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Is the Restaurant Industry Ready for Obamacare?

Posted by:

Krista Fredrick | July 12, 2013

Obamacare: Restaurants, Are You Ready? Is mandatory health insurance a good thing for America’s restaurants? Or will it raise their operating expenses and leave them under-staffed?

Earlier this month, the Obama administration announced that the implementation deadline for a key provision of the Patient Protection and Affordable Care Act has been delayed, giving employers more time to offer mandatory coverage. In January 2015, large restaurants and chains with more than 50 full-timers will have to provide health insurance to these workers or pay a penalty of $2,000 for each employee beyond the first 30. The original deadline had been January 2014.

Still, many in the restaurant industry say the requirement will be bad for business and that this month’s announcement is simply putting off the inevitable damage.

Does PPACA unfairly impact restaurants other businesses?

Those who say “yes” point to the restaurant industry’s unique workforce. Most restaurant employees are young and healthy. Many of them don’t work a traditional 40-hour week, but they work more than 30 hours, which meets PPACA’s definition of “full-time.” In other words, restaurants will be forced to insure a lot of workers who, in the past, decided for themselves they didn’t need insurance. They’ll also have to insure workers who aren’t working a traditional full-time schedule.

In theory, bringing healthy workers into the larger pool of the insured lowers overall per-employee costs of insurance. So an influx of young workers is great for the insurance costs of America’s workforce as a whole. But this theory doesn’t pan out if restaurant owners find a way to get out of providing coverage. And many of them say they’ll be doing just that.

Restaurants say they’ll cut employees’ scheduled hours to less than 30 hours. They’ll also rely more on part-time workers. Many workers who make their career in the industry won’t get the hours they need. They may be forced to work two or three part-time jobs rather than a single full-time job to make ends meet. And any restaurant manager responsible for scheduling can tell you that makes his or her job even more complicated than it already is.

The other option for these larger restaurants is to play ball and provide coverage—an expense they say will force them to raise prices on the menu. Another unpleasant consequence? Slowed growth. Already, chains are slowing expansion plans. For example, White Castle is opening two or three new stores in 2013. In 2012 and 2011 it opened five each year and in 2010 it opened 12. The company’s executives have specifically cited health care costs as the cause.

“We were ready for the Jan. 1 launch, but we are thankful it was pushed back a year to ease the financial strain this will place on (us),” said Carl Howard, CEO of the Fazoli’s chain of restaurants. “To us this means the ‘pay or play’ penalties associated with large employers not providing health care have been delayed. We will be sorting out what, if anything, could be the financial impact to our business.”

Small restaurants won’t be affected by the requirements (about 96 percent of American businesses have fewer than 50 employees). They won’t have to offer benefits, so count them out. Note: smaller businesses may qualify for health care tax credits if they choose to participate, but it remains to be seen how many will voluntarily do so.

Separating political rancor from legitimate business concerns could be tough as the new laws take effect over the months to come. But there’s no doubt the restaurant business has a unique workforce with unique challenges when it comes to insurance needs.

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