Skip navigation

Restaurant industry moves forward on health care reform

Restaurateurs, attorneys and accounting experts gathered last week in Los Angeles and New York to determine what first steps can be taken to adapt the sweeping health care reform legislation.

Many are expressing concern that 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. While many are taking initial steps to evaluate the new laws, some operators expect that changes to the law will be made with added political pressure.

Julia Stewart, chairman 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, speaking at the Break Bread conference in Los Angeles, an event 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 representatives, state association, National Restaurant Association or National Council of Chain Restaurants to share the impact this legislation 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 that steps need to be taken today to navigate what is understood of the legislation. 

A timeline

While most elements of the new law will be phased in over the next five years, certain mandates already are in place. For plan years beginning on or after Sept. 23, 2010, mandates include the elimination of lifetime dollar limits on essential benefits, coverage of dependent children up to the age of 26, the incorporation of restricted annual limits on essential benefits until 2014, and the elimination of pre-existing condition limitations for enrollees under 19.

Jan. 1, 2011: The ACA will require a prescription for over-the-counter drugs and medicine in tax-favored accounts. And while the government initially planned to implement W-2 reporting requirements beginning in January, the IRS said that will not be mandatory in 2011.

In 2011, the CLASS, or Community Living Assistance Services and Support, Act also takes effect. It will enable employees to have an average of $150 or $240 a month, based on salary and age, automatically deducted from paychecks to help save for long-term care.

2012: The ACA will require uniform communications standards for employers as well as a 60-day advance notice of material changes.

2013: Provisions will raise Medicare taxes on earnings above $200,000 for individuals and $250,000 for married couples. In addition contributions to flexible savings accounts will be limited to $2,500 per year, indexed by the Consumer Price Index in following year.

2014: States will be responsible for establishing exchanges that will create a marketplace for the purchase of health care insurance. Individuals will be required to have health coverage or pay a penalty. All businesses with more than 50 full-time-equivalent workers will be required to offer coverage or pay a $2,000-per-person penalty over the first 30 employees. Insurance will be available to employees following a waiting period of 90 days.  The mandates will include new reporting requirements for businesses with more than 50 employees.

2018: “Cadillac,” or high-cost, employer-provided health plans beyond $10,200 for single coverage and $27,500 for families will be taxed.

The devil is in the details

Accounting and consulting firm J.H. Cohn also held a live symposium and webinar in New York last week, helping operators learn what to expect in the coming years. The session, titled “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 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 that already were 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 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.”

For more information on healthcare, visit:

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

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.