Health care case study: Apple-Metro Inc.Health care case study: Apple-Metro Inc.

Soon after the general election last November, Applebee’s franchisee Zane Tankel appeared on the Fox Business Network to voice his misgivings about the implementation of the Patient Protection and Affordable Care Act, which was virtually a certainty now that President Barack Obama had won re-election.

Tankel, who is chairman and chief executive of the 36-unit Apple-Metro Inc. in Harrison, N.Y., feared that the PPACA would cost his company millions of dollars and could inhibit expansion and hiring. He also worried that it would force other, more marginal restaurant companies to cut employees’ hours and even close their doors.

Tankel’s observations — which he said were misquoted later by the media — sparked a public outcry, prompting Applebee’s parent, DineEquity Inc., to issue a statement saying it was still uncertain precisely how the law would affect business, but franchisees would comply fully and take care of their employees.

This is part of a special report from Nation’s Restaurant News. See the full section >>

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Six months later, Tankel continues to harbor concerns about the law but now doubts it will have such a profound effect on his $150 million company.

“It will still be impactful, but I think it will be less impactful than I originally thought,” he said.

In fact, Tankel had worried that health care reform could cost his company as much as $2 million annually, but has scaled that figure back to under $500,000.

“[Officials at Apple-Metro] have been spending an inordinate amount of hours looking at this, and I think it’s doable for us,” he said, echoing the findings of a number of restaurant companies.

Steven Lam, the company’s director of finance, concurred, adding, “We’ve been participating in every possible seminar known to man. We talk often with health insurance brokers.”

One of the great unknowns, however, remains just how many hourly workers will opt for health care insurance through the company. Tankel said Apple-Metro employs about 4,000 workers, which includes 200 to 300 managers in addition to full-time and part-time hourlies. Of that total the company expects 15 percent to 20 percent to qualify for health care through Apple-Metro.

For coverage to be considered “affordable,” hourly workers who are eligible for company-sponsored insurance and seek single coverage cannot be asked to pay more than 9.5 percent of their W-2 pay. Given that many of those employees are young and may choose instead to pay the penalty or already have coverage elsewhere, it remains to be seen how many will sign up for insurance, Tankel said.

While the PPACA allows employers to opt out of providing health care insurance by paying a $2,000 nondeductible penalty for qualified employees,  Tankel said it is more cost effective to offer insurance than to pay the penalty.

“We were looking at paying the penalty early on, but now we’re planning on [offering insurance],” he said.

Currently, Apple-Metro offers a health care plan for full-time hourlies, which is 100-percent paid for by employees. That will cease to be available once a new plan has been decided on, Lam said. The company has yet to select a plan for full-time workers, but it is investigating its options.

“Our brokers are shopping it,” Lam said, adding that some carriers have been slow to provide quotes. “Whatever [the plan is], it will meet the essential requirements.”

The company expects to carry a single plan offering essential coverage rather than a multitiered plan that provides different levels of insurance — at least according to current thinking, Lam said.

While Lam said initial estimates from brokers placed the company’s cost per participating full-time employee at between $4,000 and $5,000 annually, he has recently heard it could be cheaper.

Managers will continue to have their own health care plan.

In the meantime, Tankel said Apple-Metro has no plans to curtail growth, manage hours or cut hiring.

“We hired 400 people last year,” he said, adding that Apple-Metro intends to open three new locations this year,  each of which requires the hiring of 100 or more new employees.
However, he continues to worry about restaurants operating on the margins.

“It’s all doable for us,” he said. “But my concern is that it won’t be doable for everybody. For marginal guys it could still be a catastrophe.”

Contact Paul Frumkin at [email protected].
Follow him on Twitter: @NRNPaul