Web Exclusive | April 2010 | By Jordan Melnick

Health Care Passed. Now What?

Despite opposition from industry leaders, health care reform is here and has many wondering what the legislation means for their restaurants.

Now that health care reform has passed in Washington, despite opposition from the National Restaurant Association (NRA) and other business interests, quick-service operators across the country are trying to figure out how the bill will impact them.

But after a year of hyper-partisan legislative combat, many are confused about what is in the 1,990-page bill President Obama signed on March 23, and anxiety is running high.

“There’s an underlying fear about the unknown in the bill and how it’s going to affect us,” says Mike Stimola, CEO of Sandella’s Flatbread Café.

Stimola joins a throng of operators with lingering questions about the business ramifications of the Patient Protection and Affordable Care Act.

“What exactly is the burden to the business owners out there?” says Paul Mangiamele, CEO of Salsarita’s Fresh Cantina. “Will they be able to survive through the continued pressures on margins, sales, and retaining employees?”

Until these questions are answered, Mangiamele says, expect restaurants to buckle down, particularly in their hiring.

“People that would have been hired to start impacting the unemployment number now won’t be hired,” he says. “So they won’t get health care anyway because they won’t have a job.”

Such comments show that many business owners—indeed, many Americans—still don’t have a firm grasp on the health care reform, the product of an ugly legislative battle that divided the country along party lines.

The NRA opposed the final version of the bill, including a set of fixes adopted by Congress on March 25, largely because of a provision requiring businesses with more than 50 full-time workers to help cover health insurance or else pay a $2,000 per capita annual fee.

Exactly how heavy a burden the provision will be for restaurants remains unclear. For one thing, more than 90 percent of restaurants have 50 or fewer employees, according to 2007 census data. Also, Congress’ fixes include a 90-day waiting period before employers must pay up or pay out. Those that choose not to offer health insurance don’t have to pay a fine for their first 30 full-time employees, while businesses that do help with coverage will receive a 35 percent tax credit under the legislation.

One aspect of the bill the NRA supports requires chains of at least 20 units to post calorie counts for standard menu items.

“Consumers will get consistent nutrition information in most chain restaurants, and restaurant companies won’t be burdened with a patchwork of conflicting laws in cities and states,” NRA president Dawn Sweeney wrote on the association’s blog.

The disclosure provision also requires restaurants to post a brief statement on daily calorie intake and to be able to provide information on carbohydrates, fat counts, cholesterol, sodium, and other nutritional data upon request.

While most operators are taking a wait-and-see approach to the bill, some are already factoring it into day-to-day operations. Harry Stafford, who runs 13 Popeyes stores in the Houston market, says the bill contributed to his decision to close three low-performing stores.

“This is really the straw that broke the camel’s back,” says Stafford, who estimates the closures will leave 45 people without jobs.

Stafford does not intend to offer his remaining employees health insurance. Paying the $2,000 per-employee fee is the cheaper route, he says, though it would cost him as much as 3.5 percent of gross income.

“It’s the worst thing that ever happened to us economically,” Stafford says of health care reform. “It immediately devalued our investment by millions of dollars.”

Such dire assessments notwithstanding, there is a minority that considers health care reform a positive for quick-service restaurants. Former operator Chris Muller predicts it will stabilize the sector’s notoriously transient workforce as employees show increased loyalty to jobs that keep them covered.

Harry Stafford says the bill contributed to his decision to close three low-performing stores.

“This is a step toward a professional restaurant cadre, people who look at their jobs not just as something they are passing through,” says Muller, now the director of the Center for Multi-Unit Restaurant Management at the University of Central Florida.

From a macro perspective, the bill could also benefit restaurants if it ends up bending the health care “cost curve” over time, as the Obama administration says it will. The logic is simple, says New York–based industry analyst Clark Wolf: If people are spending less money on staying healthy, they will have more to spend on eating out.

“Smart restaurateurs and food professionals would want us to up what we spend on food and lower what we spend on medicine,” Wolf says.

The industry’s reservations about health care reform have less to do with smarts and more to do with fear of change. Bob Goldin, an analyst with Chicago-based market research firm Technomic, likens the backlash to health care reform to the “huge outrage” over another game changer, a three-phase minimum-wage hike Congress passed in 2007.

“There’s a tremendous amount of overreaction,” Goldin says. “There will be some costs associated with the bill, but they will live through it. I certainly don’t think the sky is falling.”

Despite the lack of consensus about the merits of health care reform, all agree the industry needs to become better acquainted with the nearly 2,000-page piece of legislation.

“Change is intimidating,” Mangiamele says. “It’s especially intimidating when we don’t understand the extent of it. Once we get ourselves up to speed and we understand what our obligations are, things will work themselves out.”

 

Want to get up to speed on health care reform? The National Restaurant Association has posted a Q&A on its Web site.