."

                                                                                    How could that be fraud if the company had told its customers that it would spend the revenue in compliance with a law that allowed them to pocket the money and they did just that?

                                                                                    1. re: nocharge

                                                                                      The wording of HCSO section 14.1.5 is confusing, but I believe it allows employers to recover unused HRA funds if a former employee does not use them for 18 months or when an employee dies.

                                                                                      That could be fraud if they did not reduce any surcharge to reflect the lower cost of compliance resulting from such recovery.


                                                                                      1. re: nocharge

                                                                                        @nocharge: there is no law that lets companies keep money collected from consumers advertised as a healthcare surcharge & use it for whatever they please.

                                                                                        @Robert: we just went through the discussion about the fact that the HRA money is only earmarked for healthcare but the money stays in the employer's bank account until claims are made. And there are provisions for employers to reclaim those funds after two years or 90 days after an employee termination.

                                                                                        They can claim that the money is not spent on anything but healthcare but when faced with the evidence on Page 7 of the Grand Jury report, I don't think they will be able to hide behind that reasoning. We can agree to disagree on that point (hopefully it is clear to you what we don't agree on).

                                                                                        The loophole here is very big and I think it obvious to see. The argument is becoming circular, so I'm not going to keep pointing out facts that have been made previously in this thread.

                                                                                        I agree with you the HCSO didn't consider that businesses would use a surcharge to pass on expenses. It is the businesses that made that decision which exposed them to potential fraud, and now the HCSO is being forced to police this bad business practice.

                                                                                        1. re: calumin

                                                                                          "There is no law that lets companies keep money collected from consumers advertised as a healthcare surcharge & use it for whatever they please."

                                                                                          Most if not all of the surcharges I've paid were described as for Healthy SF, which is a law, not health care. You don't see the difference between that and describing it as "for employees' health care"?

                                                                                          1. re: calumin

                                                                                            "we just went through the discussion about the fact that the HRA money is only earmarked for healthcare but the money stays in the employer's bank account until claims are made."

                                                                                            I feel honor-bound by my past profession to jump in again. Again, keep in mind that the restaurant surcharge law in particular is not within my knowledge. However:

                                                                                            No offense, but I don't think you understand what an HRA is. You seem to be under the impression that an HRA is nothing more than an abstract partition of money that the employer is assigning to healthcare on good faith, and that there is nothing to stop an employer from quietly pocketing the money and refusing to pay for healthcare expenses.

                                                                                            It is not. It is money that is legally assigned to healthcare. It does not necessarily have to be thrown into a brand new bank account, but it is money that is assigned to someone else to handle. That is the point of people like Sterling and ASI. Once you set up an HRA, the third-party administrator has direct control over the HRA money. The employer cannot yank it back until the end of the plan year's run-out period. And yes, the employer gets to keep unused HRA funds at the end of the plan year, but at that point, the employees can no longer use that money anyway; they have to start drawing from the funds for the new plan year.

                                                                                            For instance, if a line cook goes to the ER, he does not go to his boss to ask for the money. He goes to his third-party administrator. If his bill is for the total HRA allotment, then he gets to have all of it. His boss has no say. If every employee uses every dime, then every dime gets spent. There is no way for the employer to stop this from happening, short of outright fraud and illegal activity.

                                                                                            I guess this all bugs me because it seems like the overall impression you guys have is that HRAs are essentially a scam, little more than a loophole that allows employers to weasel out of paying for healthcare. It is not, HRAs are a legitimate method of helping employers who cannot afford to provide full HMO/PPO plans to offer a way to help pay for their HDHP.

                                                                                            1. re: dunstable

                                                                                              Lots of benefits outsourcing places specifically solicit SF businesses who need to comply with the HCSO, Google HCSO HRA to find some.

                                                                                              I'm not sure that health reimbursement accounts as defined by the HCSO have to be handled by a third party, though most probably are. Only a relatively large chain / group would have the expertise to handle that internally.

                                                                                      2. re: Robert Lauriston

                                                                                        Um, yeah, that's what I said.

                                                                                        "Sometimes the third-party administrator will actually have access to the employer's primary bank account, so in that sense it sort of is like one big pool of money..."

                                                                                        "by legal definition, an HRA is an actual account of money allotted to specific participants (although not necessarily an actual individual bank account, as I pointed out above)"

                                                                                        But thanks for clarifying the point to someone who literally explained such things for a living.

                                                                                        1. re: dunstable

                                                                                          I never said that HRA wasn't formal, legal, or heavily process-driven. I said that what matters is actual cash flows for healthcare.

                                                                                          If you agree that in SF TSAs can administer HRA in the way this specific SF TSA is managing HRA, then there is no disagreement:


                                                                                          Robert and I agree that the HCSO gave employers a lot of leeway in terms of how to implement healthcare, including the ability to use HRA as well as set their own guidelines for how to implement the HRA. We also both agree that for some employers, the implementation of HRA led to very little money actually being spent on healthcare benefits (I think in many cases due to employers not properly offering benefits to employees, but to Robert's point there could be other reasons). There are also provisions for employers to reclaim the earmarked funds if they are never spent.

                                                                                          Where Robert and I disagree is in his view is that employers can also add a consumer surcharge for healthcare (say 4%, which is average), and as long as they are compliant with even minimal HCSO requirements, they can keep the excess revenue they generate. Robert's view is that for a company to forfeit the revenue, the government has to prove that a specific dollar earmarked for healthcare sitting in a bank account (as opposed to a different dollar not earmarked for healthcare, sitting in the same bank account, and which looks exactly the same as all the other dollars) was spent for something other than healthcare.

                                                                                          I think that is not the right standard. My standard is to look at what companies actually spend on healthcare, compare it to surcharge revenues, and if it is substantially off, force companies to give the money to employees & pay a fine for not managing this revenue appropriately.

                                                                                          I think the companies' claims that this money is all being spent on healthcare is meaningless PR spin. In Patxi's case, they made this claim while also admitting that there were 115 employees for which they never provided any health care at all in 2009 and 2010 -- and paid out $205,000 to address the problem. They also eliminated the healthcare surcharge from the menu in August 2012. Their actions mean significantly more than their PR release.

                                                                                          1. re: calumin

                                                                                            Which restaurants descriibed their surcharges as"for health care" rather than "Healthy SF"?

                                                                                            1. re: calumin

                                                                                              "the implementation of HRA led to very little money actually being spent on healthcare benefits (I think in many cases due to employers not properly offering benefits to employees, but to Robert's point there could be other reasons)."

                                                                                              I'm not sure what you mean by "not properly offering benefits," but an HRA IS the benefit. They either offer it or they don't. The worst thing an employer could do is not inform their employees that the plan existed, but at least at my old company, we sent enough correspondence that any ignorance of the plan is almost the employee's fault. New participants automatically received welcome letters with their account numbers, emails explaining to them how to set up online accounts, in some cases even a debit card. Later, they got quarterly statements summarizing their account activity, and if anybody was confused at any time, we had a customer support line with actual humans living in America, all of whom spoke both English and Spanish. I don't know how their competitors do business, but Sterling was set up so that the employer needed to do almost nothing.

                                                                                              I guess in theory an employer could send the TPA fake names and fake social security numbers and fake addresses and then fake HRA contributions, but at that point we are talking about major tax fraud, and the company will have much bigger problems than paying fines.

                                                                                              "I said that what matters is actual cash flows for healthcare."

                                                                                              It's not, though. That's what I'm trying to point out. When an employer sets up an HRA, they have effectively surrendered that amount of money until the end of the plan year. It doesn't matter that the employer did not actually cut a check to the TPA, or that they get the unused money back. The second the money is assigned to an HRA, it is no longer theirs. If the employer ends up getting much that money back, that is not necessarily an indication of employer deception; it just means that the money was not spent. In my experience, a typical corporate HRA account retained around 70-90% of its money at the end of the plan year, depending on a myriad of factors. A 6% claim rate is not a shocking number, although to be fair, for all my clients, the HRA was in tandem with an HDHP, and almost none of them were restaurants.

                                                                                              all right, no more HRA defending from me, you guys get the idea. To me all this business smells like SF city government lawmakers being totally clueless, but that's not my place, so.

                                                                                              1. re: dunstable

                                                                                                Per the 2012 HCSO revisions, the city is required to provide employers with a notice that they must post, and the money in an HRA rolls over indefinitely until (if I read the law correctly) the employee leaves the company and makes no claim for 18 months, or dies.

                                                                                                1. re: dunstable

                                                                                                  @dunstable: yes, but the fact is that the cash flows are what matters. Squat & Gobble collected over $160K in surcharges, but spent zero on actual healthcare benefits. That is the fraud that the City Attorney is investigating. The HRA earmarking of funds is not that relevant from a fraud standpoint if no claims are actually getting paid out. Remember that there are provisions for employers to eventually reclaim unused funds, and since employers keep the earmarked cash, they can use it for business advantage while it's in the account (e.g. for interest, as collateral, etc.)

                                                                                                  @Robert: to your question of which restaurants are claiming the surcharge to be related to Healthy SF vs. something else, it's not clear but I imagine restaurants will move to more general language to try to avoid this issue.

                                                                                                  Michael Bauer wrote about specific language that Yoshi's was using which is blatantly incorrect and misleading:

                                                                                                  "All food and beverage is also subject to a 4% surcharge on all bills in accordance with the SF Healthy legislation."

                                                                                                  1. re: calumin

                                                                                                    Bauer reported last May that Yoshi's menu said “4% service charge added for San Francisco Employer Health Care Security Ordinance." The one on their Web site today says, "4% fee will be added for SF employer mandates." Neither is fraudulent or misleading if Yoshi's used that money to comply with the HCSO. The restaurant is not on the Office of Labor Standards Enforcement's list.



                                                                                                    "Squat & Gobble collected over $160K in surcharges, but spent zero on actual healthcare benefits."

                                                                                                    Inside Scoop interviewed an employee who said that there were funds set aside to reimburse employees for health care expenses. There's no evidence to the contrary other than the unexplained numbers from the OLSE.


                                                                                                    1. re: calumin

                                                                                                      "The HRA earmarking of funds is not that relevant from a fraud standpoint if no claims are actually getting paid out."

                                                                                                      Again, it is not earmarked cash; it is fully under the control of a third party. There may be something suspicious going on in collecting the surcharge, but there is no way to prevent employees from making medical claims, short of blackmail or something similarly outrageous and/or illegal. They either have an HRA or they don't. The employer has NO SAY IN WHAT HAPPENS TO THAT MONEY while it's part of an HRA (well, almost none. They get to pick categories of medical stuff). If you have an HRA, there is no way for an employer to prevent employees from spending that money. Even firing them probably isn't enough. I don't know how to make it clearer than that.

                                                                                                      1. re: dunstable

                                                                                                        Hi dunstable, since you've spent time explaining these accounts in a past career, you can make it clearer by responding to some specific links which indicate the opposite of what you claim.

                                                                                                        1. "Again, it is not earmarked cash"...
                                                                                                        - please look at page 10, third bullet of the SF Grand Jury report where it says "the employer can earmark funds to its own HRA for individual employees..." The next page also details problems of earmarking cash.


                                                                                                        2. "...it is fully under the control of a third party"
                                                                                                        - please look at the mechanism that ASI (TPA) uses to distribute funds (link below). If you think this means being "fully under control of a third party" then we don't disagree on facts but only on the definition of "fully under the control" - which I think requires an irrevocable cash transfer.


                                                                                                        - in the OLSE FAQ on the 2012 Healthy SF amendment, look at question 17, where it says that reimbursements are now only credited if the contribution is irrevocably made OR if a number of other more opaque measures are satisfied. The requirement of an irrevocable transfer is specifically not mandated. Do you agree?


                                                                                                        3. "...there is no way to prevent employees from making medical claims..."
                                                                                                        Nobody is claiming that if a TPA bills an employer for medical expenses, that they can just ignore it without going through a formal process. The issue is that the legislation gives very wide leeway in terms of how employers manage HRA (they even have the option to manage it themselves), and the data shows that only 6% of earmarked funds are actually spent. Please review page 12 of the grand jury report:


                                                                                                        In the investigation of Squat & Gobble (which paid zero in medical claims despite collecting surcharges), interviews suggested that the restaurant discussed HRA only at an employee's initial time of hire, with no follow-up to employees on how to actually use the plan. (This is an individual case which needs follow-up but may be indicative of a larger trend). The 2012 Amendment created new notification rules to start to address the issue of transparency (see page 4 in the report linked above).

                                                                                                        4. "...there is no way for an employer to prevent employees from spending that money. Even firing them isn't enough..."
                                                                                                        Prior to the 2012 amendment, if the funds in an HRA weren't spent it would revert to the employer after 2 years or after 90 days of employee termination. The 2012 amendment made this more difficult but it still may go back to employer in some cases (see questions 16-18 of the OLSE FAQ linked above).

                                                                                                        This thread has gone longer than I thought it would! At this point I just want to make sure that facts are clear for people to make up their own minds.

                                                                                                        1. re: calumin

                                                                                                          The HCSO as revised in 2012 is very confusing about when, if ever, a business can recover funds from an HRA, since it says the provisions in section 14.1.5 will go into effect only if a court strikes down the provisions in section 14.1.5.


                                                                                                          1. re: Robert Lauriston

                                                                                                            Agreed. Confusing is never good.

                                                                                                            In my opinion it would be better to enforce either a traditional insurance plan (like most employers provide) or the City Option, but eliminating HRA would probably lead to new legal challenges I think the City wants to avoid.

                                                                        2. It seems like the cheapest and easiest way to comply with the HCSO was to set up flex accounts or something similar.

                                                                          The effect of the HCSO was in many cases to provide little or nothing in the way of actual benefits to employees while accumulating large amounts of unspent funds, which (prior to the 2012 revision) the law did not specify how employers should handle.

                                                                          I don't understand why people are blaming the businesses for that mess instead of the politicians who wrote the law. This 2008 employers' guide shows how complicated and confusing compliance was prior to the revision (and it's still far from simple):


                                                                          1. This Healthy SF measure does seem to be a highly-confused law. (Of course it doesn't help that no one---attorney's office or restaurateurs---is speaking very clearly.) What were restaurants supposed to do with surplus surcharge collections?

                                                                            As far as I can make out, it seems that restaurants are essentially charged with running an insurance policy for their employees, and now they're being fined for not receiving/disbursing enough claims. Isn't this just encouraging profligate healthcare spending?

