As the price of health insurance skyrockets, foodservice operators say the system needs a prescription to lower costs so valued employees won’t leave their jobs for other industries better able to provide benefits.
But restaurateurs already struggling to keep pace with increased food and labor costs are finding that affordable health care is little more these days than a cruel oxymoron.
“What we hear from our members is that they cannot afford to provide health insurance, and that could cost the industry jobs,” says Bob DeZinno, president and chief executive of the Connecticut Restaurant Association . “We realize we are an underinsured industry from the health insurance industry perspective. But the business reality of it is that with tighter profit margins, especially now with the way the economy is, it’s just something we can’t offer across the board.
“It’s almost like those operators who want to provide that benefit can barely compete against the operators who choose not to—a ‘Catch 22.’ But in order for us to really become the ‘industry of choice,’ these benefits will have to be offered.”
Richard Dorchak, owner of the Cloverleaf Tavern in Caldwell, N.J., says the restaurant business in his state is experiencing its worst fiscal performance in more than 30 years and restaurateurs can’t afford to shoulder the additional cost of health insurance without passing it on to the customer, which is not an option during tough economic times. But he agrees that not providing benefits to employees could at some point lead to their exodus from the industry.
“Younger people think they’re bullet-proof,” he says. “But once they get out of college, they’re looking for insurance, and we can’t afford to give it to them. Maybe if the cost was reasonable we could pass it on to them and not have them leave us for another job that does offer it.”
Expanding health care access to residents has become a priority in most states. Massachusetts, Maine and Vermont already have passed universal-health-care legislation, while Hawaii mandates coverage for children under the age of 19.
Meanwhile, the issue is expected to come up again next year in Washington state, Connecticut, California, New Jersey, Wisconsin, New Mexico and possibly Maryland, says National Restaurant Association  spokeswoman Maureen Ryan.
“The restaurant industry certainly cares about its employees, and many [operators] wish they had the resources to provide health care,” she says. “But laws and regulations that ignore the fundamental problem with a broken system do nothing to better the situation.”
Earlier this month in San Francisco, a three-judge panel of the 9th U.S. Circuit Court of Appeals upheld the city’s employer-subsidized health care program, saying it does not violate state and federal laws regulating employee benefit plans. The ruling overturned a lower-court decision that claimed the program, called Healthy San Francisco, placed an undue burden on small businesses in the city. The plan was challenged by the Golden Gate Restaurant Association , which said the mandatory employer fees violated the federal Employee Retirement Income Security Act, also known as ERISA. The group reportedly plans to appeal the ruling.
A number of existing universal-health-care programs, in fact, are not without their problems. Take, for example, Maine’s Dirigo Choice, a statewide program offering subsidized health care to individuals and businesses with fewer than 50 employees. Established in 2005 by Gov. John Baldacci, the program, which entitles residents to unlimited preventive care, is funded by taxes imposed on insurance companies. However, some critics, including Maine Restaurant Association  chief executive and president Dick Grotton, call the plan a failure.
“We are plagued by a number of things that don’t help us at all,” he says of the plan. “We’re a small population, and the state mandates that we have to provide a hospital within 30 miles of a densely populated area. We have around 39 hospitals in the state, and because there are so many, there are no curbs on the cost.”
The program, which offers coverage for $400 a month with a deductible of $2,500, or $700 a month with a deductible of $1,000, has an enrollment of only 12,000 residents, despite a promise by Baldacci that the state would insure 136,000 uninsured Mainers by 2009. In addition, the program borrowed $20 million this year from the state’s general fund, to be paid back with interest, because of liquidity issues.
Furthermore, Dirigo Choice is in the process of changing its name and carrier and has suspended enrollment of new members due to the lack of funding, said a spokeswoman for the governor.
“The program is still active, but it’s closed to new members at this time,” she says. “There are a lot of things in play, a number of financial issues and a question on the ballot concerning the problems with the way the program is funded.”
