San Francisco boosts 2027 Health Care Expenditure Rates
HCE mandate
The HCE is the minimum amount covered employers must spend on healthcare for each hour worked by a covered employee, defined as anyone employed for more than 90 days who regularly works at least eight hours a week in San Francisco. To determine workforce size, employers must count all employees, no matter where they live or work. However, the expenditure applies only for hours worked by employees within San Francisco — i.e., in ZIP codes starting with 941xx. Special considerations apply for expenditure amounts owed for employees working within the 94128 ZIP code (i.e., the San Francisco International Airport).
Employers subject to the HCSO make HCEs on a quarterly basis for fully-insured plans or for employees who decline coverage without signing a valid HCSO waiver form. Self-funded plans may be able to make annual HCE payments based on claims data and plan design. Rules limit the types of group health plan expenses considered HCEs, and employers may need to make up the difference between the required HCE and their contribution toward an employee’s health coverage.
The annual reporting form (ARF) is due on or about April 30 of each year. The ARF reflects an employer’s HCSO compliance (and compliance with San Francisco’s Fair Chance Ordinance) for the prior calendar year. Employers submit the form electronically via a website maintained by the Office of Labor Standards Enforcement (OLSE). Once the ARF portal closes, an employer has no electronic means to file the ARF.
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Covered employers
An HCSO-covered employer meets all these requirements:
- Employs one or more workers within the geographic boundaries of the city and county of San Francisco
- Is required to obtain a business registration certificate in San Francisco
- Employs at least 20 individuals (for-profit employers) or at least 50 individuals (nonprofit employers), regardless of work location
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Excluded employees
Covered employees exclude managers, supervisors, and confidential employees — as defined under HCSO rules — earning at least $128,861 annually (or $61.95 per hour) in 2026. Beginning January 1, 2027, that amount rises to $131,763 annually (or $63.35 per hour). Employers able to document an employee’s Medicare or TRICARE eligibility may exclude that employee. Employers also may exclude employees working in their first 90 days of employment or who work fewer than eight hours per week on average in San Francisco or who voluntarily waive coverage under a valid HCSO voluntary waiver form. In addition, the ordinance excludes employees covered by the Health Care Accountability Ordinance for city contractors or tenants. -
Telecommuters
Telecommuters present additional challenges for employers under the HCSO. In 2021, Ordinance 92-21 clarified how to determine an employee’s worksite during a health order. An employer must provide the HCE for a covered employee when the employer’s office or worksite is in San Francisco, or the employee works from home in San Francisco as a telecommuter. The employer does not have to provide the HCE for employees who usually telecommute from outside the city in neighboring locations, such as Oakland. The city’s most recent public health order (last updated on December 21, 2022) eliminated the remote-work recommendation. As a result, HCE requirements do not currently apply to employees telecommuting outside of San Francisco. To date, the city has not reinstated earlier public health restrictions. -
Return-to-work/office mandates
Many employers have adopted mandatory return-to-work or return-to-office policies. Policies that shift work locations create additional compliance complexities. Employers should adjust tracking systems to reflect employees coming into work at a San Francisco physical location or telecommuters in San Francisco now working in a physical location outside of a 941xx ZIP code. Many employers with unintentional errors in their calculations for expenditure amounts owed may need to consider making retroactive corrections. -
Waivers
Employees who have other employer-provided coverage may voluntarily waive the expenditure, using the authorized HCSO voluntary waiver form and can revoke the waiver at any time. The waiver form must be signed each year and cannot be retroactive. A valid waiver form must disclose these employee rights. If employees with other coverage do not sign the voluntary waiver, an employer must make up the expenditure in some other way. Failure to use the proper waiver form and/or follow the waiver process could result in expenditure payments being owed for all hours worked in San Francisco by all participants who have waived coverage.
HCE creditable expenses
Employers can count toward their required HCE any premium payments to an insurance provider for medical, dental, or vision coverage, as well as contributions to health savings accounts or other irrevocable reimbursement accounts. Only amounts irrevocably paid to third parties qualify as HCEs.
Employer contributions to health reimbursement arrangements (HRAs) are typically revocable. For an HRA contribution to be irrevocable, it must meet both of these conditions:
- Employers must pay contributions into a separate account on the employee’s behalf within 30 days of the end of each quarter.
- Employers may never recover any portion of the HRA contribution, even when employment ends.
Employers whose expenditures fall short of the required amount have 30 days after the end of the calendar quarter to remit the difference to the SF City Option program. These payments fund a medical reimbursement account (MRA) in the employee’s name (see these SF MRA FAQs). MRA participants must submit at least one claim every 36 months or risk closure of the account. Special annual — rather than quarterly — reconciliation rules apply for some self-funded group health plans.
