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Employee Healthcare Benefits Options for Your Independent Restaurant

Few government policy issues attract as much attention and controversy as public access to health care. Critics of U.S. health care raise the issue of the distributive injustice of a system in which many people can't afford proper care. During the Obama administration, Congress passed the Patient Protection and Affordable Care Act (ACA), also known as Obama Care. The primary objective of the law is to aid those who cannot afford a health insurance plan.

The ACA has been moderately successful; however, it relied on states to apply Medicaid funding to reduce the strain on the ACA exchange, virtual marketplaces in which consumers and small businesses could shop for and purchase private health insurance coverage. Of course, a number of states did not increase Medicaid funding.

Under the ACA, employers with 50 or more full-time employees (or the equivalent in part-time employees) must provide health insurance to 95% of their full-time employees or pay a penalty to the IRS. This has been valuable to employees of larger businesses. Smaller business – including many restaurants — have dodged this requirement by running their businesses with part-time staffing.

With a restaurant labor shortage, not offering health care benefits might no longer be a sustainable option. Health insurance is a vital benefit for many employees, and businesses that do not offer it can be at a serious disadvantage in recruitment and retention.

In other cases, operators with multiple units or several different concepts may think each unit is counted independently. If no single unit has more than 50 employees, restaurateurs might think the ACA mandate doesn't apply to them. This can backfire with significant penalties, says David Smith, senior vice president with eBen, a national consulting and brokerage firm that helps small businesses, including restaurants, offer benefits including health insurance.

When there's shared control or ownership, says Smith, all of those employees are counted together instead of separately. Another misconception is that the IRS is too busy to notice, so operators can get away with no coverage. In reality, Smith says, the IRS is actively sending penalty letters to non-compliant operators.

With a restaurant labor shortage, not offering health care benefits might no longer be a sustainable option. Health insurance is a vital benefit for many employees, and businesses that do not offer it can be at a serious disadvantage in recruitment and retention.

Yet many independent business operators believe they can't afford to offer health benefits with tight margins and ever-increasing costs of doing business. According to small business health insurance experts, this is not necessarily the case.

Association Solutions

State and national restaurant associations can help operators understand if and how ACA mandates apply to them. They also offer coverage, including open access, preferred provider organization (PPO), and health savings account (HSA) plans. For example, the National Restaurant Association (NRA), offers plans through United Healthcare to its members.

Explaining the details of these plans is a complex endeavor. Although the federal government gets involved in certain aspects of insurance, the individual states retain primary authority to regulate insurers.

According to Clinton Wolf, senior vice president, insurance and partner products at NRA, insurance benefits can vary across state lines, which makes it necessary to discuss health insurance in general terms. That said, Wolf says that the variety available through United means that "almost every type of plan you can think of" is an option.

"We have plans that have deductibles as low as $500, and they go up to $5,000 or $6,000 and with a wide range of co-pays," says Wolf, adding there are plans that have $15 copays for primary care physician visits or $5 copays for generic drugs. "It's a good balance of having a low monthly premium or low copays to access care."

For smaller independent operators with six to 50 employees, the NRA offers an association health plan that pools small employers as a single insured entity and passes along associated cost savings. Within the association plan, which is called Restaurant & Hospitality Association Benefit Trust (RHA Benefit Trust), smaller operators can pick from 40 different health plan designs while enjoying lower costs and perks like wellness programs.

One challenge for small operators is that the concept must convince at least six employees to enroll to enjoy the RHA Benefit Trust. This can be a problem if the employees do not think they need health care insurance – which is not uncommon among young people who overestimate their invincibility – or they are insured under their parents' or spouses' coverage.

The good news, says Wolf, is the cost of health insurance is not as prohibitive as many operators believe, particularly if they break it down to a dollar per hour figure. The upside to offering these benefits is clear. "It's going to help you to attract and retain employees. It's so hard to find employees now, that you don't want to be at a competitive disadvantage against a large restaurant that has to offer health insurance per the ACA mandate. Go through the exercise of trying to find out the cost of insurance to see if you can make it work. In a lot of situations, you'll be pleasantly surprised," he says.