Part of that funding derives from a “sin tax” on beverages like beer, wine, soda and some flavored drinks that some believe contribute to the growing obesity problem. The tax adds an additional 11 cents to the price of a liter of soda, 16 cents to a six-pack and 7 cents to a bottle of wine. Grotton, who calls Dirigo “an insurmountable and fiscal failure,” says the tax is yet another drain on both consumers and restaurant operators.
In Massachusetts, where universal health coverage was implemented in 2007, the soaring costs of providing insurance to all residents has forced Gov. Deval Patrick to tighten employer contributions that require businesses with 10 or more full-time employees to have 25 percent of those workers enrolled in company insurance plans and pay one-third of the costs as well. If employers do not meet both tests, they must pay a $295 assessment fee for each employee, including part-time workers.
So what is the reason for the increase in employer contributions? Patrick reportedly needs to generate $100 million in new revenue to pay for increased costs associated with subsidizing coverage for the uninsured. But even with the employer contributions, some restaurateurs say, the premiums still are so high employees are looking for ways to work fewer hours so they can be subsidized by the state.
“We offer health insurance to all of our full-time employees; they pay half and we pay half,” says Shun Chen, proprietor of the Asian C restaurant in Hingham, Mass. “The cost is $400 per person per month; we pay $200. But some people have decided to work fewer hours so they can qualify for the state-assisted health insurance. People with low incomes can purchase their insurance from the state. Financially, it’s cheaper.”
Chen, who owns two other restaurants, says his labor costs have increased $15,000 this year at Asian C alone because of universal health care.
“It’s so hard,” he says. “The economy isn’t stable, and we can’t raise prices because that won’t help business at all.”
When it comes to health care affordability, however, an Alabama state law-maker has crafted one of the more unique approaches. If elected to the U.S. Congress, he says he will duplicate at the federal level a health plan he helped to pass at the state level.
Jay Love, a veteran of the Alabama House of Representatives, is running on the Republican ticket for the state’s 2nd Congressional District. For three of his six years in the state House, Love argued for a health care affordability plan that allows small-business owners and their employees to deduct from their state taxes 150 percent of their annual expenditures on health care insurance.
The plan covers all businesses that employ fewer than 25 people. It allows employers who provide group health care plans or employees who work for small business without such coverage and who must buy it individually, to take the 150-percent deduction.
The measure finally was passed in Alabama’s last legislative session. A spokesman for Love said the candidate hopes to introduce similar legislation in Congress if he wins.
The future of affordable health care, however, may lie in the ability of small businesses being able to participate in purchasing pools, says Sen. Thomas Carper, D-Del., who addressed a group of restaurateurs at the National Restaurant Association’s recent Public Affairs Conference in Washington, D.C. He says the model to look at is the Healthy Americans Act, co-sponsored by Sen. Ron Wyden, D-Ore., and Sen. Bill Bennett, R-Utah.
The proposal is a portable-insurance program that guarantees the same kind of health benefits members of Congress now receive, and whose financing would be shared by employers, employees and the federal government.
Under the Healthy Americans Act, employers who provide health benefits would have to convert their workers’ premiums into higher wages that would reflect what they would spend for health coverage. The employees would then use those funds to purchase health insurance for themselves.
Employers who don’t offer their workers insurance would be assessed varying amounts based on their business sizes and profitability. Their workers would then buy insurance through statewide or regional purchasing pools, and the premium payments would be withheld in the same way taxes are today. Furthermore, the plan would fully subsidize the premiums of those people who live below the poverty line.
Individuals could choose from many plans offered in their individual states, and state-based Health Help Agencies would offer guidance through the enrollment process. HHAs also would provide consumers with information on competing private health plans and determine premium reductions to ensure that everyone could afford a health plan.
In addition, the Healthy Americans Act would ensure that all individuals would be eligible for coverage whether they suffer from pre-existing conditions or chronic diseases. It also would focus on preventive care and incentives to keep subscribers healthy. Individuals would not be charged co-pays for preventive services or chronic-disease management, and insurers would be able to offer discounts and other incentives based on participation in wellness programs.