                                                                            edit: OK Robert Lauriston's most recent post answers one of those questions.

                                                                            2 Replies
                                                                            1. re: eethan

                                                                              The HCSO requires expenditures. In order to avoid conflicting with ERISA, the definition of those expenditures was deliberately left open-ended:

                                                                              "'Health care expenditure' means any amount paid by a covered employer to its covered employees or to a third party on behalf of its covered employees for the purpose of providing health care services for covered employees or reimbursing the cost of such services for its covered employees, including, but not limited to (a) contributions by such employer on behalf of its covered employees to a health savings account as defined under section 223 of the United States Internal Revenue Code or to any other account having substantially the same purpose or effect without regard to whether such contributions qualify for a tax deduction or are excludable from employee income; (b) reimbursement by such covered employer to its covered employees for expenses incurred in the purchase of health care services; (c) payments by a covered employer to a third party for the purpose of providing health care services for covered employees; (d) costs incurred by a covered employer in the direct delivery of health care services to its covered employees; and (e) payments by a covered employer to the City to be used on behalf of covered employees."

                                                                              1. re: Robert Lauriston

                                                                                This 2012 amendment to the HCSO modifies the above definition:

                                                                                ... "health care expenditure" shall only include an amount irrevocably paid by a covered employer to a covered employee or to a third party on behalf of a covered employee. An amount that is retained by the employer or that may be recovered by or returned to the employer shall not constitute a "health care expenditure." An amount paid to a third party for the purpose of reimbursing a covered employee for expenses incurred in the purchase of health care services shall not constitute a "health care expenditure" unless any unused funds carry over from quarter to quarter and from year to year and remain available to the covered employee, even after the covered employee's separation from employment.

                                                                                Notwithstanding the above, an amount paid as a "health expenditure" may be recovered by or returned to the employer without losing its status as a "health care expenditure" in the following circumstances:

                                                                                (A) A former employee has not made a claim for any of the remaining available funds for 18 months (including a claim made on behalf of any other person eligible for reimbursement from health care expenses from the former employee's remaining available funds); or,

                                                                                (B) The covered employee has died.

                                                                            2. You know I really wish the business apologists would just shut up.

                                                                              It might be poorly written but these restros violated the spirit and intent...Tom Ammiano is right, throw the damn book at them.

                                                                              If they don't like the way SF does business - leave. You have other choices. Find another place to make some money and screw people.

                                                                              Screw the excuses. I won't patronize any of these places, just like I won't patron Whole "Libertarian" Foods.

                                                                              These places should really consider what a boycott will mean.

                                                                              31 Replies
                                                                              1. re: ML8000

                                                                                I don't get this hostility. From all the facts I've seen to date, these businesses complied with a badly written law in good faith. If the results were disappointing, blame the politicians who wrote it.

                                                                                People who run good restaurants in SF generally aren't out to make money, they're working long hours doing what they love with little hope of making more than a very modest profit. I know for a fact that some of the restaurants on the city attorney's list have really good relationships with their employees and aren't out to screw anybody.

                                                                                1. re: Robert Lauriston

                                                                                  It beggars belief that all these businesses were complying in good faith.

                                                                                  -The fought the law tooth and claw to prevent it from being passed;
                                                                                  -Once it was passed, they appealed all the way to the US Supreme Court until they were denied cert;
                                                                                  -They generally chose the stingiest possible method of compliance with the law;
                                                                                  -Their reimbursement rates from the accounts they set up were abysmal compared with the city's analogous MRA accounts.

                                                                                  The last, to me, is the smoking gun. If the restaurants had really been attempting to comply in good faith rather than just bilk consumers and squirrel money away in HRAs to recoup later while minimizing claim payouts, they would have actually paid out a much larger fraction of their HRA balances in claims. They can claim that they threw lots of excess money in the HRAs, over and above what's in a typical MRA, because they thought their health care expenditures would be much higher...but if that's the case, then it makes no sense why they would choose the HRA over the City Option/HealthySF in the first place. If you thought expenditures under the HRA would be really expensive you should just be paying into the ostensibly cheaper City Option. It doesn't add up.

                                                                                  1. re: bigwheel042

                                                                                    No, ALL these restaurants were not operating in good faith. But I assure you that many were. That's the problem with this whole discussion...people (including the supes) are painting with very broad strokes.

                                                                                    1. re: bigwheel042

                                                                                      Wow, that's really over the top. Most restaurants are not raking in money, they are just getting by. (And some are not even getting by.) So some wacko politicians saddle them with an unwelcome extra expense and they fight it, they choose the least expensive option under the law, and you think that it shows that they are not complying with the law in good faith. Let me ask you this: If you have legal choices for how you file your income tax return when it comes to status, types of deductions, etc., and you choose the ones where you owe the least tax, would that be evidence that you are acting in bad faith when it comes to tax laws or that you are trying to defraud someone?

                                                                                      1. re: nocharge

                                                                                        Let's put it this way: I'd be less surprised to see someone who gets busted for tax evasion when they're not just hunting for legal deductions, but constantly moaning about the IRS and how US tax laws are unconstitutional and unjust. The moaning doesn't in and of itself prove criminal/unethical activity, but it does signal the kind of intent that makes that activity utterly unsurprising. "I am shocked, SHOCKED that this coal mine owner who fought against every mining safety regulation ever passed is operating mines that aren't in compliance with OSHA!"

                                                                                        In this case you have a history of restaurants whose opposition to the law was unyielding. It takes willful blindness to not take that into account when looking at whether what they did was intentional or not (i.e., whether the combination of high pocketed balances/low reimbursement rates was merely a "good faith error" or by design).

                                                                                        1. re: bigwheel042

                                                                                          Most restaurants choose the legal options that were most beneficial for them from a program that was rammed down their throats. What do you think anyone would do? What do you do when it comes to your income tax return? If the idiot politicians were expecting that struggling businesses would pay more than needed just to (actually I can't think of a justification) I think it's just another datapoint that proves how far from reality the people on the BOD are. (And we don't really need a lot of additional data points for that.)

                                                                                          1. re: nocharge

                                                                                            For starters, if I were in these businesses' shoes I probably wouldn't take my case all the way to the federal courts on ERISA preemption technicalities. It would have at least given me plausible deniability later if, say, lots of money I put aside for "health care" just happened to not get spent.

                                                                                            Let's not lose sight of the basic shape of things here: it's obvious that for all the moaning about the **manner** in which the HCSO was handled, the restaurant industry Just. Didn't. Want. To. Provide. Their. Employees. With Health Care.

                                                                                            1. re: bigwheel042

                                                                                              They restaurant industry, comprised largely of small businesses that are just getting by, didn't want an expensive mandate rammed down their throats. Yes, I can believe that. And they mostly opposed the measure. Yes, I can believe that. But to infer that by choosing the least costly ways they could legally abide by the law, they were acting in bad faith really stretches the imagination. Again, if you choose the options on your federal tax returns that lets you legally pay the least in taxes, are you acting in bad faith? Like choosing between the standard deduction or itemizing?

                                                                                              1. re: nocharge

                                                                                                You're misrepresenting my post. The first three items - the court cases and the selection of HRAs as the payment option - simply demonstrate that the restaurant industry wanted to save itself as much money as possible, really didn't like the HCSO, and was prepared to search for every possible loophole to avoid spending a single dollar more than necessary on employee healthcare. But it's the fourth item - the hideously low reimbursement rates - that's the nail in the coffin that demonstrates intentional behavior that, whether or not it broke the law, was contrary to the spirit of the law and unethical. You can't have it both ways - a restaurant can't simultaneously just be smartly picking the savviest business strategy while also grossly overestimating how much it would actually be spending on health care.

                                                                                                1. re: bigwheel042

                                                                                                  OK, remind us again: You have a law that allows a business to pay $10, $100, or $1000 to comply with a government mandate. The business chooses $10. You claim it's unethical and contrary to the the spirit of the law and you blame the business rather than the idiots that drafted the law. No?

                                                                                                  1. re: nocharge

                                                                                                    No. The unethical part comes in when the business then DOESN'T PAY ITS FAIR SHARE FOR EMPLOYEE HEALTHCARE out of whatever it's set aside and then SHOVES THE EXTRA MONEY IT CHARGED CONSUMERS FOR "HEALTHCARE" BACK INTO ITS POCKETS. The problem is not that businesses saved themselves some money, it's that they deliberately gamed the system in a way that 1) deprived their employees of all the care they were entitled to and 2) grossly overcharged consumers while doing it, all in the name of making a stupid political point.

                                                                                                    Your analogy is obfuscating what actually happened with the HRAs in question. Sorry, I don't buy into the anarcho-capitalist logic that no business owner can ever be morally in the wrong for relentlessly exploiting even the tiniest loopholes.

                                                                                                    When I hear the words "good faith", to me that means that whatever the actual outcome, the businesses were first and foremost at least trying to provide their employees with all the health care they needed. The behavior in question did not clear that bar; therefore their compliance was not in good faith.

                                                                                                    1. re: bigwheel042

                                                                                                      "Good faith" means the business did its best to comply with the actual requirements of the HCSO.

                                                                                                      The law was written in such a way that good-faith compliance tended not to result in the money going to health care. Even the city-managed MRAs only paid out 50% of what was paid in, and the city probably went above and beyond the requirements of the law in notifying the account beneficiaries and encouraging them to use the funds.

                                                                                      2. re: bigwheel042

                                                                                        What businesses skirting the law? OMFG, no way! When would a business ever skirt the law for financial gain? Impossible!

                                                                                        To be honest much of the pro-restro side wanted and got a screwy ordinance because they knew it would be hard to administrate and enforce...which is exactly what has happened.

                                                                                        If you can't strike down a new law then fill it with so much crap it's nearly impossible to implement.

                                                                                        Ultimately business is business. To look the other way because it's a passion or hobby for you is ridiculous. Most businesses do NOT like paying extra fees or taxes even for their employees good -- and the proof is if NRA was pulled none would protest.

                                                                                        Seriously people should stop shilling on this.

                                                                                        1. re: ML8000

                                                                                          Restaurants had zero influence on the HCSO.

                                                                                      3. re: Robert Lauriston

                                                                                        you don't get the hostility? Scamming and commiting fraud is bad. People don't like people commiting fraud. More importantly name me one other business where you are charged for a health care surcharge for their employees? Just one. I'm waiting.

                                                                                        But even though it is beyond douchy to charge patrons for your own business costs, it gets worse than just being douchy about paying for health care. The business are charging consumers for something (health care for employees) and then not even doing that.

                                                                                        "People who run good restaurants in SF generally aren't out to make money,"

                                                                                        I wasn't aware that restaurants here were run by idealist commies. Funny I thought most people in the restaurant biz were some of the biggest capitalist you know what with not wanting to give employees health care or trying to avoid following city laws. Here's reality: anyone who has a business is running it to make money. Restaurant owners are some alturistic menschs and they shouldn't have to be so don't claim they are.

                                                                                        1. re: tjinsf

                                                                                          If a business you patronize is going to stay around, it will have to make you cover its costs regardless of how it bills you for them. If you really think that "it is beyond douchy to charge patrons for your own business costs" then you might not have a lot of businesses to choose from if you manage to run all the businesses that need to cover their costs out of your neighborhood.

                                                                                          1. re: tjinsf

                                                                                            "I wasn't aware that restaurants here were run by idealist commies"

                                                                                            I would describe my restaurant friends in SF as politically unequivocally liberal and very cognizant of how they treat their employees. And are all the little mom and pop places in Chinatown run by evil ultra capitalists out to screw people? Come on! These people are being punished by silly politics. And we foodies will pay the price if they all go under. Extreme politics, whether it’s the tea party on the right or SF supes on the left are never a good thing.Leave the restaurant be. Come on.

                                                                                        2. re: ML8000

                                                                                          This reply will probably be deleted by the chowhound censors but:

                                                                                          Sorry but restaurants should not have to leave because the SF board of supes are nitwits. Everyone has to make money to survive including restaurants. People don’t work for charity. Most restaurant owners in SF are just getting by. The board of supes is making them out to be in the 1%. But they are not. Makes no sense what so ever to demonize restaurant owners. Come on!

                                                                                          1. re: Ridge

                                                                                            I've been following this discussion with great interest. I don't know all the specifics of the law but what's to stop a restaurant from changing the amount charged to the customer according to how much they need.

                                                                                            Say a restaurant adds 4% and collects $200,000 in 2012. They pay out $12,000 in health care to the employees because that is the amount the employees spent.

                                                                                            What's to stop them from ending the 4% surcharge. If they put the $200,000 in an account and purchase a CD they get about .7% which is $14,000. If the actual yearly amount of costs is really $12,000 then they will fund the HRA forever. If they have a year with unusually high costs they are covered by the reserves.

                                                                                            Seems simple. If the way the law is written prevents that scenario then the law need to be rewritten.

                                                                                            1. re: tatuaje68

                                                                                              I am very poor at math as has been proven multiple times on this board but it seems to me .7% on $200000 is closer to $1400 dollars.

                                                                                              1. re: wolfe

                                                                                                Yikes.... You're right. Ok forget the CD. Still they could waive the 4% for several years with the funds they have accumulated, and as Robert says below the ACA will make all of this moot anyway.

                                                                                                1. re: tatuaje68

                                                                                                  They can't waive the surcharge, each year they have to pay into the accounts every hour for every employee up to the annual cap.

                                                                                              2. re: tatuaje68

                                                                                                The HCSO requires employers to keep paying into the health reimbursement accounts regardless of how high the balances get.

                                                                                                The 2011 revisions don't fully address the problems, they were more of a stopgap measure. Next year, the Affordable Care Act will (per the grand jury report) make HRAs illegal, so the issue will be moot, except for whatever balances remain in the accounts at the end of 2012.

                                                                                                1. re: Robert Lauriston

                                                                                                  I agree that there are issues around how employers manage the accounts used to fund healthcare that aren't fully worked out.

                                                                                                  The specific issue that the original article focused on was the consumer charge. When restaurants collect more money through the consumer charge than they pay to provide for healthcare, then that is consumer fraud. That was the specific issue that the Grand Jury addressed in last summer's report that I linked above. The evidence is very compelling.

                                                                                                  If the restaurants stop imposing a consumer charge to fund healthcare, then their healthcare obligations start to look like every other company's healthcare obligations. That will probably be a good thing for everyone.