It's so hard to find employees now that you don't want to be at a competitive disadvantage against a large restaurant that has to offer health insurance per the ACA mandate. Go through the exercise of trying to find out the cost of insurance to see if you can make it work. In a lot of situations, you'll be pleasantly surprised.

For independent restaurant owners who are seeking personal coverage, Wolf says HSA plans can be a good supplement to other coverage. HSA accounts are funded using pre-tax dollars. "If you don't have a lot of needs and you're able to build that balance up, it can become a component of your retirement planning," Wolf says. When you need care, you can withdraw money from the HSA and it isn't taxed. After age 65, you can take money out of an HSA tax-free for any reason. HSA's are only available to those with a high-deductible health plan. These plans have low monthly premiums, but a high threshold the insured must meet before the insurer pays for care. For 2023, the IRS designates a high-deductible health plan as one with a deductible of at least $1,500 for an individual (or $3,000 for a family).

For operators that are offering health care benefits, Wolf says it's wise to consider adding dental, vision and life insurance, too. "There is not as much variability in the cost, and they're way more affordable. You can get a dental plan for $25/month, a vision plan can be $9/month and a life insurance plan can be $1. When you think about it, you can have the three of those in the $35 range," he says. Given that restaurants are now competing with big box stores for employees, there may be a strategic advantage to thinking bigger when it comes to benefits.

NRA is available as a resource, but they refer to brokers when it comes time to purchase. On this note, Wolf says a broker with other restaurant clients will have the hands-on experience to help design coverage that reflects the unique needs of the restaurant environment.

With the smaller independents that aren't obligated under the ACA to offer benefits, Smith says he's seen employers look for ways to offset their out-of-pocket costs when offering health insurance to hourly workers. One strategy is to add a service charge to absorb benefit costs. Beware, however, that service charges – commonly called "autograts" are taxable sales. In addition, you need to determine how your guests will view surcharges to support your business when they have paid for their meal. Dining out is more expensive than ever and customers might either be of- fended by the additional charge or reduce their tip to servers. On the upside, during the pandemic at least, operators found that additional charges to support workers were well- received among customers. If you add a service charge to cover staff benefits, you might want to communicate to your guests how the money will be used.

KEEP LEARNING…

Working with Brokers

Brokers can simplify the insurance shopping process says eBen's Smith, who explains that the representative will first try to understand the operator's objectives. However, he advises that insurance is rarely a one-size-fits-all. There are a number of issues you, as an owner, need to contemplate and discuss among your business partners and general managers. "Do you want to take care of your managers? Do you want to take care of everybody? What's your budget?" These questions help the broker identify plans that fit the restaurant's needs and budget.

Once it's determined whether benefits are inclusive or geared toward a narrow slice of employees, like management, they'll review insurance carriers and plan demographics. With concepts that have locations in different states, there might be one set of benefits for employees in one state and a different option for those in the second state. Group demographics also factor into the equation. Restaurant operators tend to believe they only have one option – "a minimal essential coverage plan" – but Smith emphasizes that there are lots of options.

"It takes 60 to 90 days from the first conversation to people being enrolled and covered," Smith says. If this seems like a long time, he notes that it can be done faster, but it is usually a poor idea to rush the process.

Smaller independents tend to gravitate toward one of two types of coverage, says Smith. They will opt for a group plan, and set strict limits on who is eligible, or they will select an "Individual Coverage Health Reimbursement Arrangement" (ICHRA) and include all employees. An ICHRA is a relatively new type of group health plan that allows organizations of all sizes to reimburse their employees, tax-free, for their individual health insurance premiums and potentially other qualifying medical expenses.

With ICHRA coverage, instead of the employer choosing one health policy for everyone, each employee can shop for their preferred health insurance policy through a broker or an online site and choose the individual health insurance coverage with the network, doctors, and health insurance premium that works best for them. (See "Is an ICHRA Right for You?" below.)

