Businesses hate it. Restaurant customers are bewildered by it. Employees benefit from it.
Now, come budget time, an often-reviled city fee may help protect the city.
The San Francisco City Option program provides medical reimbursement accounts to help thousands of employees pay for health coverage every year. The fees that small businesses — in particular, restaurants — contribute to the program are so high, it’s akin to doubling their rent. Restaurants often pass some of that to customers, in the form of an “SF mandate” or “health fee” tacked onto the bill.
Ben Bleiman, a bar owner and president of the Entertainment Commission, said he pays roughly $350 per employee per month. For a restaurant or shop with a staff of 20, that’s $7,000 monthly — though most businesses enrolled in the program have far more workers than that.
“Don’t get me started, man. It’s just the biggest scam perpetrated on small businesses in the city,” Bleiman said. “It’s a massive expense.”
Roughly $200 million of that fund has gone unused by workers, according to a city report published at the end of March, and the excess will roll over into San Francisco’s general fund in April 2026. That’s just in time to serve as a cushion against the city’s budget deficit, as federal cuts loom.
But amid complaints from business owners about the fees, city leaders are divided on how to use the money, if at all.
“We cannot paper over a $1 billion budget deficit with one-time funds, especially not funds that rightfully belong to San Franciscans,” Charles Lutvak, Mayor Daniel Lurie’s spokesperson, said in a statement. “Our administration is prepared to make the structural changes needed to close this $1 billion deficit, stabilize our city’s finances, and get back to investing in the workers and businesses of San Francisco again.”
The deficit, estimated at $820 million, could mean cuts in agencies citywide: street cleaning crews, homeless shelter staffers, pro-bono legal aid for low-income residents, and more. If President Donald Trump continues swinging a scythe at funding for healthcare, education, and other services, the deficit could more than double, officials estimate.
The San Francisco Board of Supervisors negotiates with the mayor’s office to approve the budget, giving them a say in how funding is used. Supervisor Rafael Mandelman, the board president, said the City Option dollars may come in handy at a time of great uncertainty.
“In that kind of environment, you’re looking for additional sources of reserve dollars,” Mandelman said. “But I think we’re not there yet, and there’s all these other elements of the conversation we have to have.”
However, the amount of unspent City Option money has led small business groups to question whether the program is needed. It was created two decades ago, long before the Affordable Care Act helped insure more San Franciscans, according to Laurie Thomas, executive director of the Golden Gate Restaurant Association.
“Many additional healthcare options are now available,” Thomas wrote. “Given the amount of unused funds paid into the city’s [medical reimbursement] account, we believe it is prudent to look to repeal this ordinance.”
Small-business owners are pushing the city to repeal the program. Conversations to reform it are underway.
Many entities can make strong claims to the unspent dollars: the employers who paid fees to make it possible, the workers whom the fund was created to help, and unions looking to prevent layoffs.
Insiders said it may be easier politically to spend the spare funds on public health, instead of on general city costs. The federal government’s potential Medicare or Medicaid reductions, for instance, could cost the city roughly $900 million, according to the mayor’s office.
The city doesn’t have its hands on the money just yet. It sits in a $900 million Department of Public Health reimbursement account as part of Healthy San Francisco, the 2006 brainchild of progressive Democrats aimed at helping uninsured San Franciscans with medical care. The city anticipates the bulk of those funds will be used by workers.
Supervisor Connie Chan, the board’s budget chair and a leading progressive, said the healthcare fund should be reserved for workers.
“At a moment when Trump is attacking our sanctuary state where many, including immigrant workers, have taken roots and contributed for generations, it is unthinkable for anyone wanting to take away their health care, especially because this is not funded by any business but all San Franciscans who dine out and support our restaurants,” Chan said.
Chan said the current system should become more accessible to workers. She said she will demand that the city use a separate pot of money called the Health Security Fund as a bulwark against Medicaid cuts. That fund has about $240 million accessible.
Roughly 5,225 employers have opted into the San Francisco City Option program, which houses the healthcare reimbursement account. More than $500 million has been paid out in claims to workers since 2021, according to the Department of Public Health.
The city’s ability to reclaim unspent dollars is fairly recent. In 2022, the Health Commission approved a tweak to the healthcare reimbursement fund to bring it in line with state law. From then on, funds unclaimed in a three-year period would roll over to the city’s general fund.
“Closing accounts is the last resort,” a Public Health spokesperson said.
Mandelman said shrinking or eliminating the healthcare fee could “provide relief for some small-business owners,” and he’s taken part in meetings to figure out its future.
City records show various meetings aimed at reforming the healthcare fund: a Feb. 26 meeting between Supervisors Danny Sauter, Joel Engardio, and Mandelman, as well as mayor’s office and city department staff. On March 27, a team from the mayor’s office met with the San Francisco Labor Council, and on Friday they are due to meet with the Golden Gate Restaurant Association.
Small businesses pay the smallest portion of the fund; groups that represent them argue that this is a reason to exempt them. Roughly 4% of contributions come from companies with 20-49 employees, but a whopping 79% comes from companies employing more than 500.
Even Democrats are pushing for change. Eric Kingsbury, a member of the San Francisco Democratic Party board, said he’s writing a resolution to put Democrats on record seeking to repeal the healthcare fund.
“It was a great initiative that did its work and no longer serves its purpose,” Kingsbury said.
The Department of Public Health has recognized the need to reach more workers so funds don’t go unspent. In September, the agency kicked off a splashy ad campaign on BART, Muni, and billboards to direct San Franciscans to an online tool where they could look up their healthcare reimbursement accounts.
This summer, the Public Health Department aims to issue debit cards so San Franciscans can more easily pay for medical expenses upfront, instead of seeking reimbursements later.
Bleiman, the bar owner, thinks most small-business owners want the fund scrapped. He said he hears from restaurateurs and bar owners who hate the fee “every goddamn day, dude. Every single day.”
“It’s so offensively unfair that it’s infuriating,” Bleiman added. “It’s exactly why San Francisco has a reputation of being the most unfair to small businesses in America.”