                                                                                                  1. re: calumin

                                                                                                    No. If there were clear cases of consumer fraud, you would think that there would be more criminal indictments and fewer grandstanding press conferences on part of the City Attorney. The Grand Jury stated

                                                                                                    F7. Consumer fraud is committed if the consumer’s receipt states that a surcharge is being assessed for a stated purpose and is not being used for that purpose.

                                                                                                    I think most people would agree.

                                                                                                    However, it also stated

                                                                                                    F6. Due to the varied wording in describing surcharges on consumers’ bills, and the wording of the ordinance, the auditing of surcharges will be difficult.

                                                                                                    That's exactly the issue. If a menu said "4% surcharge to pay for Healthy San Francisco" and the restaurant used every dime from that surcharge to pay into health care accounts as required by the law, it would be kind of hard to prove that the restaurant was making a false statement.

                                                                                                    1. re: calumin

                                                                                                      You're confounding compliance with the HCSO with healthcare.

                                                                                                      If a restaurant collects more in surcharges than it pays into health reimbursement accounts or whatever it used to comply with the HCSO, that might be fraud. That would depend on exactly how the notice of the surcharge was worded and on other factors detailed in the fraud statutes.

                                                                                                      If the restaurant management thought that the surcharge was the right amount and miscalculated, then there was no intent to defraud, which I believe is a requirement for a finding of fraud.

                                                                                                      If the restaurant paid all the required amounts into HRAs but employees didn't draw the accounts down to zero, well, if that's fraud, then the city's guilty, too.

                                                                                              3. re: ML8000

                                                                                                Yes, so at the bottom of the list was 1300 Fillmore. they underspent by 3.00. So you are going to boycott a place over $3.00?

                                                                                                You do understand that an employee has to ASK for the money before it is given? and the employee has to provide some sort of documentation that they actually got medical care? so what is the restaurant supposed to do with money that is not asked for?

                                                                                                Please explain

                                                                                                1. re: smatbrat

                                                                                                  Yes, they must provide documentation. But it is unlawful for the restaurant to actually LOOK AT the documentation. Sealed envelopes are presented to the employer with the total amt. claimed written on the front and the restaurant is obliged to pay that amt. and keep the receipts on file without ever looking at them.

                                                                                                  1. re: smatbrat

                                                                                                    Don't be ridiculous, not going to boycott a place for $3 bucks.

                                                                                                    For all others who scam, YES...and restaurants should be very aware of this despite the dotcom, tech and hipster demographics.

                                                                                                    This is San Francisco and calling a boycott is a tradition and there's a long history of it.

                                                                                                    So tell the Golden Gate Restaurant Association and the rest of the shills to pull its head out of its butt, this can happen. Simply guilt people into it.

                                                                                                    Hmmm...so I just emailed some people, need an app just like Monterey Aquarium Seafood Watch.

                                                                                                    1. re: ML8000

                                                                                                      You're going to boycott restaurants based on unverified information from an unknown source?

                                                                                                      1. re: Robert Lauriston

                                                                                                        Short answer: YES.

                                                                                                        It won't happen over night and no doubt many places will get their act together, one way or another. But once the dust settles, it's on and restaurants should be aware of this.

                                                                                                        It's this simple: PEOPLE OVER INDUSTRY/COMMERCE.

                                                                                                        I don't give a **** if it's 3-star Michie, 10,000 hipsters sitting on the sidewalk to get in or sous vide eye of newt with pigs knuckles with whale semen sauce...if a business can't treat its employees fairly, I'll boycott it and I believe once the cat it out of the bag, many others will as well.

                                                                                                        For pete freakin' sake, did you read the big news headline buried today - 50% of those in the U.S. have no (zero) financial safety net. A large part of that is healthcare.

                                                                                                        I'm boycotting Mi Pueblo for crappy labor practices. They dumped 300 employees who talked to union reps. I like Mi Pueblo a lot but people over commerce.

                                                                                                        If you don't stand for something...you'll go for anything, and in this case it might be a $20 buck sh*t sandwich.


                                                                                                2. "They can claim that they threw lots of excess money in the HRAs, over and above what's in a typical MRA, because they thought their health care expenditures would be much higher ..."

                                                                                                  The amount businesses have to spend in was set by the city per employee per hour. Per the grand jury report, the maximum annual pay-in per employee was $3,013 for employers with 20-99 employees and $4,451 for employers with more than that.

                                                                                                  How many minimum-wage restaurant employees can incur medical expenses anywhere near that level? Of course the health reimbursement accounts accumulate large balances. Was that outcome not easily foreseeable by the HCSO's authors?

                                                                                                  3 Replies
                                                                                                  1. re: Robert Lauriston

                                                                                                    So as I am having this discussion last night, it dawns on me

                                                                                                    Who did NOT make the list? well I was thinking of a few restaurants I have worked for here in SF with in the last 24-36 months and I can think of one or two that have the surcharge on the menu. Yet, I my self have never requested my HRA money for medical spending. therefore, one would think that there is money left in my account.

                                                                                                    Why is that restaurant not on the list????

                                                                                                    and in the reporting of what was collected via surcharge....How do they know who has surcharges. I was talking to my HR person today and the city reporting doesnt ask how they got the money
                                                                                                    Its the name and info of the employee: hours worked for the quarter X2.20 and then subtract the amount spent on health insurance etc.

                                                                                                    just more thoughts, I hope someone can shed light on.
                                                                                                    why some and not others. ??

                                                                                                    1. re: smatbrat

                                                                                                      Good points. So far, the reporting on this issue has been abysmal. They got the list (which supposedly was not intended by the City Attorney to be published) and figured it was newsworthy enough to print as is, without doing the diligent research which would make sense of it all. I can't imagine that the city's investigation covered every SF restaurant, yet nowhere is that reported. So the list implies that these 93 were the only offenders. Have any of the reporters even read the law? Doesn't seem so. After all the restaurants named respond and many are inevitably cleared if wrong doing, will the Chronicle then publish that list? Will the City Attorney and Supervisors then apologize for leaking this list and implicating these restaurants? Will the Supervisors admit that the sloppy implementation if this ordinance made it difficult for even the most diligent restaurants to comply?

                                                                                                      1. re: smatbrat

                                                                                                        The Chron got the list of 93 restaurant employers that allegedly spent less than they collected from the Office of Labor Standards Enforcement. The OLSE gets the amounts collected in the annual Health Care Security Ordinance reports filed by employers, but has provided no information about the source of the alleged spending totals.

                                                                                                    2. A key point that I think got buried in the bickering above:

                                                                                                      A major incentive for the surcharges is that many restaurants' leases give the landlord a percentage of gross sales. If the restaurant just raises menu prices to cover the HCSO's spending requirements, their rent goes up.

                                                                                                      3 Replies
                                                                                                      1. re: Robert Lauriston

                                                                                                        "If the restaurant just raises menu prices to cover the HCSO's spending requirements, their rent goes up"

                                                                                                        Sounds like a way to deflect blame. Rent is rent. If the city raises a tax on food and drink, would you make the same argument?

                                                                                                        The entire point is they shouldn't be lumping this surchage in with their profits. The same problem as when tips and other funds staff are entitled to, get lost in a restaurants book keeping situation. Likewise, when an establishment goes out of business, that pool of money set aside for benefits should remain accessible, not go into settling debts, or pay off a personal loan like it's some golden parachute.

                                                                                                        Plus, the restaurants keep and provide the books that determine profits, and no landlord would enforce an audit to claim a portion of that fee, just like they wouldn't claim a portion of taxes collected. It's gross profits, and restaurants don't have to enter into a lease with such terms, they agreed to it, often because they needed landlord participation to account for their lack of finances, and chose to enter into that lease over other leases with more preferable terms.

                                                                                                        1. re: sugartoof

                                                                                                          Restaurant leases often give the landlord a percentage of gross receipts, which the business has to pay whether it makes a profit or not. Most taxes are not counted toward gross receipts.

                                                                                                          Such leases normally include an audit clause.

                                                                                                          1. re: Robert Lauriston

                                                                                                            I'd suggest not signing such leases. Inexperienced, or under capitalized restaurants make the mistake of entering into these leases believing they can get more concessions and participation from the landlord up front. It's not unheard of for a restaurant to keep two sets of books, to avoid payouts to the landlord, who becomes a de facto partner at that point.

                                                                                                            Finally, if they keep their books right, the surchage would be treated like a tax line item, required of them, not bundled in with gross to pay out to partners. Isn't that logical?

                                                                                                      2. Here's another 2012 revision that demonstrates how incompetent the original law was (it had no notice requirements):

                                                                                                        (b) Employer Notice to Employees.

                                                                                                        (1) By December 1 of each year, OLSE shall publish and make available to Covered Employers, in all languages spoken by more than five percent of the San Francisco work force, a notice suitable for posting by Covered Employers in the workplace informing Covered Employees of their rights and the Covered Employer's obligations under the Ordinance.

                                                                                                        (2) Every Covered Employer shall post in a conspicuous place at any workplace or job site where any Covered Employee works the notice published each year by OLSE. Every Covered Employer shall post such notices in English, Spanish, Chinese and any other language spoken by at least five percent of the Employees at the workplace or job site.

                                                                                                        Original law: http://www.lb9.uscourts.gov/webcites/...

                                                                                                        Current law with 2012 revisions: http://www.amlegal.com/nxt/gateway.dl...

                                                                                                        1. I'm dubious about the claims of zero reimbursements. The Office of Labor Standards Enforcement list the Chronicle published has only one, and it's not clear where the OLSE is getting those numbers or exactly what they mean. Does "collected" mean total surcharge or total HCSO expenditures (HRA deposits, health insurance costs, etc.)? Does "spent" mean total HCSO expenditures or total paid out to employees?

                                                                                                          1 Reply
                                                                                                          1. re: Robert Lauriston

                                                                                                            Inside Scoop has another post on the issue. Still no facts supporting the city attorney's fraud allegations, nor any additional details about where the OLSE got its numbers or what they mean.

                                                                                                            An employee of Squat & Gobble says "health care is available to all employees, via a 'fund set aside' for them. During the hiring process, employees are told how to access the fund."

                                                                                                            Bradley Levy of Firefly says he added a $1.50 surcharge because nearby competing restaurants kept their prices lower via surcharges. That collected a bit too much so they reduced it to $1.25, which was a little low. Then they dropped it entirely.

                                                                                                            A partner at Asia SF says, "“We took our direction in general from the GGRA. We complied with what we thought we were supposed to be doing.”


                                                                                                          2. Folks, this thread is starting to get testy and personal. Please keep the focus on the issue at hand and avoid making judgments about your fellow hounds.

                                                                                                            1. A Chron editorial says the city attorney "consulted extensively with the Bay Area restaurant industry's trade association," which I guess means the GGRA?


                                                                                                              1. I didn't want to jump in, because I don't know the specifics of this restaurant law and frankly I don't have strong opinions on the matter, but as a former manager of HRA and FSA accounts, there are a couple of things I should point out:

                                                                                                                1. Generally speaking, the reimbursement rates are meaningless in trying to assess a company's efforts in providing healthcare.

                                                                                                                The reimbursement rates are a percentage of funds spent by the employees; it does not take into account how much the employer is allotting per participant. In my experience, employers have contributed as much as $10,000 per family, and as little as $500 per participant. So hypothetically, an employer who contributes a million dollars per participant to an HRA could have a reimbursement rate close to zero, whereas an employer who contributes $1 would have one close to 100%. Clearly the opposite would be true here -- it is the one with the lower reimbursement rate who is taking better care of their employees.

                                                                                                                2.) HRA accounts are typically used in conjunction with a high-deductible health plan. So you'd also have insurance, but the copays and deductible would partly be paid with your HRA.

                                                                                                                Again, I don't know how this restaurant law was written, but an HRA is not very useful as a replacement for insurance -- a single uninsured visit to urgent care would completely drain a typical HRA. It's easy to imagine how such funds might go unspent -- what's the point of going to the hospital at all, if they still can't afford it anyway?

                                                                                                                It does sound to me like this law was very badly written, but I don't know the specifics, and I shan't jump into that fray.

                                                                                                                10 Replies
                                                                                                                1. re: dunstable

                                                                                                                  For full-time employees who worked all year, in 2011 employers would have contributed $3,013 (20-99 employees) or $4,541 (>99) to the health reimbursement accounts. It's hard to imagine how people healthy enough to work full-time in restaurants could spend that much unless they used it to buy their own insurance.

                                                                                                                  The HCSO does not tie HRAs to insurance the way they normally are. From the grand jury report: "The City Attorney’s Office, the Office of Labor Standards Enforcement (OLSE), the Board of Supervisors (BOS), and the Department of Public Health (DPH) staff explained to the Jury that the legal issue with respect to ERISA is the extent to which local governments can 'micromanage' health benefits for businesses within their jurisdiction. For instance, the City cannot micromanage the type of health insurance a business can offer. The City can however, require businesses to spend a minimum amount on health care for their employees."


                                                                                                                  1. re: Robert Lauriston

                                                                                                                    Are you kidding? One routine blood test once cost me over $300, and that was after whatever better rate had been negotiated by my mediocre insurance (FWIW, I'm relatively young and in relatively good health). I shudder to think of what the price of one trip to the ER, one MRI, or one minor surgery is for uninsured patients.

                                                                                                                    As for reimbursement rates, again, it matters because there are competing options that should limit how much the employer is actually contributing. Yes, it's *possible* that some employers are contributing $10000/employee to their HRAs, over and above their HCSO obligations, and that's what's depressing their reimbursement rates, but if they're contributing that much why aren't they just going with the cheaper City Option instead?

                                                                                                                    1. re: bigwheel042

                                                                                                                      "there are competing options that should limit how much the employer is actually contributing"

                                                                                                                      What do you mean?

                                                                                                                      The HCSO currently requires employers to spend $1.55 or $2.33 per hour per employee up to 172 hours per (i.e. 40 hours per week), i.e. up to $3200 or $4800 per full-time employee per year.

                                                                                                                      There's no way for employers to reduce that. The whole point of the HCSO is to require employers to spend those amounts.


                                                                                                                      1. re: Robert Lauriston

                                                                                                                        The claim two posts up was that the low HRA reimbursement rate is meaningless in measuring compliance because it's possible that companies were pouring tons of cash into their HRAs, thus producing a low reimbursement rate despite normal health care claim expenditures. Even if that were possible (questionable because the mandatory spending was supposed to be capped), the behavior of pouring tons of cash into HRAs makes no sense. If a company expects that it will need tons of cash to spend directly on employee health care, it should just pay into HealthySF instead to save itself some money and be done with it.