A Vegas Operator Doesn't Gamble on Employee Health

Lotus of Siam, a Thai restaurant in Las Vegas, first started offering health insurance in 2009, the year before the ACA mandate. At the time, health insurance premiums were so expensive that the operators had difficulty buying insurance for their own needs, says owner Penny Chutima. Premiums were cheaper on a group plan, so she decided to provide insurance benefits for their employees and also for her and her partners says Chutima.

After the ACA was enacted, Chutima estimates her business was paying $19,000 per month for health insurance. Today, she notes, it is in the range of $14,000 to $15,000 to cover 60 to 70 employees. "We started with Anthem Blue Cross Blue Shield, and we continue to use them. They've been really great for us," Chutima says. At Lotus of Siam, employees can choose between PPO and HMO plans. Many of the kitchen staff speak Thai, not English, so this allows them to go to a particular Thai doctor who accepts Anthem insurance.

In addition to paying for health insurance, Chutima's employees receive paid time off and competitive wages. Back-of-house employees start at $15 and can earn upwards of $20 an hour; her front-of-house employees start at $10.50 an hour. For salaried employees, Chutima says "my highest paid individual is $1,600 a week." The restaurant also provides disability, accidental life insurance, dental and vision benefits for employees. Chutima worked in the corporate world before taking over ownership of the family restaurant from her mother, the James Beard Award-winning chef Saipin Chutima, in 2017. This work shaped her belief that "in order to keep a happy home for the employees, you have to treat them with respect. Just because you pay people a lot doesn't mean anything if you're treating them like garbage."

Chutima decided to raise menu prices to absorb the added costs of a fair wage and employee benefits. Making these calculations took a lot of work, as did researching laws like the ACA to better understand how compliance mandates affect the operation.

"It's hard," Chutima cautions. "In the beginning, I had to do this all on my own. A lot of people didn't really understand the benefit of the logistics that go into this type of thing, especially coming from a mom-and-pop shop. They just saw it as another expense."

Chutima knows that many operators don't want to offer a benefit like health insurance if they aren't mandated by the ACA un- less there is a clear return on investments. For those focused on the return on investment, Chutima says that "at the end of the day, I have happier staff, happier customers, and happier families."

The restaurant pays 10 percent of benefits for employee dependents and family members. Customers are happier because they get better quality service from employees who are well-compensated and don't have to worry about paying for healthcare.

A Tar Heel State Restaurateur Sticks to His Principles

Eric Scheffer owns three restaurants in Asheville, North Carolina: Jettie Rae's Oyster House and two locations of Vinnie's Neighborhood Italian. Both Jettie Rae's and the second Vinnie's location opened within the last 18 months. Adding two new units bumped Scheffer over the 50-employee threshold, which meant he had to offer health insurance.

After 90 days, part-time employees are offered Lantern Health, a direct primary care service created by a local doctor. For $60 per month per person, paid by the restaurant, employees receive 24/7 doctor's visits, discounted labs, free x-rays, mental health, and discounted prescriptions. Full-time employees can choose from two insurance programs, which are paid by the restaurant.

Sedara is a medical cost-sharing program. "We cover the enrollment cost for Sedara and the employee's contribution is less than $20 a month," Scheffer says. Employees are covered for up to four incidents a year with a $1,500 deductible. So, if an employee gets in an auto accident and needs medical care and physical therapy to return to work, the employee would pay $1,500. Sedara would cover all other costs.

Employees who prefer a traditional health plan model, such as those with pre-existing or chronic conditions, choose their own plan on the marketplace. They are reimbursed for up to 50 percent of the cost of premiums using a formula that reflects their age and tenure as an employee. This is the ICHRA model. ICHRAs are flexible: employers get to decide how much to contribute toward employee coverage, with no predetermined minimum contribution requirement. "We also have a flexible spending account option where employees can put $1,000/month of pretax money into an account to put toward medical spending. We offer voluntary enrollment in short-term disability and life insurance," Scheffer adds.