“We spend twice as much on health care as any other industrial nation,” Carper says. “The Healthy Americans Act would extend coverage to everyone, provide private-sector coverage, and focus on prevention and wellness. It will serve as a road map for President Obama or President McCain to follow.”Mandatory sick leave issue likely to resurface
Mandated paid sick leave may not pose an immediate legislative threat to most restaurateurs, but the foodservice industry is gearing up to resist such measures as they emerge at the federal, state and local levels.
At its Public Affairs Conference in Washington, D.C., last month, the National Restaurant Association cited paid leave as an important battleground issue for the restaurant community. Officials at the trade group argue that mandatory paid leave would create a hardship for small businesses already faced with rising food and labor costs.
Rather, the association advocates the continuation of voluntary paid-leave programs.
The NRA says it opposes two measures at the federal level—The Healthy Families Act, sponsored by Sen. Ted Kennedy, D-Mass., and Rep. Rosa DeLauro, D-Conn.; and The Family Leave Insurance Act, sponsored by Sen. Chris Dodd, D-Conn.
The Healthy Families Act requires operators to provide seven days of paid sick leave to employees who work at least 30 hours a week. Part-time employees would receive prorated benefits.
Presidential candidate Sen. Barack Obama, D-Ill., supports the measure, while Sen. John McCain, R-Ariz., opposes it.
The Family Leave Insurance Act would require businesses with 25 or more workers to provide six weeks of paid family and medical leave to care for themselves or family members.
The NRA maintains the costs of such benefits would have to be recouped elsewhere, such as through reduced wages or increased prices. At the same time, it contends that Congress needs to re-examine the Family Medical Leave Act, which allows employees to take leave on little or no notice, before adding new mandates.
Meanwhile, more than a dozen states and localities have introduced mandatory-paid-leave proposals this year. Most of the proposals would require businesses to provide seven days of paid sick leave annually to employees who work at least 30 hours a week and prorated time to part-timers.
Nearly a dozen other states failed to pass legislation, said Timothy Ehlert, the NRA’s manager of state relations.
In Ohio, supporters of a paid-sick-leave initiative similar to the Kennedy and DeLauro measures removed it from consideration for the statewide ballot this fall.
However, a mandatory-sick-pay referendum will be on the ballot in Milwaukee next month. At press time, the Wisconsin Restaurant Association  was scrambling to reach a compromise on wording of the referendum. It also was developing a media campaign to fight the measure and gearing up for a legal challenge, says WRA chief executive Ed Lump.
If the referendum should pass, Lump says it would put Milwaukee businesses at “a great disadvantage compared to surrounding areas,” adding, “They will have to raise prices.”
Employers in two cities where mandatory leave measures were enacted, Washington, D.C., and San Francisco, are now coping with its effects.
The Restaurant Association of Metropolitan Washington does not anticipate a legal challenge to the new Sick & Safe mandatory sick-pay law, which takes effect Nov. 13, says legal counsel Andrew Kline. Nevertheless, he adds the association “isn’t thrilled” about it.
“We think we’ve mitigated the negative effects on our members” in prepassage discussions with lawmakers, he says. The final law exempts tipped employees, for example.
In San Francisco, the Golden Gate Restaurant Association has adjusted to providing paid sick leave, says executive director Kevin Wesley, who adds that the primary downside is the increased cost to businesses to provide the benefit to part-time employees.
A paid-sick-leave bill in Massachusetts is likely to be refiled in the next session, said Janine Harrod, director of government affairs for the Massachusetts Restaurant Association . In testimony last year opposing the bill, which never came to a vote, the MRA said any restaurant could suffer dramatically if several people were to call in sick for the same shift during busy times. The MRA also cited the need for safeguards to prevent employees from abusing sick leave.
The MRA’s objections chiefly involve part-timers, who currently resolve scheduling problems among themselves, the MRA says, adding that many restaurants already provide some form of paid time off for full-time employees.
Similarly, the Healthy Work Place Act, a bill now in the Rules Committee in the Illinois House, will likely be reintroduced early next year, says Larry Suffredin, government affairs specialist for the Illinois Restaurant Association. The IRA’s position is that sick days should continue to be negotiated between employers and employees.— Carolyn Walkup