                                                                                                                        BTW, the extremely low average reimbursement rate for restaurants paying into HRAs was not simply sourced from Herrera's letter. The Civil Grand Jury found the same thing and described it as "alarming".

                                                                                                                        1. re: bigwheel042

                                                                                                                          The total 2010 amounts cited in the grand jury report were $62.5 million allocated to HRAs and $12.4 million (20%) reimbursed.


                                                                                                                          The HCSO's authors' ridiculous and incompetent omission of notice requirements (not rectified until last year) probably accounts for the lower reimbursement rate than the 50% with city-managed MRAs, but the city's 50% rate seems like a sign that the reimbursement approach is simply not a good way to fund health care.

                                                                                                                          I believe the high contribution rates dunstable mentioned are what you'd see with an HRA in the situation where it's tied to a high-deductible health plan. That has nothing to do with the HCSO HRAs, I doubt any employer has contributed more to those than the HCSO requires.

                                                                                                                          1. re: bigwheel042

                                                                                                                            Well, this is probably non-Chow-relevant territory, but the point of an employer, or at least a non-restauranteur employer, throwing money into an HRA is to soften the out-of-pocket blow to its employees of having a HDHP, as opposed to a standard PPO, which is often more expensive for an employer even after HRA contributions. Also, unlike a health savings account (HSA), there is no cap on HRA contributions.

                                                                                                                        2. re: bigwheel042

                                                                                                                          Under the "city option," the city gets half the HCSO spending requirement, up to $1800 or $2400 a year, and in return the employee gets Healthy SF.

                                                                                                                          On the other hand, with the health reimbursement account option, the employee can enroll in Healthy SF for free, $240, or $600 a year (depending on their family income and size), and have the rest of the money that would have gone to the city to pay any other medical expenses.


                                                                                                                        3. re: Robert Lauriston

                                                                                                                          I was charged about $6000 a few years ago for an ER visit and ambulance ride. I was xray'd, determined to be fine, and sat in a hallway for 3 hours "under observation" then told to get out of there. I'm happy that I'm fine, but that's what 15 minutes with a doctor and one Xray costs - 6 years ago.

                                                                                                                          1. re: bbulkow

                                                                                                                            Sure, if someone goes to the ER or hospital, their bills will quickly exceed the $3000 or $4500 that their employer pays into their HRA.

                                                                                                                            But barring that, the average healthy restaurant employee's unlikely to spend anywhere near that amount unless they buy their own health insurance.

                                                                                                                            Thus it's predictable that on average a large portion of the money in HRAs will go unspent. The law would make more sense if the spending requirement were high enough to cover the least expensive health plan (in SF, Kaiser 30, I believe).

                                                                                                                            1. re: Robert Lauriston

                                                                                                                              Or if they need meds for a chronic condition. My Enbrel retails for something like $1500/month.

                                                                                                                              My insurance is pretty good, but i have a friend who can't afford this even with insurance. Copay is still several hundred a month.

                                                                                                                              Though I guess waiting tables isn't the best for someone with arthritis.

                                                                                                                      2. Tom Ammiano, who apparently deserves most of the credit and/or blame for the original bill, accused restaurants of "grand theft" in comments to an SF Mag reporter, leading the director of the GGRA to respond:

                                                                                                                        "It is incredibly irresponsible for an elected official to accuse someone of criminal behavior when they have no facts on which to base the accusation. Fortunately City Attorney Herrera has committed to a fair, fact-based inquiry—not a personal vendetta against local businesses. Once the City Attorney completes his review, we believe that the vast majority of businesses currently under scrutiny will be cleared of any intentional wrong doing."

                                                                                                                        Ammiano's remark, " It's no surprise to me that many of the restaurants on the list now were part of the group that sued and lost," shows his ignorance about the industry. Many restaurants join the GGRA because the discounts on legally mandated food safety classes more than offset the cost of membership.


                                                                                                                        11 Replies
                                                                                                                        1. re: Robert Lauriston

                                                                                                                          Not to name names or put anyone down, but I think there can be this kind of self righteous attitude of trying to make the world a better place and solve all the world’s problems by doing misguided things like this whole restaurant mess. In the end it doesn’t work, although it may make people feel good about themselves. The sad thing is that no one is thinking about the small business people who work really hard and are just trying to pay their bills.

                                                                                                                          1. re: Ridge

                                                                                                                            And yet to paraphrase the Inside Scoop quoted today: for thousands of restaurants in SF it works, it's only a few bad apples.

                                                                                                                            This is my point about boycotting the bad, not the places who have managed to figure it out. It doesn't effect the vast majority who are doing the right thing, not dragging their feet or disregarding the spirit of the law or simply violating it.

                                                                                                                            Only 93 out of thousands of restaurants is very good...and yet those restaurants who are acting badly deserve all that's coming to them. A round of applause for those places that have done the right thing and can get through this without much problem.

                                                                                                                            re: "it may make people feel good about themselves." Do you really believe this? Frankly I call baloney on this. As a consumer I don't want to see the surcharge line on the check...just pay into the fund, cover your workers and don't make a deal out of it.

                                                                                                                            However if you cheats, I don't want to do business with them.

                                                                                                                            1. re: ML8000

                                                                                                                              Many of the City's ~4000 restaurants are mom and pop operations with fewer than 20 employees, so they're exempt.

                                                                                                                              That list of 93 has been misrepresented and many or all of the businesses on it may have done nothing wrong. The city attorney's office won't release any names unless and until they file suit:


                                                                                                                              1. re: Robert Lauriston

                                                                                                                                Okay so cut the 4,000 into half and use 2,000 as the base point.

                                                                                                                                93/2000 = .05%

                                                                                                                                1/2% non-compliance is pretty good.

                                                                                                                                Cut the number down to 1,000 if you wish. 93 is low. Yes the program might be confusing to some but apparently everyone else figured it out.

                                                                                                                                1. re: ML8000

                                                                                                                                  Garbage in, garbage out. Any calculation using that 93 number is bogus.

                                                                                                                                  The number of businesses on that list that were out of compliance with the HCSO or described their surcharges fraudulently may turn out to be zero.

                                                                                                                                  1. re: Robert Lauriston

                                                                                                                                    Whatever. I'm glad the City is going after the cheats. 93 or 930.

                                                                                                                                    Clearly the 93 are going to be made an example, so might as well hit them with a heavy hammer and make everyone remember. Seems like the vast majority of restaurants are complying so just take on the scofflaw.

                                                                                                                                    1. re: ML8000

                                                                                                                                      Nothing's necessarily going to happen to any of those 93. Read the quote from the deputy city attorney:


                                                                                                                                    2. re: Robert Lauriston

                                                                                                                                      And who's to say that list is complete? I would think any business charging a surcharge would have taken in more than they spent, unless they had a very unlucky crew. Is this list based on restaurant reporting? Who's verifying that? I think more than 93 businesses charged surcharges. I know of a few that charged but are not on the list.

                                                                                                                                      1. re: bdl

                                                                                                                                        The deputy city attorney said the list of 93 (which is not the list they're working from) was based on publicly available information, but it's not clear what information. We don't know what "collected" or "spent" mean, or what period the alleged Office of Labor Standards Enforcement audit covered, or if such an audit was actually conducted.

                                                                                                                                        Only the individual restaurants have any information about surcharges collected prior to 2012.

                                                                                                                                        The grand jury extrapolated for 2010 based on receipts for their own meals and gross receipts data provided by the tax collector (not publicly available), but that would give garbage results in the case of any restaurant that added, dropped, or changed its surcharge during that year.

                                                                                                                                        1. re: Robert Lauriston

                                                                                                                                          Yes, so lets boycott them...just in case. I'm starting to feel a little ill. Good thing this city's so pretty.

                                                                                                                                          1. re: bdl

                                                                                                                                            A little ill? Sounds like you could use Healthy SF.

                                                                                                                                            However a pretty city is never enough. I'd look for a better environment.

                                                                                                                          2. "... Deputy City Attorney Sara Eisenberg told us yesterday that the O.L.S.E. list that has gotten so much attention this week is not the list of restaurants the City Attorney’s office is investigating. 'The City Attorney’s office did not release [that] list,' Eisenberg told us. 'The list that’s out there is a list created from publicly available data. That’s just all of the restaurants that had a delta' between the amount they took in and the amount they spent."

                                                                                                                            From Jeff Hanak, co-owner of Nopa, which is on that list as having collected $83,492 and "spent" (whatever that means) $61,978, and which has received a letter from the city attorney:

                                                                                                                            “When the SF Health Initiative started in 2008 we choose to offer a Health Reimbursement Account with no restrictions for our staff on how the dollars can be used, of course restricted to medical reimbursement which includes the ability to purchase your own individual plan.

                                                                                                                            “From 2008-2011 we initiated no surcharge on our bill to cover for these expenditures. From our history of expenditures up until then we determined in mid 2011 what an appropriate fee would be to pass on to cover expenditures in accordance with the San Francisco Employer Mandates. We determined this to be 1.5%. At the end of 2011 we eliminated this fee."


                                                                                                                            1. Pages 34 on of this document have responses to the grand jury report by the mayor, city tax collector, various other city departments, the Board of Equalization (state sales tax collector), and the Golden Gate Restaurant Association.


                                                                                                                              The GGRA says 85% of health reimbursement accounts were administered by third parties, 15% were self-administered, and that in either case they're federally regulated under ERISA.

                                                                                                                              1. Here's the Office of Labor Standards Enforcement's analysis of the 2011 Health Care Security Ordinance reports filed by businesses.


                                                                                                                                They did collect information about surcharges for that year, so conceivably that's where they got the "collected" figures on the list the Chron published. They also use the phrase "irrevocably spent" to disginguish money reimbursed to employees from the balances in HRAs, so that might be what the "spent" figures are.


                                                                                                                                1. First restaurant cleared of false accusations of fraud is Firefly.


                                                                                                                                  Stay tuned for the apologies from the Chron, Ammiano, Campos, et al. Ha ha ha ha ha.

                                                                                                                                  13 Replies
                                                                                                                                  1. re: Robert Lauriston

                                                                                                                                    Forget the Chron apology what about all the nasty stuff about evil unscrupulous restaurant owners on this thread?

                                                                                                                                    1. re: wolfe

                                                                                                                                      There is no apology needed (except perhaps by the Chronicle for misrepresenting the list of companies under review by the City Attorney).

                                                                                                                                      This is an audit function. To apologize would be like telling the IRS tax auditor to apologize if you don't owe any additional taxes. Isn't going to happen.

                                                                                                                                      If every single restaurant is found to be acting correctly, that would be a different story. But since we already have one restaurant (Patxi's) who voluntarily settled with the City because they were caught not providing healthcare to employees, that's not likely to happen.

                                                                                                                                      1. re: calumin

                                                                                                                                        I haven't read anywhere that Paxti's didn't provide healthcare to their employees. It isn't actually spelled out anywhere WHAT they did wrong (although it does seem that it was something since they settled, paying so much in the process).

                                                                                                                                        1. re: bdl

                                                                                                                                          @bdl: really, please let's not go over this whole thread again. as part of the settlement, patxi's paid $205K to 115 current and former employees to make up for the fact that they did not use this money to provide healthcare to them between 2009 and 2011.

                                                                                                                                          1. re: calumin

                                                                                                                                            That's a very broad statement with lots of holes and uncertainties but you're right, we shouldn't go over the whole thing again.

                                                                                                                                            1. re: calumin

                                                                                                                                              According to Patxi's, that money was just sitting in reimbursement accounts. Absent the settlement, they would not, per the HCSO, have been allowed to cash out the accumulated balances to the employees. It would still be sitting in the accounts.

                                                                                                                                          2. re: calumin

                                                                                                                                            Ammiano said, "If it was up to me, I'd throw them in jail," and Campos said, "these owners were gaming the system," as if somebody had been found guilty of fraud, when so far no one has even been accused. Apology's not really sufficient for elected officials making such irresponsible statements, but that's San Francisco for you.

                                                                                                                                            What Patxi's did or didn't do isn't entirely clear, but it doesn't sound like it was fraud, which is what the city attorney's office is investigating. The owner said "We likely would have won in court, but it wasn't worth the expense." The settlement cost them only $15,000 (the rest was money they had to spend pursuant to the HCSO anyway), which is a fraction of what defending a lawsuit would have cost.





                                                                                                                                        2. re: Robert Lauriston

                                                                                                                                          The lack of reporting on this dumbfounds. So a restaurant on the list was cleared. But they seemingly qualified the same as everyone else to be on that list. They "took in more money than they paid out". So why are they different? What is it the City attorney is looking for. It seems like the basic question about this entire affair (see 200+ comments above),what is okay and what is not okay about surcharges, has not even been asked by the journalists, let alone answered by anyone who actually knows (if indeed that person exists).

                                                                                                                                          1. re: bdl

                                                                                                                                            Surcharges have been regulated since the revised HCSO went into effect at the beginning of 2012.

                                                                                                                                            The deputy city attorney said the list the Chron published was not the list they're working from, and the restaurants on that list didn't necessarily do anything wrong.


                                                                                                                                            It's possible that all the money that list suggests was "unspent" is actually sitting in health reimbursement accounts, as required by the HCSO, in which case nobody committed fraud.

                                                                                                                                            1. re: Robert Lauriston

                                                                                                                                              Robert, I appreciate your command of the facts pertaining to this matter. The problem I'm having is matching the facts with what is actually happening. I believe this burden rests on the chronicle , having irresponsibly published that list in the first place. Perhaps they could interview you? Or perhaps better, you could interview them.

                                                                                                                                              1. re: bdl

                                                                                                                                                I emailed the two Chron reporters who had bylines on HCSO stories with questions about that list, haven't heard anything back or seen answers in print:

                                                                                                                                                1. The headline says "health care audit." Did the Office of Labor Standards Enforcement do the audit, if not, who did?

                                                                                                                                                2. Why has that audit not been published?

                                                                                                                                                3. What time period are the figures for?

                                                                                                                                                4. Does "collected" mean the total amount of surcharges collected, total HCSO expenditures (HRA deposits, health insurance costs, etc.), or something else?

                                                                                                                                                5. If "collected" means surcharges, where did the OLSE get the information?

                                                                                                                                                6. Does "spent" mean total expenditures pursuant to the Health Care Security Ordinance, total paid out to employees, or something else?

                                                                                                                                                1. re: Robert Lauriston

                                                                                                                                                  Perhaps no one, not even the city attorney, has those answers.

