Proposition C - Health Service System

What it does

Currently, the City Health Service System (HSS), which provides medical benefits to employees and retirees of City government, is administered by the Department of Human Resources with the system director appointed by the Department of Human Resources director. The proposed Charter amendment would place the administration of the HSS under the jurisdiction of the Health Services Board, which currently has some rate and plan control but does not have administrative authority. It would also replace the Health Services Board seat held by the City Attorney with an employee or retiree elected position, giving the control of the board and its premium rate and program setting functions to current employees and retirees.

Why it is on the ballot

The HSS, first established by the voters in 1937, provides medical benefits to employees and retirees of City government, the Community College District and the San Francisco Unified School District . About 110,000 employees, retires and dependents are covered by the system. The Health Services Board consists of a member of the Board of Supervisors, the City attorney, two members appointed by the mayor, and three members elected by employees and retirees.

In the 1990s, after serious fiscal, audit and program problems, administration of the HSS was taken away from the Health Services Board and placed under the jurisdiction of the Department of Human Resources. After several years, the problems have been addressed and the system has operated well.

The health services administrator is appointed and serves at the pleasure of the Department of Human Resources director. The administrator administers the HSS including making recommendations to the Health Services Board regarding annual premium rates and medical programs. Besides the health system, Department of Human Resources oversees other employee benefit programs such as disability, dental, term life insurance, and "cafeteria" programs (flexible benefit programs).

The Health Services Board sets the rates and benefits for the system, which must be approved by a supermajority of the Board of Supervisors. However, the Health Services Board does not have authority over the day-to-day administration of the system, since the system administrator reports to the Department of Human Resources directors.

The proposed Charter amendment is sponsored by Protect Our Benefits, a political action committee of retirees. It was placed on the ballot by the Board of Supervisors.

Pros

Those who support Proposition C state:

• An independent HSS controlled by elected employees/retirees will be more responsive to their concerns than one controlled by the Department of Human Resources, which is not entirely focused on retiree programs.
• This measure is necessary to protect the HSS and its funds from efforts to divert them to other uses.

Cons

Those who oppose Proposition C state:

• Voting control of the HSS board should not reside with elected employee/retiree representatives. It is logical that employees/retirees should have an important role on the board. However, because these individuals are in a position to benefit from the board's decisions, there is a potential conflict between their own interests and fiscally sound management of premium rates and program options.
• Removal of the HSS from the Department of Human Resources will likely increase the system's overhead costs, since there are efficiencies in operating all benefit services under a single integrated bureaucracy.
• Many currently negotiated employee benefits are not under the control or oversight of the Health Service Board. It is unclear how administration of these benefits could be affected if the proposed Charter amendment were to pass. It is possible that a duplicative and parallel bureaucracy would be required to process these negotiated benefits for employees while the revised HSS deals only with the health benefits of employees and retirees.

SPUR's analysis

Passage of this Charter amendment would shift control of the Health Services Board to current employees and retirees. It would eliminate the seat on the board now occupied by the City attorney and replace it with a seat occupied by another employee or retiree. This change would mean that employees and retirees would occupy four of the seven seats on the board, giving them a majority. The proponents argue that the removal of the City attorney as a voting member of the board is justified because there is a deputy city attorney assigned to the board, so legal counsel is present with or without a seat on the board.

In addition, Proposition C would take away the authority of the Department of Human Resources director to appoint the system administrator, and give that authority to the Health Services Board. This means the system administrator would answer to the board, giving it substantially more authority over the system's administration than it currently has.

Retired employees do not have the collective bargaining right to negotiate with the mayor and Board of Supervisors for premium rates and medical care options or other benefits. Active employees do not negotiate rates and benefits either, but they do negotiate the amount the City contributes to help cover these benefits.

The group of retirees behind this measure claim that there could be a "raid" on the HSS fund, where funds would be diverted to other City government activities. The measure is designed to give greater control to employees and retirees to protect this from happening. The measure inserts the word "Trust" into the section of the Charter discussing the HSS fund, presumably to ensure money is not diverted from the fund.

As a consequence of the City's arcane civil service rules, the current Department of Human Resources' appointed administrator has a higher personnel classification level than one that would serve under the Health Services Board. This distinction could have implications for the oversight and management of the system.

The Health Services Board is directed by the Charter to conduct a survey of the 10 largest counties in the state to determine the average contribution by those counties toward health plans. The results of this survey are used to determine the City's contribution toward health coverage. The language in Proposition C allows the Health Services Board to develop rules and regulations to avoid "unavoidable gaps in survey data." However, it is unclear how this change would affect costs to the system.

In sum, Proposition C would shift a great deal of control over health benefits to employees and retirees. It would remove administration of HSS away from the Department of Human Resources and into a separate bureaucracy controlled by the Health Services Board. At the same time, the measure would shift majority control of the Health Services Board away from City government officials and toward employees and retirees.

The system is working well in its current form. It is important that retired City employees feel the system is responsive to their needs. However, the contemplated Charter change could require a duplicative new bureaucracy as administration of all kinds of benefits is removed from the Department of Human Resources. It makes sense to have an integrated human resources function, rather than administering some benefit components separately. In addition, it is unsettling that the Charter amendment would shift control of the system into the hands of its beneficiaries.

SPUR recommends a "No" vote on Proposition C.