Web Exclusive | July 2012 | By Sonya Chudgar

What’s Next for Health Care?

Industry scrambles to understand health care after Supreme Court upholds law.

Lion's Choice employees enjoy a range of health benefits.
Lion's Choice employees enjoy a range of health benefits.
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The dust has settled on the Supreme Court’s decision in the Patient Protection and Affordable Care Act (PPACA), and operators have had time to digest the upholding of President Obama’s health care reform. Many of them, though, are still trying to figure out what happens next and how the new health care model will affect their businesses.

While the National Restaurant Association (NRA) and a number of state restaurant associations oppose the law and are working toward a full repeal, some say a forward-looking approach is necessary.

“The reality is, a lot of things would have to line up pretty perfectly for the election results to have a major impact on whether this law continues into 2014 [when PPACA reforms are scheduled to go into effect],” says Sheldon Blumling, a partner at the law firm Fisher & Phillips. “There is so much to think about, you really need to start now to channel the passion into evaluating how best to integrate the new obligations into your business.

“If the law takes care of itself in some other way, great, but if not, at least you’re going to be prepared to either absorb the additional costs or plan around them properly.”

Many experts believe the industry will be affected by PPACA’s implementation in several ways. For example, quick serves may be forced to charge customers higher prices, cut back on employees or their hours, or shift to a model with fewer employee-customer touch points.

The employer mandate, also known as the pay-or-play principle, is likely to have the largest effect on the restaurant industry, Blumling says. The mandate requires employers with 50 or more full-time equivalent employees to provide minimum essentials coverage to all full-time workers and their dependents. If an employer chooses not to offer minimum coverage, it must instead pay a $2,000 penalty per employee per year.

The mandate will raise costs for employers who must either provide health care for the first time or spend more money to subsidize coverage, Blumling says.

Michelle Neblett, the NRA’s director of labor and workforce policy, says the employer mandate is especially disadvantageous to the restaurant industry because restaurants operate on very small margins, which experts say are generally 4–10 percent.

“Many employers and restaurant owners that I talk to say, ‘It’s the right thing to do to offer coverage and I want to do it, I want to continue doing it, but this cost is just unbelievable and it really eats all of my profits away,’” Neblett says. “It all comes down to cost.”

“Every employee that you can take and flip from full-time status to part-time status will eliminate a health care reform pay-or-play obligation.”

For a restaurant that does not yet offer health insurance, experts say they should consider two options: shrinking operations to a size that can be managed by fewer than 50 people or switching to more part-time employees, whom employers are not obligated to insure.

“Every employee that you can take and flip from full-time status to part-time status will eliminate a health care reform pay-or-play obligation,” Blumling explains. “That is one of, I think, the unintended consequences of health care reform. One of the policy goals was to get people covered.”

Enforcement of the employer mandate, Blumling says, will vary depending on the market and the type of talent a restaurant wants to attract.

While health care is not commonly offered across the quick-serve industry, operators who have done so have found it to be helpful.

Lion’s Choice, a Missouri-based roast beef franchise, already offers medical insurance to its employees. The company has about 270 employees, 60 of which are salaried. Jim Tobias, president of Lion’s Choice, says offering health insurance was critical to ensuring Lion’s Choice attracted top-level management.

“I think that’s one of the many things that sets us apart from our competitors,” Tobias says. “The fact that we have such a long tenure of managers and employees—the average manager has been with us over 17 years—makes everything easier. One thing, of course, that they look for is health insurance, so we try to offer that to them.”

The plan Lion’s Choice offers employees is a self-insured medical program that pays out benefits using a third-party administrator. Given that the number of full-time employees at Lion’s Choice is just above the 50 mark, Linda Stille, CFO of the brand, says the Supreme Court decision will not hit the company as hard as some of its competitors.

“It is possible—it is probable—that our expenses will go up, but to what extent and how that is going to affect us, we just wait and see,” Stille says.

Though changes from PPACA will not go into effect until 2014, Blumling says it is important for operators to begin planning now, especially since the number of employees an operator has on an average business day in 2013 will legally dictate whether the company surpasses the 50-employee mark for 2014.

“It takes a long time to figure out what’s going to work best for the company and to work it into your daily operations,” Blumling says. “And in that case, frankly, I don’t know that 18 months is a heck of a lot of time to start experimenting with maybe raising your prices to absorb more cost or using your part-time workers. These things can take time to figure out and make work operationally so by the time you get to 2014, the ship is running like you want it to.”

As the House passed a bill Wednesday, July 11, to repeal President Obama’s health care revamp in a 244-185 vote, representatives from the NRA add that though the Association supports a full repeal, it is also taking a forward-looking approach to understand the regulations and soften the impact as best it can.

“We’re doing a lot of education for our members,” Neblett says, pointing to the NRA’s health care webinars, speaking engagements, and information page on its website. “Our goal is to be a resource for our members and to educate our members about the law.”