                                                                                                                                                  1. re: Robert Lauriston

                                                                                                                                                    Robert, I KNEW you would be all over this once I read the Inside scoop on it!

                                                                                                                                                    I had to leave this thread as I was tired of having restaurants attacked when they have yet to be proven guilty.

                                                                                                                                                    BRAVO to Paulo for even writing this about Firefly

                                                                                                                                          2. Michael Bauer's blog post on this today is a mixed bag. He gets that it was irresponsible to release the list the Chron published since it implied that the restaurants on it had done something wrong, but repeats the claim that the list came from the City Attorney's office. And he doesn't give any consideration to whether the Board of Supervisors deserves some blame for writing a bad law.


                                                                                                                                            51 Replies
                                                                                                                                            1. re: Robert Lauriston

                                                                                                                                              Remember that the issue wasn't whether employees were being provided health care, but whether the restaurants were committing consumer fraud by purporting that the surcharge was to cover Healthy SF when it was not being spent for those purposes.

                                                                                                                                              If some of these restaurants do indeed have hundreds of thousands of dollars in unspent funds, then it's clear to me that their surcharge was excessive to cover the cost of Healthy SF. That money belongs either to the restaurant customers who paid the surcharge or the restaurant employees for their health care. What are the provisions for making sure that it's disbursed properly?

                                                                                                                                              You can argue all you want that it's a badly written law, but the fact is that the restaurants chose to deal with the mandate by imposing a surcharge and specifying that it was to cover Healthy SF. Based on public statements from people like Chris Cosentino, it appears to me that some restaurateurs did it for political reasons, because they were unhappy with the mandate (and the minimum wage law, etc.) and wanted their customers to know it. They could have chosen to deal with the mandate in other ways that would not have involved making exaggerated -- possibly fraudulent -- claims to their customers, but that's the way they chose, and they are responsible for the results.

                                                                                                                                              1. re: Ruth Lafler

                                                                                                                                                The "unspent" funds belong to the employees.

                                                                                                                                                The cost to an employer of complying with Healthy SF is not affected by the employees accumulating large balances in their reimbursement accounts. Each year the employer has to pay in the specified amount per hour per employee up to the annual cap.

                                                                                                                                                1. re: Robert Lauriston

                                                                                                                                                  So the question is, is the amount collected by the surcharge more than the annual cap? It's hard to believe that it isn't -- that the cap is exactly the amount of the surcharge, especially since most of the restaurants with percentage surcharges are the more expensive ones and the amount per hour is a flat amount regardless of whether the tab is $50 or $500. Who is the excess owed to if not the overcharged customer?

                                                                                                                                                  At the very least they could suspend the surcharge until the amount in reserve is down to the cap, and then adjust it so that it's not excessive going forward. Yet, I don't see any restaurants saying, "oh wait, four percent was too much, let's lower it to three percent."

                                                                                                                                                  1. re: Ruth Lafler

                                                                                                                                                    To date, there's zero evidence that any restaurant collected more in surcharges than was paid into reimbursement accounts.

                                                                                                                                                    I think some of the places that charged the highest surcharges are not on the "surplus" list because they provide health plans, the cheapest of which costs considerably more than the HCSO cap (which encourages employers to choose the reimbursement account option).

                                                                                                                                                    1. re: Ruth Lafler

                                                                                                                                                      If restaurants collected more than they paid into the system plus their administrative cost, it would seem like a much more obvious case of fraud than what the politicians have been grandstanding about, which is how much has been paid out. You would have thought we would have heard more about it if that was the case. But again, restaurants often have labor costs in the 25-35 percent range and high-end places are often at the upper part of the range. A $2.33/h mandate bumps up the labor cost by 22 percent for a minimum-wage employee, so I can well believe that a 4 percent surcharge might not necessarily be enough to cover what a restaurant has to pay into the system plus administration.

                                                                                                                                                      1. re: nocharge

                                                                                                                                                        The caps for 2011 were $3000 for 20-99 employees and $4500 for more than that. The "collected" amounts on the Chron's list seem for the most part in line with those numbers. The ones with big amounts have multiple restaurants and/or big places that are open long hours, so lots of employees working lots of hours.

                                                                                                                                                2. re: Robert Lauriston

                                                                                                                                                  I think the last part of Bauer's blog post is the most interesting, which is that the net effect of this is that restaurants who continue to add the surcharge will become suspect by association.

                                                                                                                                                  I hope that this, coupled with the new increased reporting burden associated with surcharges, will lead to restaurants not bothering with the surcharge at all. Then they'll be like all other companies which implement healthcare without trying to directly pass the charge on to the consumer.

                                                                                                                                                  The fact that the government had to step in to deal with potential fraud is really a waste of everyone's time -- but it had to be done because the loophole was so big. Hopefully the net effect will be everyone just incorporates the costs into their own food prices & restaurants won't have to worry about not having a level playing field.

                                                                                                                                                  1. re: calumin

                                                                                                                                                    Incorporating the HCSO costs in prices won't level the playing field since restaurants with few employees pay nothing while ones with more pay around 20 or 30 percent of payroll.

                                                                                                                                                    So far, there's zero evidence of fraud. The most dishonest thing that has come to light so far is the Chronicle falsely characterizing that list of restaurants.

                                                                                                                                                    1. re: calumin

                                                                                                                                                      Why do you assume that getting rid of the surcharge would be a good thing? The restaurants would still have to pass on the labor cost to their customers and it would possibly hurt their ability to compensate the kitchen staff while adding to the income discrepancies between tipped and non-tipped employees.

                                                                                                                                                      1. re: nocharge

                                                                                                                                                        This has really been beaten to death but I'll give it another go: The cost of business should be reflected in the prices on the menu and not through a collection of 'surcharges'. Healthcare is part of the cost of business (in the city of SF) and should be included in the menu prices. We don't see an "electricity surcharge", "fica surcharge" or "cleaning supply surcharge" on the menu as they are all included in the meal price.

                                                                                                                                                        Further, including it in the prices only hurts "their ability to compensate kitchen staff" and "income discrepancies between tipped and non-tipped employees" to the degree that they choose to let it effect how they compensate those employees. This is entirely orthogonal to listing the health surcharge as a separate line item on the bill.

                                                                                                                                                        I say, yes, pass the cost on to the consumer but do it in the way that you pass along _all_ other costs.

                                                                                                                                                        I think one reason the general public is so annoyed about the surcharge is that some restaurant owners gave the impression that they were listing the health surcharge as a kind of mini-protest - a f*ck you to the people of SF who decided that all people deserve basic healthcare. So now it comes to bite them in the ass because the law is confusing and their customers feel deceived. Well, I guess that's the price of their petulance.

                                                                                                                                                        1. re: boris_qd

                                                                                                                                                          Incanto introduced a 5% service charge in 2004, which they used to provide health insurance. The idea was that customers would reduce their tips accordingly, reducing the disparity between tipped and non-tipped employees.

                                                                                                                                                          The people of SF may think that all people deserve basic healthcare, but a local law requiring businesses to provide it would conflict with ERISA and be thrown out by the courts. The peculiar required-spending law the Board of Supervisors came up with to work around that limitation doesn't work very well.

                                                                                                                                                          1. re: Robert Lauriston

                                                                                                                                                            Coi has long had an "18% service charge (shared by the entire staff)" on its menu presumably for the same purpose of reducing the disparity between tipped and non-tipped employees.

                                                                                                                                                            1. re: nocharge

                                                                                                                                                              Chez Panisse has had service charges since 1989. Employees get probably the best benefits in the industry, but tipped employees take home considerably less than they would at places without the service charge.


                                                                                                                                                          2. re: boris_qd

                                                                                                                                                            I don't know about you, but I get more than a dozen surcharges on my cell phone bill every month ranging from "Federal - Univ Serv Assess Non-LD" to "State - Tele Fund Charge" to "City - Utility Tax". I don't complain about it on the internet since I only care about the total amount I pay for my service, not how it's itemized.

                                                                                                                                                            As for raising prices, it would presumably generate more money in tips since a lot of people don't include taxes and surcharges in their tip calculations. Unless peoples' budgets for dining out magically increased when the labor costs went up, more money spent on tips would mean less money for everything else, including revenue that could go to paying non-tipped employees. So by advocating abandoning the surcharge, you are arguing for redistributing income from hard working dishwashers with low pay in favor of tipped employees who benefit from having a high minimum wage and getting tips as well.

                                                                                                                                                            1. re: nocharge

                                                                                                                                                              I'm somewhat baffeled by this argument. Are we really comparing tips and taxes - which are totally and completely standard, expected and understood - to a non-mandatory arbitrary 'surcharge' that appears (maybe) in small print somewhere on the menu and is completely made up by the restaurants. Really? These seem the same to you?

                                                                                                                                                              Also, cell phone companies have lost numerous law suits over miss labeling and miss allocating the surcharges you list. I think that just proves the point that it's generally a shady thing to do.

                                                                                                                                                              The restaurant owner decides how to divy up the income to the restaurant, not the costumer. Advocating for a different internal allocation, while fair and just, has nothing to do with surcharge or not. As others point out, some places provide more benefits than others, some pay more, and some require tips be split. None of that is the customer's choice.

                                                                                                                                                              1. re: boris_qd

                                                                                                                                                                I'm not a lawyer, so don't take anything I say as legal advice, but why on earth would you assume that a surcharge for healthcare would legally be any different from a surcharge for "sales tax" or "service" (for a party of 6 or more)? Really? If a surcharge is clearly spelled out in a contract or on a menu, it's not a "non-mandatory arbitrary 'surcharge'" as you claim but a very mandatory one. Of course, if a business charges you with a bogus surcharge, it could be consumer fraud. I don't think anyone is arguing against that.

                                                                                                                                                                As for your point about how a restaurant would divvy up its income, do you even understand the very basics of the difference between a tip and a service charge? If not, you might want to read up on it:

                                                                                                                                                                1. re: nocharge

                                                                                                                                                                  I'm not making a legal claim I"m saying that the surcharge is insulting and obnoxious. A childish protest and a big f*ck you to the people of San Francisco on the part of restaurant owners who object to having to provide basic benefits.

                                                                                                                                                                  Since I"m not making legal claims I don't need to understand the legal details about tips vs. service charges - for most consumers the end result is this: if there's %18 already included in the bill you leave less tip, if not you leave something in that ball park. Anyway, the restaurant owner sets the policy for their establishment. They're free to do it one way or the other independently of the healthcare surcharge. For instance, Starbucks used to offer healthcare for all (part time or more I think - I don't know what they do these days) employees but there was no surcharge appearing the receipt. Other places (like Chez Panisse I guess) add %18 to the bill an use some of it for benefits. Other offer no healthcare and charge mandatory gratuity, and even more places let waitstaff keep tips and offer not benefits. It's really up to the owner to establish a policy. There's no need to dicker about tips vs. gratuity in this context.

                                                                                                                                                                  1. re: boris_qd

                                                                                                                                                                    Can you name a restaurant around here with a service charge in the 15-20% range that does not provide health care? I don't believe such a place exists.

                                                                                                                                                                    There's no such thing as "mandatory gratuity," a gratuity (tip) is by definition optional. California has a lot of laws and court / regulatory board decisions that regulate what happens to tips:


                                                                                                                                                                    1. re: Robert Lauriston

                                                                                                                                                                      **rolls eyes twice for good measure**

                                                                                                                                                                      A non-tendentious reading of the post makes it very clear that by "mandatory gratuity" he means an itemized service charge that the restaurant places on the bill (aka "we add 18% service charge for parties of six or more"). While the consumer may technically be able to get away with blithely ignoring such a charge without the restaurant calling the cops, very few consumers are aware that they could do such a thing. If it were common knowledge that this kind of thing could be safely disregarded, no restaurant would bother with it in the first place.

                                                                                                                                                                      1. re: bigwheel042

                                                                                                                                                                        If it's called a "service charge" and it's clearly stated on the menu, good luck dealing with the cops if the restaurant decides to call them! There have been cases, though, where customers have gotten off the hook when the restaurant has used the word "gratuity" instead of "service charge". The phrase "mandatory gratuity" is a contradiction in terms.

                                                                                                                                                                        1. re: nocharge

                                                                                                                                                                          You are proving the opposite point that you think you're proving. Robert's making a silly point about the semantics of "mandatory gratuities" in an attempt to sidetrack the discussion from the basic absurdity of adding a surcharge for health care (as opposed to simply raising menu prices).

                                                                                                                                                                          1. re: bigwheel042

                                                                                                                                                                            Service charges are as mandatory as anything else on the menu and the restaurant can use them for any purpose (though if the purpose is stated on the menu, they are obliged not to use them for other purposes).

                                                                                                                                                                            Tips / gratuities are optional and in California regulated by various laws and legal precedents.

                                                                                                                                                                            My only point about "mandatory gratuities" is that it's bad terminology that confuses those two distinct things.

                                                                                                                                                                            1. re: bigwheel042

                                                                                                                                                                              So you don't think that a restaurant customer enters an implied contract when ordering from a menu that explicitly states that there are surcharges, like for sales tax, and you think that the customer can willy-nilly avoid paying any such surcharges? Yeah, good luck with that theory! But maybe you are right; my tax advisor, Wesley Snipes, said the same thing.

                                                                                                                                                              2. re: nocharge

                                                                                                                                                                Yeah, it's weird that people don't see the upside breaking out city-mandated expenditures a la sales taxes. You don't tip on them, and the restaurant doesn't have to pay the landlord more since they're not part of gross receipts.

                                                                                                                                                                1. re: Robert Lauriston

                                                                                                                                                                  The reason that getting rid of the surcharge would be good is that then the government wouldn't have to add even more bureaucracy (as it has been forced to do) to make sure restaurants aren't ripping consumers off by misrepresenting the Healthy SF surcharge to consumers.

                                                                                                                                                                  The idea of allowing a Healthy SF surcharge, and not having any audit function, is completely ludicrous. That is what led to Grand Jury investigation last year, all the stories that have been written about this topic, the entire discussion on this thread, and the comment by Michael Bauer that restaurants who add a surcharge are becoming stigmatized.

                                                                                                                                                                  The government has said restaurants have to provide healthcare (which clearly many businesses don't like) -- but they never said anything about businesses imposing a consumer surcharge. This is an individual business practice. There has been an overwhelming indication that some businesses have used this practice to create profits rather than to implement healthcare. Forgetting for a moment whether this claim is true or not -- the very fact that the consumer concern exists and that a reasonable potential for consumer fraud exists has forced the government to create new policies, and an audit & enforcement mechanism to protect consumer interests.

