Restaurants get ready for Affordable Care Act

Like it or not, the Affordable Care Act is here to stay and the time has come to start grappling with the most sweeping health care legislation in the nation’s history, according to industry members.

“You can go kicking and screaming into it,” said Don Fox, chief executive of Firehouse of America LLC, the Jacksonville, Fla.-based franchisor of 722 Firehouse Subs sandwich shops. “And yes, it’s a negative. It has a negative impact on business, but we can try to find a way to turn it into a positive.”

While the mandate requiring employers with 50 or more full-time-equivalent employees to offer coverage has been pushed back to Jan. 1, 2016, many companies, such as Firehouse, are already working to be in compliance.

Others, however, are taking a wait-and-see approach. Many operators say they are holding off on expansion plans and some are already cutting employee hours, hoping to save money when the employer mandate goes into effect next year.

“I decided not to grow any more because of the Affordable Care Act and not knowing where it’s going to fall, where it’s going to end up, what changes are going to be made,” said Sean Falk, a Cypress, Texas-based multi-unit franchisee of such snack and dessert concepts as Great American Cookies, Mrs. Field’s Famous Brands and Pretzelmaker. “Obviously, it’s going to have a major impact on my business.”

Last year Falk sold three of his stores, but even with the remaining seven, he expects to fall under the large employer threshold as defined by the law.

Falk can be counted among the 64 percent of decision makers in franchise-owned business and 53 percent of decision makers in non-franchisee-owned businesses that believe the ACA will have a negative impact, according to a survey of more than 400 companies sponsored by the International Franchise Association and the U.S. Chamber of Commerce.    

Thirty-one percent of surveyed franchisees already are reducing employee hours, even before they are subject to the law, said Steve Caldeira, IFA president and chief executive. The ACA is one of many challenges, such as minimum wage increases, higher commodities costs and the possibility of less consumer traffic, weighing heavily on operators, Caldeira added.

“Throw in Obamacare and it’s not a prescription for sustained growth over the long term,” he said.

The legislation, which became law in 2010, was more than 20,000 pages. Rules and regulations to enforce its statutes are still being written by such federal agencies as Health and Human Services and the Internal Revenue Service. Congress also continues to hear bills intended to amend Obamacare.

“We are still waiting for final rules,” said Michelle Neblett, director of labor and workforce policy for the National Restaurant Association.

Despite many of the unknowns, organizations such as the IFA, NRA and the National Retail Federation already are informing members about the basics of the health care law, what they need to know and do now, and what to expect when the employer mandate goes into effect next January. Here are some basics to help operators prepare in 2014:

The ground rules

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The ACA requires everyone to have health insurance. Individuals not covered by employers are mandated to have coverage by the end of March through either the federal or state exchanges. After a bumbled rollout of the exchanges in October, about 1.1 million people had enrolled by late December, according to published reports. That figure is projected to rise considerably by the March 31 deadline for enrollment.

The deadline most employers are focused on, however, is Jan. 1, 2016. That’s when so-called large businesses, defined under ACA as having 50 or more full-time-equivalent employees, must begin offering affordable health care coverage to those employees or face fines.



One of the biggest hurdles for restaurant operators could be adjusting to the ACA’s definition of full time. Rather than the long-held standard of 40 hours a week, the law counts full time as anyone putting in 30 hours or more. This means operators already providing insurance to salaried and executive workers will have to offer insurance to a bigger pool of employees than they have in the past.

Kevin Settles, founder and owner of three Bardenay Restaurant and Distillery restaurants in Idaho, had long provided insurance to his 15 managers. Like Firehouse Subs, Settles has added employees working 30 or more hours to his insurance roster ahead of the Obamacare mandate. He now offers insurance to about 60 employees.

“I had always used the unknown cost of the law as a reason for me to not expand and to hold down wage increases, but I got tired of waiting,” Settles said. “Let’s put something in place and see how it works.”

Although he is paying more for insurance, his premiums went down because of the additional workers, many of whom are in their 20s, he said.

Several groups, including the NRA, are working to change the definition of full time under the ACA from 30 hours to 40. Two bills currently are pending in the House and one is pending in the Senate.
    
Insurance parameters

The insurance employers offer must be affordable for employees, meaning that it cost them no more than 9.5 percent of their income.  The law initially based affordability on total household income, but after objections by businesses groups, a “safe harbor” was created, said the NRA’s Neblett. Now employers will be able to base affordability on an individual employee’s wages.

Insurance plans offered by employers also have to be at least 60 percent of actuarial value, meaning that the plan is expected to pay 60 percent of a standard population’s typical medical expenses, while the individual covered would pay 40 percent of the anticipated expenses through deductibles or co-payments.

Plans can go higher, however, having a 70-30 split or an 80-20 split. The higher the deductible, the lower the overall cost of the plan to the employer.

“Operators will want to create a plan that is in compliance with the law, but also within the budget of what the business model is for the restaurant company, “ said David Barr, a quick-service franchisee and member of the IFA’s board of directors.

Update: Feb. 12, 2014  This story has been updated to include information about the most recent changes to the Affordable Care Act.