Many restaurateurs regard the Patient Protection and Affordable Care Act as an inflexible “pay or play” proposition that will saddle their companies with unwelcome costs, whichever choice is made.
But an expert participating in a symposium called “Demystifying Health Reform in a Franchise World” said health care reform offers operators the latitude to craft individualized plans that can help offset some of the law’s anticipated expenses. The New York event was hosted by lender GE Capital Franchise Finance and attended by Nation’s Restaurant News.
“There is no ‘one size fits all’ plan,” said Mike Kahley, senior vice president of Lockton Companies LLC, a Dallas-based firm that provides insurance, benefits and risk management services. “There are all different approaches for different businesses.”
Kahley recommended that operators examine a number of adaptable components that can help shape a program that works best for their business. At the same time, he said, operators should determine what kind of social contract a company wants to have with its employees, and shape a health care program that fits into a corporate philosophy.
As the law currently stands, by 2014 businesses with 50 or more full-time-equivalent employees can opt to either “play” by offering affordable health care insurance to each qualifying worker, or “pay” a penalty of $2,000 for each. An individual must work 30 hours per week or 130 hours per month to be classified as a full-time employee, or FTE.
Under the law, if an employer chooses to pay the penalty, the first 30 full-time employees are considered exempt. In other words, if an operator employs 60 full timers, he must pay the penalty for only 30.
But Kahley told the restaurateurs that it doesn’t have to be an all-or-nothing solution. There are ways to fine tune a company’s health care program, he said.
Deciding to offer no coverage is a nonstarter for many operators because of penalty expenses, he said. Based on Lockton research, operators who decide to pay a $2,000 annual nondeductible penalty for each FTE will spend an average of 70 percent more than current health care costs.
On the other hand, deciding to “play” by offering all full-time employees the same plan offered to corporate staff or general managers also may be onerous.
As a result, Kahley advises operators develop a plan that considers a number of variables and adjusts for a business’ particular organization.
Looking at the variables
There are some adjustments restaurateurs can make to help address higher costs associated with the health care law, Kahley said.
One option is to reallocate labor and hours. Kahley said operators could reward their best performers by scheduling them to work more than 30 hours, thereby allowing them to be eligible for the health care benefits the company offers. At the same time, marginal performers can be managed to a part-time status of 28 or 29 hours a week, therefore disqualifying them from receiving benefits.
“That strategy will help a company retain its best employees,” he said.
The law is also expected to provide foodservice operators with an initial 90-day “free pass” during which time they are not required to provide health insurance to new full-time employees or to pay the penalty. Given the industry’s high turnover rate, this can help lower associated costs and ease the operational burden of insuring those employees who may not stay with the company or work only part-time.
In addition, the law allows employers to examine the work history of veteran employees in a “look-back period” that can extend up to 12 months to determine whether the employees average a minimum of 30 hours per week or 130 hours per month. Lockton suggests that this could help operators whose employees work variable hours on a seasonal basis as well as employers who suffer from high turnover. Again, this will enable operators to better manage how many full-time workers they employ and insure.
Leveraging a wellness program
The PPACA also allows businesses to implement an outcomes-based wellness program. It is designed to help an employer better manage the risk associated with the overall health of employees, decrease absences and mitigate costs associated with health care coverage.
For example, if a medical exam or health screening reveals that an individual has an unhealthy cholesterol level, the employee would be notified and given a designated period of time to address the problem. If the problem is not corrected, a surcharge of up to 20 percent can be added legally to the amount of the premium that employee must pay. Under the law, tobacco use can boost the surcharge to as high as 50 percent, Kahley said.
These surcharges could potentially elevate the price of coverage beyond what an employee is willing to pay, which could persuade the individual to purchase insurance on the exchange where the cost might be lower. Employers, however, risk being penalized for that move.
That's because the law states that employers with more than 50 full-time employees will be charged a nondeductible $3,000 for each employee who seeks federally subsidized coverage at an exchange because the employer’s plan is not deemed "affordable" or "qualified" under the law. The PPACA maintains that "affordable" plans cannot cost the individual employee more than 9.5 percent of the total shown on their W-2 form. In addition, "qualified" plans must cover at least 60 percent of an employee’s health care costs.
The addition of surcharges could likely boost the cost beyond the 9.5 percent mark for the employees, which would qualify them for a subsidy on the public exchange and result in an employer penalty. However, according to Kahley, the $3,000 penalty would almost certainly be deemed less expensive for an employer than having to insure a high-risk individual on the company plan.
Contact Paul Frumkin at firstname.lastname@example.org.
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