                                                                                                                                                                  It's a waste of time & money but has to be done unless businesses instead do what all other businesses in the city do -- just make it part of the cost of doing business.

                                                                                                                                                                  The city can't just create a law saying it's illegal to itemize a charge for Healthy SF. But if people can bring consumer awareness to the fact that the surcharge money doesn't go to employees the way consumers may think it does -- it can lead to restaurant owners eliminating this practice -- which would be good for everyone.

                                                                                                                                                                  1. re: calumin

                                                                                                                                                                    Revising the HCSO reporting requirements to cover surcharges didn't significantly increase the bureaucracy the HCSO created in the first place.

                                                                                                                                                                    "The government has said restaurants have to provide healthcare ..."

                                                                                                                                                                    The City and County of San Francisco has not said and cannot say that. All that ERISA allows them to do is impose a spending mandate.

                                                                                                                                                                    1. re: calumin

                                                                                                                                                                      I guess the same argument could be used to get rid of the sales tax surcharge. How do we know that businesses don't collect it and then cheat on their taxes? It would require a bureaucracy to prevent that from happening. Horrible! And of course, imposing a sales tax surcharge is an individual business practice. The government forces businesses to pay sales tax, but it doesn't force businesses to pass on the cost to customers in the form of a surcharge as opposed to having it baked into the price. And, yes, paying sales tax is part of the cost of doing business in San Francisco.

                                                                                                                                                                      1. re: nocharge

                                                                                                                                                                        nocharge -- with sales tax, there is already transparency in tax reporting, as well as a common consumer understanding of sales tax amounts. Try raising the sales tax on your bill to 20% and see what happens.

                                                                                                                                                                        However, your analogy proves my point. If the rules around sales tax were as shady as they were around Healthy SF surcharges, then you bet there would be a lot of bureaucracy added to fix that problem.

                                                                                                                                                                        1. re: calumin

                                                                                                                                                                          How do you figure the rules are shady?

                                                                                                                                                                          1. re: Robert Lauriston

                                                                                                                                                                            Robert -- before the 2012 amendment there were no rules that regulated restaurants that imposed surcharges. The 2012 amendment added some rules and defined "qualifying healthcare expenditures" to at least try to let an audit function determine if surcharge money was being used as intended.

                                                                                                                                                                            Before the 2012 amendment a restaurant had a better ability to pocket surcharge revenue if they chose to, and then hide behind the rules (or lack thereof) to claim what they were doing was legal. (See posts above on that topic -- not to repeat here). People on this thread have claimed that a restaurant should be allowed to add a customer surcharge (of any amount), and as long as money is put in an HRA (which was allowed to earmark funds rather than enforce an irrevocable cash transfer), they could reclaim the funds per the earlier lax HCSO rules with no problem at all.

                                                                                                                                                                            And they could even say things like there's zero evidence of fraud even though the money went back to the restaurant owner instead of ever being used for healthcare!

                                                                                                                                                                            The legality of those actions is debatable (as has been done on this thread) -- but either way it was very shady. That's not to say that all or most restaurants were defrauding customers but the loophole was very big. Which is why an audit function was needed, and implemented last year.

                                                                                                                                                                            1. re: calumin

                                                                                                                                                                              You said the rules were shady. They were just vague, which is almost inevitable given the limitations imposed on local governments by ERISA.

                                                                                                                                                                              "And they could even say things like there's zero evidence of fraud even though the money went back to the restaurant owner instead of ever being used for healthcare!"

                                                                                                                                                                              If there were any evidence that a business owner pocketed surcharge money contributed to a health reimbursement account, that could be fraud, depending on how the surcharge was described and whether it was intentional.

                                                                                                                                                                              It's possible that somebody did that, but to date all the businesses that have made statements on the issue say all the money is sitting in accounts for their employees.

                                                                                                                                                                              1. re: Robert Lauriston

                                                                                                                                                                                The rules were shady because consumers were being asked to pay a surcharge for Healthy SF with no real oversight and clear acknowledgement that the surcharges were being used properly.

                                                                                                                                                                                The establishment of the audit process is what makes it more possible for the government to track and prove fraud when it exists.

                                                                                                                                                                                The very fact that you require such a high bar to clearly prove fraud is why the audit mechanism is needed. Without it, people are stuck in this loop where there is so much anecdotal evidence (and more) that some restaurants are pocketing surcharges, while restaurants claim everything is legal while the data clearly shows that less money is actually being spent on healthcare than is being collected via surcharge. There must be something happening to that money.

                                                                                                                                                                                1. re: calumin

                                                                                                                                                                                  The numbers the Chron published are misleading since they do not take into account the balances that are sitting in health reimbursement accounts. To date there's no evidence that any business owner pocketed a dime.

                                                                                                                                                                                  The revisions to the HSCO that went into effect last year eliminate any possibility of surcharge fraud unless the business owner cooks the books, like the Chinatown bakery that recently paid the city $525,000 to settle a lawsuit regarding their underpaying workers through such practices as counting only three hours for an 11-hour shift.

                                                                                                                                                                                  1. re: Robert Lauriston

                                                                                                                                                                                    The revisions to the HSCO (which include the reporting requirement as the basis to enable auditing) were precisely put in place to bring transparency to the issue of surcharge fraud. It sounds like we both agree that prior to 2012 the potential for fraud was much higher.

                                                                                                                                                                                    The revisions don't eliminate any possibility of fraud, but they provide a deterrent to restaurants who use surcharges because they will have to account for the dollars they collect and face an audit if healthcare expenses don't match revenues.

                                                                                                                                                                                    Regarding numbers - I didn't look at Chron numbers. I looked at numbers from the grand jury report. Also remember that prior to 2012 the rules around dollars "sitting in health reimbursement accounts" (e.g. earmarked) were very lax in allowing employers to reclaim those funds. "Sitting in health reimbursement accounts" really just meant a cash number was available & not reclaimed. So the question for all these restaurants is what did they actually do with the funds -- and the audit has to go beyond the question of what is recorded in an HRA balance. For example, if they actually did not provide any healthcare at all to their employees, then dollars earmarked in an HRA account doesn't mean very much.

                                                                                                                                                                                    1. re: calumin

                                                                                                                                                                                      "For example, if they actually did not provide any healthcare at all to their employees, then dollars earmarked in an HRA account doesn't mean very much."

                                                                                                                                                                                      I don't have the energy to explain this to you again (especially since you plainly weren't reading my responses -- how many times did I tell you that no cash transfer needed to occur between an employer and a TPA for an HRA? Five?), but just for the record, nope, that's not how it works.

                                                                                                                                                                                      1. re: dunstable

                                                                                                                                                                                        dunstable - yes I have read all your responses.

                                                                                                                                                                                        From the 2012 grand jury report, page 11:

                                                                                                                                                                                        "Third- party insurance and the City Option require cash payments by the employer, which are non-refundable. By administering their own HRAs, employers earmark the funds and pay out only when actual medical costs are incurred by their employees. Furthermore, after two years, or 90 days after the employee’s termination, employers can retain any unused funds for their own use. Employers may also arbitrarily define what medical expenses qualify for reimbursement under their HRA plan.

                                                                                                                                                                                        "The OLSE reported in 2010 that 860 out of 4,000 employers used the HRA option.12 The total amount allocated to the employees was $62.5 million. However, only $12.4 million was actually spent on employee medical care, allowing their employers to “reclaim” or “retain” up to $50.1 million or 80% of their required expenditures."

                                                                                                                                                                                        That is a loophole if the revenue from surcharges ends up being reclaimed by the business.

                                                                                                                                                                                        In the original provision, employers had the ability to reclaim unused funds at the end of each year.


                                                                                                                                                                                        1. re: calumin

                                                                                                                                                                                          "Third- party insurance and the City Option require cash payments by the employer, which are non-refundable. By administering their own HRAs, employers earmark the funds and pay out only when actual medical costs are incurred by their employees. Furthermore, after two years, or 90 days after the employee’s termination, employers can retain any unused funds for their own use. Employers may also arbitrarily define what medical expenses qualify for reimbursement under their HRA plan."

                                                                                                                                                                                          And if you had read my responses, you would realize that nothing there contradicts anything I said.

                                                                                                                                                                                          "The OLSE reported in 2010 that 860 out of 4,000 employers used the HRA option.12 The total amount allocated to the employees was $62.5 million. However, only $12.4 million was actually spent on employee medical care, allowing their employers to “reclaim” or “retain” up to $50.1 million or 80% of their required expenditures."

                                                                                                                                                                                          I made this point earlier, but I don't think I addressed them to you, and this thread is admittedly pretty long.

                                                                                                                                                                                          This is a classic example of badly applied statistics. There is ALWAYS retention with an HRA. NO company ever uses every last dollar of an HRA, not even the ones who are miserly about it. A completely drained HRA means that the participant needed every dollar of the HRA. It's not like you can spend HRA money on aspirin and Dimetapp, so that means you went to the hospital, that many times. Admittedly, it is a lot easier to drain an HRA if it isn't attached to an HDHP, which is what it sounds like these restaurants are doing, but either way, if you didn't go to the hospital, you didn't spend any money. Robert noted below that there were some sort of minima attached to restaurant HRAs in this context, but generally speaking, if an employer is more generous with their HRA (for instance, $10,000 per family instead of $1000), then their percentage of funds claimed actually drops. There is no solid link between this percentage and fraud, and frankly, it's not hard to imagine that a typical server doesn't go to the hospital that often.

                                                                                                                                                                                          I'm still not gonna jump into this fray, but it arches my brow that you're all pointing to this statistic, and not actual accounts of servers failing to access funds that were allotted to them.

                                                                                                                                                                                          1. re: dunstable

                                                                                                                                                                                            The city controller assessment never claimed that there was supposed to be zero retention in the model. However the reimbursement rate with the City Option was 50% (while HRA was 20%) -- presumably not because the healthcare was so much better! And furthermore, unlike the City Option, the HRA included the ability for businesses to reclaim funds -- which is a loophole.

                                                                                                                                                                                            I have never claimed that it is not possible to setup a perfectly valid, legitimate HRA -- and it sounds like your experiences in rolling out HRAs to employers may have been perfectly legitimate.

                                                                                                                                                                                            But the City Controller assessment and the Grand Jury assessment are perfectly valid. It is incomprehensible to think that even though this very big loophole existed, and even though we have evidence of restaurants paying zero dollars in healthcare to their workforce over an extended period, and even though we have restaurants who have settled with the City by backpaying employees who were denied healthcare as well as paying a fine -- that somehow the HRA loophole is nothing more than badly applied statistics.

                                                                                                                                                                                            And again (not to beat a dead horse), the consumer fraud issue is not primarily related to HRA. It is about the correct application of consumer surcharges to healthcare expenditures. In defending themselves, only some restaurants have used the explanation of the HRA reserve. Others have used other convenient explanations such as the surcharge revenue was used for healthcare and "other related" expenses. Until the reporting & audit mechanism was deployed last year, it was all so shady that nobody could tell what was really going on.

                                                                                                                                                                                            1. re: calumin

                                                                                                                                                                                              "The city controller assessment never claimed that there was supposed to be zero retention in the model. However the reimbursement rate with the City Option was 50% (while HRA was 20%) -- presumably not because the healthcare was so much better! And furthermore, unlike the City Option, the HRA included the ability for businesses to reclaim funds -- which is a loophole."

                                                                                                                                                                                              No, you're making the same mistake twice.

                                                                                                                                                                                              These do not have the same service structure, and thus do not necessarily have related reimbursement rates -- you may as well be talking about baseball statistics, because it is equally irrelevant. To use a more ostensibly relevant example, the reimbursement rate for healthcare FSA accounts comes very close to 100%. Neither has much correlation to the other, despite both being for healthcare. Sure, you may say, "but that's different," to which I would say that is exactly my point.

                                                                                                                                                                                              " It is incomprehensible to think that even though this very big loophole existed, and even though we have evidence of restaurants paying zero dollars in healthcare to their workforce over an extended period, and even though we have restaurants who have settled with the City by backpaying employees who were denied healthcare as well as paying a fine -- that somehow the HRA loophole is nothing more than badly applied statistics."

                                                                                                                                                                                              Sure it is! I have now explained this in great detail.

                                                                                                                                                                                              I will further say this: even the fact that the authors of this law thought that an HRA was at all useful when not tethered to an HDHP is itself a strong indication that they had no clue what they were doing -- I mean that sounds like they didn't consult with anybody at all connected to healthcare administration for even ten minutes. From what little I've learned about the case so far, it's very easy for me to believe that nobody -- not the lawmakers, not the investigators, not the grand jury -- has any clue what they're talking about. Wouldn't be the first time.

                                                                                                                                                                                              1. re: dunstable

                                                                                                                                                                                                Well I agree with you is that rules around HRA are terrible. I go further than you and say that the HRA setup allowed for a very significant loophole which has been validated not only by the investigative reports I linked above, but also by restaurant owners who are on record saying they have considered exploiting this loophole (and in fact advised by restaurant consultants to do so).

                                                                                                                                                                                                I think you don't find it a problem that an employer can impose a consumer surcharge saying it's for Healthy SF, earmark that amount of revenue in an HRA, and then reclaim those funds at the end of the year (thereby not using that revenue for healthcare). That was the situation when this was first enacted and was the very subject of both investigations linked above. You may not think that loophole was possible, but I have not seen any investigative analysis supporting your view and considerable investigative analysis supporting the opposing view.

                                                                                                                                                                                                1. re: dunstable

                                                                                                                                                                                                  The authors of the law could not write it to favor, disfavor, or ban any health care option, that's prohibited by ERISA. All they could do was mandate an expenditure level. Which by itself, with an annual cap lower than the cheapest health plan, makes for an ineffective law.

                                                                                                                                                                                                  1. re: Robert Lauriston

                                                                                                                                                                                                    Right. If there were a way to eliminate HRA that would have made things a lot simpler for everybody (albeit a bit more expensive for employers)

                                                                                                                                                                                                    1. re: Robert Lauriston

                                                                                                                                                                                                      So this is the Happy Meal toy fiasco all over again? Why doesn't that surprise me.

                                                                                                                                                                                                      1. re: dunstable

                                                                                                                                                                                                        Well kind of. I assume you mean McDonalds charging 10 cents per toy to get around the legislation prohibiting free toys to be bundled with unhealthy Happy Meals?

