Employer Communications May Prevent Millions in Employee Forfeiture from SFCO Funds

San Francisco’s City Option Holds Millions in Unused Funds

The San Francisco City Option (SFCO) was established in 2008 to provide employers with a way to comply with San Francisco’s Health Care Security Ordinance (HCSO). The HCSO requires employers with 20 or more employees, and nonprofit employers with 50 or more employees, to pay a per-hour healthcare expenditure for each covered employee. Employer contributions to the City Option provided covered employees a way to pay for certain qualifying medical expenses, including insurance premiums. Once the account was opened and after the initial payment was made, employers were required to send their employees a notice. However, the ordinance does not require further notification.

Inactive accounts, stemming from the beginning of the program, have provided the City Option with a surplus of approximately $104 million, with $50 million of that sitting specifically in San Francisco Medical Reimbursement Accounts (SFMRAs). Once an employer pays into the City Option, the employee must enroll in the program to access the funds. The Department of Public Health (DPH) estimates at least 135,000 employees have yet to set up their SFMRAs and for some employees that have completed setup, their funds are sitting unused.

Unused Funds to Be Absorbed by the Local Government

In January 2022, the Health Commission approved the update of the SFCO Escheatment Policy regarding the inactive employee funds. Under CA Code 50050, the unused funds will be escheated (i.e., reclaimed by the government) to the General Fund of the City and County of San Francisco after a three-year period of inactivity. To prevent escheatment and subsequent account deactivation, individuals must either 1) finish setting up their SFMRA accounts, 2) file a claim for reimbursement from an SFMRA account, or 3) ensure their employers continues to fund their SFMRA account. Individuals will be notified at least six months before deactivation.

Deactivation is set to begin in April 2026. All $104 million of unused funds is projected to transfer to the General Fund during the first round of escheatment with $38 million (of that $2 million from the SFMRA) projected annually thereafter. DPH’s primary goal is to ensure SFCO employees use their benefits as the ordinance intended and it is committed to increasing outreach to make that happen. However, the department also understands it can no longer keep these unused funds in perpetuity and must use escheatment as a last resort.

Employers Can Help in DPH’s Communication Efforts

Between July 2022 and June 2025, DPH plans to notify employers and employees via direct mail and electronically through email about unused funds and escheatment updates. Employers should consider supplemental notification to ensure their employees access and use their health funds. Employers can distribute the New Contribution Flyer provided by the SFCO or create custom communications. Employers also have access to the City Option portal to update employee rosters and can email the city to find out which employees on their rosters are not currently enrolled.

DPH has updated its website to make enrolling in an SFMRA easier for employees. The SCFO website also features robust Employee FAQs and employees are encouraged to contact the city directly for more information.

Summary

Employees have until April 2026 to sign up and access their San Francisco Medical Reimbursement Accounts (SFMRA) to reimburse a variety of qualifying medical expenses. Employers have contributed to the HCSO, which funds the SFMRA, since 2018 and several employees have either not set up their accounts or accessed their funds since the start of the program. Due to the large surplus in unused funds, the Department of Public Health (DPH) has decided to reclaim funds from any SFMRA after three years of inactivity. Employers can aid DPH in its outreach efforts by providing additional communication to their employees about the HCSO program, setting up their SFMRA and accessing their healthcare funds. For more details about the San Francisco HCSO requirements, please refer to this EPIC article.

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