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Uniform health plan
A covered employer may comply with the HCSO by providing uniform health coverage to some or all covered employees. The plan must have the same benefit design — including cost sharing, coverage tiers, and eligibility criteria — for all participating employees. The average hourly HCE equals the total required HCEs for employees in the uniform health plan, divided by the total hours paid to each of those employees during that quarter. Total hours paid are capped at 172 per employee per month. This method applies only to employees enrolled in the uniform health plan.
Updated rates
| Employer size | Number of workers worldwide | 2027 expenditure rate |
2026 expenditure rate |
|---|---|---|---|
| Large | All employers with 100+ workers | $4.49 /hour | $4.11/hour |
| Medium | Businesses with 20–99 workers Nonprofits with 50–99 workers |
$2.99/hour | $2.74/hour |
| Small | Businesses with 0–19 workers Nonprofits with 0–49 workers |
Exempt | Exempt |
Self-funded plan expenditures
HCEs must reflect amounts irrevocably paid to third parties. Rules prohibit employers from using continuation coverage rates under the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (better known as COBRA) to determine quarterly expenditures for employees enrolled in self-funded plans. Instead, these plans must use one of two options to determine expenditures: fixed expenditures or paid healthcare claims. These methods apply only to HCEs for employees enrolled in the plan:
- Fixed expenditures. Under this option, the employer pays premiums and/or fees to the third-party administrator (TPA) of a self-funded plan, and no portion of those premiums or fees return to the employer. The premiums and fees paid for a calendar quarter must meet or exceed the required HCE for each covered employee for that quarter.
- Paid healthcare claims. Under this option, the employer pays claims when incurred, and the prior year's average hourly expenditure must meet or exceed that year's HCE rate for the employer. This option is limited to uniform health plans. The employer can choose to include only covered employees (the eligible San Francisco population) or all employees participating in the uniform health plan. Employers using this option do not need to reconcile expenditures every quarter for employees covered under the plan. Instead, if actual paid claims during the calendar year are less than the required HCE, employers can make additional contributions (known as “top-off payments”) by the end of February of the next year.
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Practical considerations
Most self-funded plans have both fixed expenditures and paid healthcare claim components. The rules do not explicitly recognize situations in which an employer uses a combination of the two to meet the minimum expenditure. The OLSE has provided informal guidance that recognizes the combined use of both types of expenses but does not include specifics. For example, the required frequency of compliance determination (quarterly vs. annually) differs for the two types.
The rules also do not explicitly address stop-loss reimbursements, prescription drug rebates, paid claim adjustments (like subrogation), returned administrative fees (for example, performance guarantee penalties), and other variables. Whether these types of transactions should count as returned fixed expenditures or offset paid claims is unclear. The rules do not currently require including these transactions in the HCSO compliance determination.
Employer next steps
Covered employers with San Francisco workers will need to ensure their health benefits comply with the newly updated 2027 HCE amounts and understand the HCSO’s application to San Francisco workers. Once premiums are set for insured plans, plan sponsors can review any deficits and determine the best approach to addressing any shortfall and making the quarterly payments. Self-funded plans may want to work with their TPAs and actuaries to evaluate spending options. Payments for self-funded plans may be measured quarterly or annually, subject to plan design and the availability of claims data.
An employer that discovers an HCSO failure can consider making a voluntary correction with the OLSE, which would require calculating and paying any missed HCEs for all covered employees over a three-year look-back period.
Finally, employers subject to the HCSO should become familiar with the notice-posting requirements, the complaint process, and penalties for noncompliance.
Related resources
Non-Marsh resources
- Health Care Security Ordinance resources (San Francisco OLSE)
- Health Care Accountability Ordinance resources (San Francisco OLSE)
- San Francisco City Option
- San Francisco MRA FAQs (San Franciso City Option)
- San Francisco business registration (San Francisco Office of the Treasurer & Tax Collector)
- Annual reporting form (San Francisco OLSE, March 18, 2025)
- HCSO poster for 2026 (San Francisco OLSE, December 16, 2025)
- Voluntary waiver form (San Francisco OLSE, November 1, 2017)
- HCSO rules (San Francisco OLSE, October 29, 2017)
Marsh Law & Policy resources
- San Francisco contractor-lessee health plan standards, pay rates updated (August 10, 2026)
- San Francisco hikes 2026 Health Care Expenditure rates (August 12, 2025)
- San Francisco's annual Health Care Expenditure report due May 2 (March 31, 2022)