                                                                                                                                                                                                        I guess where it's similar is the restaurant finding a way to get around a law that it doesn't like. I thought what they did was pretty creative!

                                                                                                                                                                                          2. re: calumin

                                                                                                                                                                                            The original HCSO made no provision for businesses to recover unspent funds in health reimbursement accounts:


                                                                                                                                                                                            Any such recovery would have been pursuant to federal rules regarding such accounts. To date there are no reports of any business doing that.

                                                                                                                                                                                            The 2012 revisions allow recovery eventually. Those provisions are kind of confusing.



                                                                                                                                                                                            1. re: calumin

                                                                                                                                                                                              Dollars sitting in a health reimbursement account are by definition available to pay claims made by the employee. Such accounts are regulated by the federal government.

                                                                                                                                                                                  2. re: calumin

                                                                                                                                                                                    I don't see why this particular mandate would require a whole lot more bureaucracy than any other government law that needs to be enforced. Yes, the law might be badly written, in which case you should blame the law makers and the idiots who voted them into office, but if that's the case, wouldn't it be better to fix the law rather than to blame restaurants with surcharges?

                                                                                                                                                                        2. re: Robert Lauriston

                                                                                                                                                                          I think Bauer missed the point.

                                                                                                                                                                          As a reviewer, he should report when there's a surcharge on the bill that wasn't on the menu (or, if tax is greater than mandated amount, %9.5 for SF). This is a cardinal rule of looking out for the customer.

                                                                                                                                                                          Past that - whether a surcharge is appropriate or legally applied - is beyond the scope of a reviewer's concern.

                                                                                                                                                                          1. re: Robert Lauriston

                                                                                                                                                                            Well, Robert, maybe not the apology we're waiting for...but how about this side-stepping, back-handed acknowledgement...

                                                                                                                                                                            1. re: bdl

                                                                                                                                                                              "Turns out I’m the one bordering on irresponsibility." Bordering?

                                                                                                                                                                          2. The HCSO-mandated expenditures aren't like electricity or cleaning. The restaurant owner has some control over those costs.

                                                                                                                                                                            The HCSO is in effect exactly like a payroll tax.

                                                                                                                                                                            1. So the whole thing is a mess but wasn't it the GG Restaurant Association that wanted the sur-charge in the first place?

                                                                                                                                                                              Didn't they fight any health care program tooth and nail and settle on the surcharge so they could show customers what they were paying for?

                                                                                                                                                                              Well guess what, as it turns out the Surcharge was a HUGE turnoff to customers. Everyone knows healthcare in this country sucks giant bags of crap and that everyone needs it but when you go out for some fun, you just don't want to see SURCHARGE on your damn bill.

                                                                                                                                                                              Why not simply do what every other industry does - pay for healthcare and shut up and don't make a deal out of it.

                                                                                                                                                                              Yeah Herrera messed up but the GG Restaurant Assoc gets a big assist from the get-go. I still say it's their mess.

                                                                                                                                                                              7 Replies
                                                                                                                                                                              1. re: ML8000

                                                                                                                                                                                Blaming the GGRA for anything is silly. Every restaurateur in the City knows that a surcharge has pros and cons, including the risk of alienating some customers. It's a business decision where some restaurants have chosen to implement a surcharge and some haven't. But I guarantee you that it's a decision that no one makes without careful considerations about what's best for business and obviously there is no consensus.

                                                                                                                                                                                If you want to blame anyone for anything besides grandstanding politicians, how about the Chronicles's Michael Bauer and his staff who blindly echoed the allegations of rampant fraud, allegations from which Dennis Herrera now seems to be backtracking at full speed. (Although you would assume that there would be some occurrences of fraudulent behavior in the the restaurant business just like in any other type of business.) Not one single critical thought went into that reporting, but I guess that's the kind of thing that happens when the Chronicle's Food and Wine staff dabbles in journalism.

                                                                                                                                                                                1. re: nocharge

                                                                                                                                                                                  Like any industry group GGRA could have gotten out in front and provided leadership and solved the problem and done everyone, including themselves, a big favor. Instead they bitched about everything, got the damn surcharge and confusion and this is where things are.

                                                                                                                                                                                  Industry groups have the right to lobby but when they do the community at large and their employees in particular, a disservice, they take some blame.

                                                                                                                                                                                  So go ahead pile on the Chron and Herrera but the surcharge was a mistake from the get-go, big mistake because it left the door open to the public wondering WTF is going on, why it's there, how it effect them and all sorts of questions that didn't needed to asked. All they had to do was take care of their employees like everyone else and don't make an issue out if...

                                                                                                                                                                                  But no... GGRA had to have the surcharge. Well they made the bed, now lie in it. See this is a classic case of trying to out maneuver the opposition and it blowing up in their face.

                                                                                                                                                                                  1. re: ML8000

                                                                                                                                                                                    I challenge you to find even one restaurateur in the City who lets GGRA dictate his business decisions. Restaurant owners live or die by their decisions and GGRA is not going to bail them out if their restaurants fail.

                                                                                                                                                                                2. re: ML8000

                                                                                                                                                                                  I don't believe the GGRA had any connection with the surcharges.

                                                                                                                                                                                  They filed suit against the law on the grounds that it conflicted with federal law. They won but lost on appeal, so their efforts had no effect.

                                                                                                                                                                                  Here's a good brief summary of that case that helps explain why SF can't write a law that would more effectively promote health coverage rather than encouraging businesses to run up balances in reimbursement accounts:


                                                                                                                                                                                  1. re: ML8000

                                                                                                                                                                                    "Why not simply do what every other industry does - pay for healthcare and shut up and don't make a deal out of it."

                                                                                                                                                                                    What if you are struggling and barley making ends meet??? The assumption you are making is that all restaurants are rolling in dough but are just greedy and stingy.

                                                                                                                                                                                    1. re: Ridge

                                                                                                                                                                                      The mom and pops get an exemption if under so many employees.

                                                                                                                                                                                      Otherwise the average cost of a start-up restaurant in SF goes for something like $1,000 per/sf cost, so 1,000 SF = $1 million. $250k for a alcohol license, etc. Not for the faint of heart, weak...or poor.


                                                                                                                                                                                      Yes there's ways around it and the low end can be done for less but many of the places mentioned in the report were not cheapie mom and pops, or take-overs or quick reduxs. These were places that were "holding" $200k of employee funds.

                                                                                                                                                                                      When you start talking MILLIONS to start up, I say calculate health care and HR costs like any other business. The restaurant biz has worked off the tradition/culture of cheap (often family) labor for way too long and it's wrong.

                                                                                                                                                                                      I think the policy makers in SF did the math - the food/hospitality is in SF is a major economic force and employs many people but because of tradition w/i the industry many don't get covered...so they did something and I applaud them even if the execution sucked.

                                                                                                                                                                                      1. re: ML8000

                                                                                                                                                                                        What report? If you're talking about the Chron's list, on average 45% of 2011 contributions to HRAs were disbursed to employees and the rest remains in the employees' accounts, where per the revisions to the HCSO it must remain.

                                                                                                                                                                                        The Board of Supervisors gave no particular consideration to restaurants or any other business. The HCSO applies to all businesses with 20 or more employees.

                                                                                                                                                                                  2. Looking at the grand jury report again, I see that they explicitly calculated "net health care expenses" by subtracting "funds the employer may retain from the HRAs" (page 13 of the PDF, numbered 7).


                                                                                                                                                                                    That's where this whole brouhaha started: they never investigated to see if any employers in fact retained any funds, just presumed that they were and on that basis cried "fraud" (pages 17-18).

                                                                                                                                                                                    Their big smoking gun is that "Employers with HRAs ... retained up to ... $50 million." An honest characterization would have been, "We do not know how much, if any, of the remaining $50 million has been retained by employers and how much remains available to reimburse employees' claims."

                                                                                                                                                                                    The OLSE's response: "... employers allocated $62 million to all types of health care reimbursement programs—not only HRAs, but also other types of reimbursement programs such as Flexible Spending Accounts (FSAs), Health Saving Accounts (HSAs) and Medical Spending Accounts (MSAs). The $12 million represents the amount that employers reported reimbursing to employees from all of these types of accounts. The Annual Reporting Form did not ask employers to report what happened to the $50 million in unreimbursed funds. These allocations and reimbursements were reported by 2,960 employers who submitted 2010 Annual Reporting Forms to the OlSE."


                                                                                                                                                                                    1. The grand jury said the reimbursement rate with the city option was 50%. The average for the businesses on the Chron's list was 45%.

                                                                                                                                                                                      The Patxi's settlement has nothing to do with surcharges. It regarded HCSO contributions for 2009 and 2010, and they didn't add a surcharge until 2011.


                                                                                                                                                                                      1. Looking at the latest insidescoop article on the subject, I find the following quote hilarious:
                                                                                                                                                                                        "So the big question here is why the Mina Group, even with its “best practices” surrounding health care, had to pay that sum of $83,617.50."

                                                                                                                                                                                        You would naively think that the Chron would employ somewhat hard-nosed journalists with enough street smarts not to ask silly questions like that, but no such luck. The reality, of course, is that the cost of litigation could easily top $80K if the case went to trial with no complete certainty about winning the case. After all, you have a murky law and a case where whether something could technically be considered consumer fraud may depend on the exact wording of a footnote on the menu.

                                                                                                                                                                                        My prediction: The City Attorney will shake down restaurants for exactly the amount he thinks he can get the restaurant to cough up just like any good mafioso would. He will take credit for each case to bolster his political career by presumably protecting workers' health care and the "journalists" at the Chronicle will be none the wiser.

                                                                                                                                                                                        89 Replies
                                                                                                                                                                                        1. re: nocharge

                                                                                                                                                                                          From what it says in the story, that $84K (15% of the total collected) didn't cost the Mina Group anything, they simply disbursed it from the accumulated cash reserved for employee health claims. Clearly there was no intent to profit from the surcharge (when they found that the 4% surcharge was more than they needed, they dropped it to 3%), so there was no fraud.

                                                                                                                                                                                          1. re: nocharge

                                                                                                                                                                                            You aren't likely to find hard-nosed journalists in a blog post in the food section.

                                                                                                                                                                                            Restaurants like Mina Group should be shaken down for overcharging customers without covering their employees' healthcare. Too bad the city can't mandate actual coverage like Healthy San Francisco instead of profit-driven HSA accounts with use it or lose it BS, written by the insurance industry for senators from Connecticut. HSAs are an enormous scam that provide a deduction for higher income earners.

                                                                                                                                                                                            1. re: Windy

                                                                                                                                                                                              The Mina Group hasn't profited from the surcharges.

                                                                                                                                                                                              Health reimbursement accounts (HRAs) as defined by SF's Health Care Security Ordinance are not use-it-or-lose-it like federally defined flexible spending accounts (FSAs). The HCSO is confusing, but I think it says that the employer can't touch any funds collected from a surcharge unless an employee dies or a former employee has not made a claim in 18 months.

                                                                                                                                                                                              The federally defined health savings accounts (HSAs) paired with high-deductible health plans are not use-it-or-lose-it either.

                                                                                                                                                                                              1. re: Robert Lauriston

                                                                                                                                                                                                Thanks Robert. There have been recent changes in the law because of a lot of protests and I suspect lawsuits. The HSA account I had two years ago was use it or lose it by calendar year, and I was working for a SF-based company at the time.

                                                                                                                                                                                                The intent of the original act was that workers dealing with food should have healthcare so that everyone including diners could stay healthy. The fact that the high end of the industry wastes its time and money on lawsuits instead of factoring this into the cost of running a good business is appalling.

                                                                                                                                                                                                As a diner, I feel ripped off every time I see a surcharge. I don't care how many times patronizing owners try to explain it away. It's a foolish practice, and one that's only practiced at the high end or by large chains.

                                                                                                                                                                                                Raise your prices and deliver a quality experience that doesn't leave SF residents and restaurant goers with a bad taste in our mouths, and wallets. Or be like the airlines and car rental companies, nickel and dime-ing customers, and be despised.

                                                                                                                                                                                                1. re: Windy

                                                                                                                                                                                                  I'm sure the Board of Supervisors would like to require businesses to pay for health plans but that would be illegal. Their intent doesn't count for much given the very limited room federal ERISA preemption leaves for them to make laws regarding health benefits.

                                                                                                                                                                                                  As discussed above, all the city can do is require expenditures.

                                                                                                                                                                                                  1. re: Windy

                                                                                                                                                                                                    So do you feel ripped off by the sales-tax surcharge as well when you dine or shop?

                                                                                                                                                                                                    1. re: nocharge

                                                                                                                                                                                                      No, I'm not against sales tax, although states are far too reliant on the revenue from it to pay for essential services. But that's not about restaurants. And it's not discretionary. Everyone, even Amazon finally, charges it.

                                                                                                                                                                                                      I pay taxes for my business including to the city of SF. I don't itemize health premiums when I invoice clients, or when I buy a new computer, or when the cost of gas goes up. They'd find someone who didn't.

                                                                                                                                                                                                      Which is what we all should do with restaurants that use the check to make a political statement to diners: vote with our wallets and eat elsewhere.

                                                                                                                                                                                                        1. re: Windy

                                                                                                                                                                                                          But you, as a customer, don't owe sales tax to the state of California; the restaurant or store that you are doing business with does. Why is it that you think that a surcharge to recover other SF mandated costs are more offensive than a surcharge for sales tax? (Assuming, of course, that the surcharge would be properly labeled on the menu and used accordingly since anything else could be considered consumer fraud.)

                                                                                                                                                                                                          1. re: nocharge

                                                                                                                                                                                                            We have gone over this (exceptionally weak) point again and again; I wonder why you insist on rehashing it. Sales tax reimbursement is a) a universal norm in American life in the year 2013; b), the sole, weird exception to not itemizing one's costs of doing business; c) is -by law - always the fixed percentage of whatever the region's actual sales tax rate is, allowing the consumer to be confident that every single dollar collected is actually used for its mandated purpose: going to the state's department of revenue rather than, say, getting spent on a new golf cart for the business owner.

                                                                                                                                                                                                            A healthcare surcharge miserably fails all three criteria. By definition, it fails a) and b): while consumers have learned to tolerate the one exception of sales tax reimbursement in this one specific part of the world, they certainly do not want to deal with additional itemization, which needlessly complicates the bill.* And the lack of real legal regulation and consequent variability of health care surcharges means that it also fails c): the fact that every surcharge is a different amount (and not even included in a majority of cases) gives consumers no confidence that their money is truly being spent in a standardized, mandated manner, rather than the restaurant simply making up a BS number to charge and hoping (or not) that the amount collected exactly matches the amount mandated.

