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Industry searches for ways to soften impact of health care reform

The race is on to stem the anticipated pain of the looming federal health care reform law.

Many restaurateurs have said they expect the Patient Protection and Affordable Care Act will cut sharply into earnings and potentially force operators to raise menu prices, eliminate jobs and slow growth.

But even as restaurant operators struggle to gauge the impact the pending reform will have on their businesses in the future, others are urging industry members not to waste any time and to intensify political pressure in an effort to modify the law immediately.

The call for action was made repeatedly during two separate events in October.At the Break Bread conference in Los Angeles, Julia Stewart, chair and chief executive of DineEquity Inc., based in Glendale, Calif., said she believes the Obama administration does not understand how devastating the health care bill’s effect on the restaurant industry will be.

“I believe the administration will be willing to negotiate around the edges of that bill,” Stewart said during the event, which was organized by law firm Davis Wright Tremaine LLP, accounting firm J.H. Cohn LLP and executive search firm The Elliot Group.

Stewart encouraged restaurateurs to contact their congressional representatives, state association, National Restaurant Association or National Council of Chain Restaurants to share the impact this law could have on business.

Laurence Kretchmer, a partner with celebrity chef Bobby Flay in his six fine-dining restaurants and five fast-casual Bobby’s Burger Palace locations, told attendees
that his company’s health care expenses would increase about 29 percent under the new legislation if they kept the same coverage.

Currently, the company is planning to shift to a “bare-bones plan,” Kretchmer said. “It doesn’t make me want to grow my business, I’ll tell you that much.”

Still, experts agree steps need to be taken today to navigate what is understood of the legislation.

The devil is in the details

Accounting and consulting firm J.H. Cohn hosted a live symposium and webinar in New York last month, shedding some light on what operators can expect in the coming years.

The session, called “Healthcare Reform, Serving the Hospitality Industry: What’s on the menu for your next open enrollment,” discussed a number of key issues operators will face as the new requirements are phased in.

Higher costs: Kevin Quinn, a partner with Cohn Benefits Consultants, characterized health care as “a top priority” for restaurant companies and indicated that costs could be high. He told participants that Yum! Brands Inc., as one example, had projected the new law could cost its franchisees more than $30 million.

Several participants also indicated that they expected to see many operators opt for the $2,000 per-employee penalty rather than bear the high costs of offering benefits to their employees.

Differing plans: Jill Bergman, compliance manager for J.H. Cohn, explained that the new Affordable Care Act mandates will apply to any and all fully insured, self-insured and collectively bargained plans, as well as Health Reimbursement Arrangements, or HRAs. They will not apply to retiree-only and excepted benefits, such as standalone dental and vision, flexible spending accounts and Medigap and disease-only plans.

Tax credits: Bergman also said certain operators can apply for The Small Business Tax Credit in 2010. Operators qualify if they employ up to 25 full-time-equivalent workers with average wages under $50,000, and contribute at least 50 percent of the total cost of coverage. The maximum credit is 35 percent.

Grandfathered plans: Officials at the J.H. Cohn webinar also discussed the pros and cons of grandfathering in health care programs in existence on March 23, 2010, the day the measure was signed into law. Operators who choose to keep their current benefit plan will have the advantage of not having to comply with certain mandates, like nondiscrimination testing for fully insured plans, and will be allowed to make limited plan changes within ACA guidelines. Among the disadvantages, operators who retain their plans could see potential costs rise.

In addition, they will be restricted in terms of plan flexibility or changing insurance carriers and be required to maintain all plan records and documentation.

Insured plans: The new law also mandates that insured plans, which previously were not subject to nondiscrimination testing, now be held to the same scrutiny as self-insured plans. This could mean that companies offering premium plans to more highly compensated workers and lesser coverage to the rank-and-file will have to rethink their policies.

“In general,” Bergman said, “those types of plans may prove problematic under the new rules.”

Executive plans: Keith McMurdy, a partner and employee benefits plans attorney with Fox Rothschild LLP in New York, agreed, saying, “The hospitality industry is really big on giving extra special plans to executives.”

As a result, McMurdy recommended that one solution might be for operators to make all employees eligible for all plans. And though he indicated that most employees would not choose to pay the higher premium and trade up to more expensive premium plans, a company could potentially sweeten the offer by increasing the rate it pays toward coverage.

But, he added, “We don’t even know what would happen with that. The guidance so far is unclear.”

Contact Paul Frumkin at [email protected] and Lisa Jennings at [email protected].

SEE ALSO: Health care timeline

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