Expanding SF Restaurant Surcharge Statewide is a Bad Idea


Dining at a premium San Francisco restaurant will always be expensive. But add in the cost of The City’s health care surcharge and eating out, even at modest and lesser establishments, is even more expensive. What’s more, one gubernatorial candidate wants to expand the program that requires the surcharge to the entire state.

The health care surcharge, which often is listed on restaurant checks, became part of the San Francisco restaurant experience a little more than a decade ago, before Obamacare was enacted. It’s part of Healthy San Francisco, which was intended to provide health care for the 82,000 in The City who were then uninsured. At its peak in 2010-11, The City spent about $150 million on the uninsured through the program.

Healthy San Francisco requires city businesses with 20 or more employees to pay a per-worker fee that’s allocated into a fund that provides care for those who don’t have private insurance or qualify for public programs. City officials, including Democratic Lt. Gov. Gavin Newsom, who signed the ordinance into law as mayor, thought they had hit on a solution for the uninsured.

Their focus was too narrow, though, and they apparently never considered that they would be opening wide the gates of corruption. But they did. Some restaurants skimmed the fees.

They were eventually caught. A grand jury found that “this blatant capture of funds is at the expense of employees who are not receiving funds earmarked for health care, and customers who are paying the surcharge for what they believed was for employee health care.” The San Francisco City Attorney’s Office recovered nearly $1 million by the end of 2013 from the restaurants that were involved.

If the history of stealing, and the potential for future theft, wasn’t enough the kill the program, then the enactment of Obamacare should have been. One of its central provisions is the “individual mandate,” which requires U.S. citizens and permanent residents to buy health care insurance or pay a fine. Its purpose was to a clear a path toward universal health insurance coverage. If San Francisco workers are complying with the federal law, then The City’s program should no longer be needed.

Given the facts, one could reasonably wonder why was it needed in the first place. The program’s annual report to the San Francisco Health Commission last year said that when Obamacare was implemented, 96.8 percent of San Francisco residents already “had health care insurance or were enrolled in a comprehensive health access program.” What’s more, another 145,000 San Franciscans “enrolled in new health insurance options since the launch of the ACA.”

Yet Healthy San Francisco still exists, providing health care today for about 12,000. Enrollees include undocumented immigrants, who are not eligible for Obamacare, though Sacramento tried to obtain a waiver to sell plans to them through Covered California, the state’s ACA insurance exchange. Those who cannot afford Covered California’s premiums are also still part of the program. Healthy San Francisco was even expanded last January.

Despite its drawbacks, which also include the financial burden on small businesses, Newsom has said that he will campaign on expanding Healthy San Francisco to the entire state in his gubernatorial campaign, saying that it “should be replicated far and wide.” One of his selling points is his claim that The City’s program has operated “without any general tax increases.” But that’s not true. As Politifact said in August, “one could argue some of the cost of the program is passed on through” the fees levied on businesses “if not through a general tax.”

In other words, a tax by any other name is still a tax.

Imagine Healthy San Francisco on a statewide scale and the costs required to operate it. The program would create an enormous economic drag and will be mostly redundant as long as Obamacare is law. Newsom should consider what Gov. Jerry Brown said about single-payer legislation — it would cost about $400 billion a year, more than twice the current state budget — and rethink his proposal. He would find there are better and less costly ways to improve health care at solutions that don’t require a heavy hand from government.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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