                                                                                                                                                                                                            *And no, there's nothing special about government versus non-government-cost related itemizing in this regard, so stop pretending as if there is. Try surveying non-New Yorkers who've been confronted with a line item for the "captain's tip" on the check when dining at NYC restaurants. I guarantee you that many more of them will, even after you explain what a captain's tip is, respond "that sounds like a scam and they should stop adding that on, especially at a typical mid-range joint where the "captain" is just a plain old regular hostess" than "oh, that surely makes sense to break out an extra line for tipping the hostess."

                                                                                                                                                                                                            1. re: bigwheel042

                                                                                                                                                                                                              Your argument makes no sense. You are saying that one would not have any reason to be opposed to a sales-tax surcharge because of what? Because it's a common practice in the US in 2013? Slavery was a common practice in the US in 1850, but there were still people opposed to it. I'm not saying that a healthcare surcharge is a good idea -- it's a mixed bag -- I'm just curious as to why some people get seriously offended by a healthcare surcharge yet sheepishly accept the sales-tax surcharge that doesn't exist in most of the civilized world. Or, for that matter, why the same people don't seem to be up in arms about service charges for parties of six or more.

                                                                                                                                                                                                              1. re: nocharge

                                                                                                                                                                                                                It's hard to convince the willfully obtuse.

                                                                                                                                                                                                                1. re: nocharge

                                                                                                                                                                                                                  " I'm just curious as to why some people get seriously offended by a healthcare surcharge yet sheepishly accept the sales-tax surcharge that doesn't exist in most of the civilized world."
                                                                                                                                                                                                                  Could you explain in a few words how the value added tax in parts of the rest of the civilized world differs.

                                                                                                                                                                                                                  1. re: wolfe

                                                                                                                                                                                                                    It is usually included in the price tag of an item and not added as a surcharge.

                                                                                                                                                                                                        2. re: Windy

                                                                                                                                                                                                          HSAs are not supposed to be use-it-or-lose-it (it's a savings account, after all); you probably mean an FSA.

                                                                                                                                                                                                        3. re: Robert Lauriston

                                                                                                                                                                                                          It's not clear whether Mina Group would have ever profited from the surcharges without the aggressive actions by the City Attorney. I think it's smart that both sides agreed to sidestep the issue of liability and focus on what's more important, which was actually dispersing the money collected and using it for the benefit of employees.

                                                                                                                                                                                                          1. re: calumin

                                                                                                                                                                                                            "... both sides agreed to sidestep the issue of liability ..."

                                                                                                                                                                                                            The city attorney's office said "The City recognizes that 100 percent of the surcharges collected will continue to be used exclusively for employee healthcare." That's a tacit admission that they concluded there was no fraud, which would require both the intent to use the surcharges for some other purpose and actually doing so.

                                                                                                                                                                                                            So the city attorney's office's one-sided statement that it "reaches no conclusions on liability" is a lie.

                                                                                                                                                                                                            1. re: Robert Lauriston

                                                                                                                                                                                                              There is no admission or conclusion of anything you suggest. They explicitly state they make no conclusion regarding liability.

                                                                                                                                                                                                              I think the statement above in return for having MM pay $83k to employees for healthcare that they otherwise wold not have paid if not for aggressive City Attorney follow up, is a victory for the City and for employees.

                                                                                                                                                                                                              1. re: calumin

                                                                                                                                                                                                                "I think the statement above in return for having MM pay $83k to employees for healthcare that they otherwise wold not have paid ..."

                                                                                                                                                                                                                That money was sitting in the reserve account available to reimburse employee / ex-employee health expenses. Apparently they just paid it out like a bonus.

                                                                                                                                                                                                                It's weird to me that on Chowhound of all places so many people take a viciously hostile attitude toward restaurants dealing with a confusing law and cut unlimited slack for the politicians who wrote and enforce it. Who would you rather have dinner with, Michael Mina or Tom Ammiano?

                                                                                                                                                                                                                1. re: Robert Lauriston

                                                                                                                                                                                                                  I'd rather have dinner with Michael Mina but that's totally irrelevant. I don't understand your comment about vicious hostility.

                                                                                                                                                                                                                  If excess money sits perpetually in a reserve account, it's not helping employees and not being used for healthcare.

                                                                                                                                                                                                                  It seems to me if Michael Mina really was planning to use these funds for healthcare, then all the City was doing was implementing a forcing function to make sure those funds get those funds distributed fairly -- and literally everybody should be happy.

                                                                                                                                                                                                                  1. re: calumin

                                                                                                                                                                                                                    "If excess money sits perpetually in a reserve account, it's not helping employees and not being used for healthcare."

                                                                                                                                                                                                                    The HCSO-required expenditures that are paid into HRAs are hot held perpetually, only until the employee makes a claim. That's what the HCSO requires.

                                                                                                                                                                                                                    Absent instructions from the city attorney, if the Mina Group disbursed money from HRAs to employees without claims, they'd be violating the law.

                                                                                                                                                                                                                    1. re: Robert Lauriston

                                                                                                                                                                                                                      You are not addressing what happens when the funds exceed and will continue to exceed the full amount of claims that will be submitted. Do not forget that the issue that started everything wasn't primarily HRA but consumer surcharges, which put the onus squarely on the restaurant (not the city attorney) to make sure that consumers weren't being defrauded.

                                                                                                                                                                                                                      Given that restaurants are continuing to settle with the City on this topic, I don't think the same argument we've heard now about twenty times on this thread (the one about funds existing in an HRA being the only thing needed to make everyone 100% innocent) is really going to work.

                                                                                                                                                                                                                      The fact that Michael Mina and the City agreed to resolve this in the way they did is fine with me, and I assume fine with both parties who agreed to this.

                                                                                                                                                                                                                      1. re: calumin

                                                                                                                                                                                                                        I don't see what the problem is here either. Even in a regular HRA, any unused funds revert back to the employer at the end of the plan year (as I believe I have said already, many times). I guess throwing it onto your check as "healthcare surcharge" looks bad, but no one would be alleging illegality if they had simply raised the prices of everything by a dollar. So essentially we are arguing about the semantics of the check.

                                                                                                                                                                                                                        1. re: dunstable

                                                                                                                                                                                                                          I don't see how unused funds reverting back to the employer does anything to help the employees, for whom consumers are being led to believe are the beneficiaries of the surcharge.

                                                                                                                                                                                                                          But I agree with one of your points -- just raise your prices and eliminate the surcharge!

                                                                                                                                                                                                                          1. re: calumin

                                                                                                                                                                                                                            What should happen to unused funds?

                                                                                                                                                                                                                            Reverting the funds to the employees would discourage them from using them to pay for health care, since if they waited long enough they'd get cash.

                                                                                                                                                                                                                            What does the city do with the 50% (per the grand jury report) of HRA contributions that it does not disburse to "city option" participants?

                                                                                                                                                                                                                            1. re: Robert Lauriston

                                                                                                                                                                                                                              Robert - the better question to ask is, why don't restaurants stop imposing surcharges?

                                                                                                                                                                                                                              If they impose a surcharge, it's their responsibility to make sure the funds are allocated correctly. If they choose to implement real health insurance, they could fulfill that requirement because the actual outlays are known in advance. If they collect a surcharge and then put it in an HRA, they're on shaky ground and it's not the City's responsibility to clean up their potential fraud.

                                                                                                                                                                                                                              1. re: calumin

                                                                                                                                                                                                                                There's no potential fraud if the restaurant uses surcharges only for the stated purpose. If they accumulate a large surplus that the HCSO allows them to recover, they could just use the recovered funds for new contributions and reduce the surcharge to reflect that the lower cost.

                                                                                                                                                                                                                                "why don't restaurants stop imposing surcharges?"

                                                                                                                                                                                                                                As discussed above, major reasons for not just raising prices include landlords getting a share of the gross receipts and staying competitive with restaurants with fewer employees (who pay less or nothing, depending).

                                                                                                                                                                                                                  2. re: Robert Lauriston

                                                                                                                                                                                                                    It's because most people understand the importance of healthcare and how many people in the U.S. are NOT covered, how restaurants workers often get the short end and healthy restaurants workers are a good thing because they HANDLE YOUR FOOD.

                                                                                                                                                                                                                    If you haven't received the memo, there are 45 million uninsured Americans. For the wealthiest country in the world that is just pathetic. I don't care if it's big oil, small potatoes or celeb restauranteurs - COVER YOUR WORKERS or be shamed. Don't make a stink about it, don't play games, don't grandstand and just do the right thing. For pete freakin' sake Michael Mina isn't a mom and pop place but a multimillion dollar enterprise.

                                                                                                                                                                                                                    Now since turn-around is fair play, who do some CH'er continue to play industry shills and give these guys a pass? Republican Congressmen or Tea Party ding bats?

                                                                                                                                                                                                                    p.s. I've had dinner with Tom Ammiano. He's a good guy looking out for the little guy. I've had dinner at MM, it ran $150 p/p + tip, tax, wine. If you can't manage to take care of your worker charging that much - get the EF out of the business.

                                                                                                                                                                                                                    1. re: ML8000

                                                                                                                                                                                                                      Oh for goodness sakes, it's not a partisan politics issue.

                                                                                                                                                                                                                      Ammiano, and the others didn't originate this idea - it started with the restaurants themselves, and it was done in a manner that sparked public discussion, which led to legislation.

                                                                                                                                                                                                                      1. re: sugartoof

                                                                                                                                                                                                                        Which idea started with the restaurants?

                                                                                                                                                                                                                        The per-hour contributions were Tom Ammiano's idea, most of the rest of the HCSO came from Gavin Newsom. The "city option" was an expansion of a program started during Willie Brown's tenure.


                                                                                                                                                                                                                        1. re: Robert Lauriston

                                                                                                                                                                                                                          I'm talking about the subsequent reform legislation (proposed, or otherwise), specifically in reaction to how the restaurant industry has dealt with Healthy SF.

                                                                                                                                                                                                                          Also this:

                                                                                                                                                                                                                          Prattling on about political interests, and perspectives on health care systems is beyond the scope of a food forum.

                                                                                                                                                                                                                          1. re: sugartoof

                                                                                                                                                                                                                            That link has a key link about Slanted Door. They simply raised prices accordingly, didn't grandstand, covered their employees and shut up. Phan is right, no one wants to see that on the bill.

                                                                                                                                                                                                                            As for this being political of course it is. Many restauranteurs made it VERY clear by tacking on the surcharge it's political and they wanted everyone to see it. It's their own fault for creating the surcharge and putting it on the bill.

                                                                                                                                                                                                                            Seriously what do restaurants gain by putting a surcharge on the bill? Create a political discussion after a nice meal? Give the waitstaff another thing to discuss with patrons? Show everyone they're doing their part?

                                                                                                                                                                                                                            Just cover your people, serve food and stfu. If that means a 4% increase, so be it. If you're dropping $176 bucks, 4% isn't a big deal, that's $7.04.

                                                                                                                                                                                                                            1. re: ML8000

                                                                                                                                                                                                                              ML8000, I agree with you that the Slanted Door handled it right, and some other points, but spouting off talking points or going autopilot ranting about the Tea Party is distracting.

                                                                                                                                                                                                                          2. re: Robert Lauriston

                                                                                                                                                                                                                            The consumer surcharge was the idea started by restaurants.

                                                                                                                                                                                                                            The consumer surcharge is what is being audited by the City Attorney. The City would have rather not had this happen, and for restaurants just add healthcare to the overall cost of doing business (the way other businesses in SF and in the nation do it). The City was dragged into this audit function because of increasing complaints of restaurants pocketing surcharge money.

                                                                                                                                                                                                                            This conversation is deja vu all over again.

                                                                                                                                                                                                                            1. re: calumin

                                                                                                                                                                                                                              There have been no complaints of restaurants pocketing surcharge money. The grand jury came up with the theory that restaurants might be engaging in fraud but didn't have any strong evidence that that was the case.

                                                                                                                                                                                                                              1. re: Robert Lauriston

                                                                                                                                                                                                                                The points being made now have been made over and over again in this thread.

                                                                                                                                                                                                                                If there really was no problem, then restaurants wouldn't be settling and paying out funds to employees as a result of the City Attorney investigations. People can now make up new crazy reasons for why these restaurants are paying out money, but the fact is they got caught and are now making right something that was wrong.

                                                                                                                                                                                                                                And if people turn their head away when complaints are being made about surcharge fraud, then I guess you legitimately say there have been no complaints. But you'd be wrong. And If you think the grand jury has a secret bias to screw over restaurants, feel free to keep thinking that. I don't agree, and am tired of debating some of these nonsensical points.

                                                                                                                                                                                                                                1. re: calumin

                                                                                                                                                                                                                                  We all know the saying "a grand jury will indict a ham sandwich". But has anyone been indicted for fraud in this case? You would assume that a grandstanding clown of a City Attorney would see it as a feather in his cap if he was actually able to convict someone, but as of now, it seems like he hasn't even been able to indict anyone.

                                                                                                                                                                                                                                  1. re: nocharge

                                                                                                                                                                                                                                    nocharge -- the better outcome is to have settlements like the one with MM. both sides win, and the employees who were denied healthcare-related compensation from the earlier years get compensated. this whole effort has been a good thing and i really don't understand how people could complain about the outcome.

                                                                                                                                                                                                                                    the fact that firefly was found to be in compliance but others are paying back money without a long lawsuit shows that the City is more interested in a fair audit & proper compensation to employees when warranted, than in lawsuit victories.

                                                                                                                                                                                                                                    1. re: calumin

                                                                                                                                                                                                                                      Why do you think settlements would constitute a better outcome? If restaurants actively engage in consumer fraud, they should be prosecuted and convicted, in my opinion. And there is not a single grandstanding clown of a prosecutor who wouldn't take a conviction over a settlement provided, of course, that he could get the conviction.

                                                                                                                                                                                                                                      1. re: calumin

                                                                                                                                                                                                                                        "employees who were denied healthcare-related compensation from the earlier years"

                                                                                                                                                                                                                                        Where are you coming up with that?

                                                                                                                                                                                                                                        The Mina Group didn't deny any employees compensation. They've paid out over $200K in claims. The money the city attorney told them to disburse was just the excess they'd collected in surcharges and put into the reserve accounts over what the HCSO required. Over the three years at issue they were about 15% ($85K) over.