Scheffer mostly hires using Indeed, and he says the health insurance benefits are mentioned upfront in their ads. "It's a great way to draw prospective employees because not a lot of people offer this," he believes. Scheffer also believes healthcare benefits positively affect employee retention because "it makes them think twice" when thinking about getting a new job elsewhere. In addition to healthcare coverage, Scheffer's employees will soon have a unique mental health benefit. This new benefit will connect employees in crisis with mental health providers for bridge appointments to connect the employee to the appropriate mental health care covered by their insurance.

Scheffer holds biannual "ten minutes with Eric" chats where he gets to know each of the employees. Through these chats, he says he's learned about issues impacting his team. Lately, mental health, affordable housing, and substance abuse are top of mind. "My staff is like family to me and it's the absolute right thing to do," Scheffer says on the new benefit.

Scheffer had his chief financial officer crunch figures to help determine what the concepts could realistically afford now. He encourages operators to really run the numbers because "you have to make sure you don't get yourself into a program you can't afford."

Instead of raising menu prices to cover the cost of health insurance, Scheffer ended up taking less profit as an owner. "I know it's going to benefit me in the long run. I know they're loyal to me and our restaurants are a more healthy, vibrant environment," he explains.

"As a society, I don't think we take enough time to create an environment where restaurant workers have the means to live affordably," Scheffer says. "People work very hard at providing exceptional hospitality and a lot of them struggle to keep the lights on and pay their bills," he says. Providing mental health-inclusive wellness care is one small aspect of supporting the whole personhood of restaurant workers and giving back to those who find their calling in serving others.

IS AN ICHRA RIGHT FOR YOU?

Not all operators are familiar with ICHRA plans, which first became available in 2020. Da- vid Smith, senior vice president with eBen, a national consulting and brokerage firm that helps small businesses, including restaurants, offer benefits including health insurance, says there are misperceptions about how they work.

"They're the right fit in the very limited number of situations where they work. What I've found is if your employee base is predominantly younger people, then you're okay," he says. Unfortunately, Smith says these plans can be misrepresented to operators who want to offer some amount of coverage to everyone. Employers might think they can give each of their employees $200 bucks to put toward marketplace premiums.

In practice, it's a different story. Health insurance plans available on the marketplace and state exchanges factor age into policy premiums. "Costs for older employees can be as much as 3.5 times what it is for younger employees," Smith warns. If you're a small concept not bound by ACA mandates, it means that older workers pay more out of pocket because the flat subsidy offered by a well-intentioned operator covers less.

Another common misperception is that employees can still get marketplace subsidies and take part in ICHRA. Not so, says Smith. If the employer is reimbursing premiums through an ICHRA, employees lose that subsidy.

While operators can use carve-outs to define eligibility, as in group plans, these are structured differently. "You can't really do a management carve out under ICHRA, you have to do salaried versus hourly or management versus part-time," Smith says.

The biggest headache in Smith's opinion is balancing the ICHRA against ACA affordability mandates. Say a restaurant has 50 employees who are 25 different ages. Each age equates to a different rate. This means examining not only the age of the employee but the income level of every individual to cross-check for affordability.

For 2023, the IRS set the affordability limit at 9.12 percent of an employee's household income. At this point, Smith says, most operators throw up their hands because it's too complicated. While ICHRAs are more complex than they are sometimes made out to be, they can be a solution to one common problem: a concept fits the ACA mandate with more than 50 employees but workers aren't signing up for coverage, and the operator doesn't want a penalty.

Employees who are reluctant to sign on to a group plan often appreciate the flexibility of the ICHRA. They can choose their own plan that meets their needs: a catastrophic plan if saving money on the monthly premium is the top priority and a more expensive plan if they have bigger needs. Interest in ICHRAs tends to be higher in states with robust insurance marketplaces, including California, Florida, New York, Pennsylvania, and Texas. Depending on your location, ICHRAs may be a better choice for the market.

The complexity of ICHRAs and all insurance products underscore the value of working with a broker who is knowledgeable about small business challenges.