Rising health insurance costs are hitting operators where it hurts—in the wallet. According to a 2005 report by the Henry J. Kaiser Family Foundation, employer health insurance premiums increased by 9.2 percent last year, nearly three times the rate of inflation. It was the fifth consecutive year of increases over 9 percent.
"All of my clients have been suffering every year with the health insurance rates going up exponentially," said New York State Restaurant Association board member and Seyfarth Shaw law firm counsel Carolyn Richmond, who works with a number of restaurant industry clients. "It's been a big issue that's causing a lot of my larger restaurant groups to go back to the marketplace to shop around for new policies, as well as to re-examine how they approach giving out insurance benefits."
And nobody suffers more from the rising costs than the operator.
"The high cost of health insurance is an ongoing issue, and we've had to make adjustments," said Brad Rocco, owner of Gahanna Pizza Plus. "Now, we've had to drop the percentage of what we pay those long-timers. Instead of paying 100 percent, it's now 80 percent, except for the managers who still get the 100-percent plan."
According to Brad Schneider, director of Strategic Services and the Family Business Center at Chicago-based Blackman Kallick, there's a tricky balance between keeping benefits costs low enough to maintain profitability without shifting too much of the burden to employees. He suggests the following solutions:
--Cost-sharing arrangements. Make a gradual transition to sharing the costs of health benefits communicating clearly to employees why they must share the burden. The gradual transition softens the cost blow.
--Restructuring the health plan. Consider changing plan offerings that feature using the network 100 percent of the time for best-negotiated rates, or a consumer-driven plan where employees can buy different services "cafeteria style."
--Work with a Professional Employer Organization (PEO). For small businesses, outsourcing the HR function to a PEO helps the operator address healthcare issues more efficiently by researching and developing a wide range of benefits. PEOs also tend to carry more clout with underwriters and can garner favorable rates.
Talking Point: Turnover
According to the Economic Research Initiative on the Uninsured, health care costs rise in step to drops in health insurance coverage. In other words, as the pool of insured employees shrinks, costs born by those still covered increase.
Adding to the problem is this: The primary reason people are uninsured is the high cost of health insurance coverage, according to a 2004 report by the Henry J. Kaiser Family Foundation. That vicious cycle is a struggle for operators to break, but it can be with some resourceful thinking.
"We're seeing more and more employers get creative with how they set up and track eligibility," said Brian Robertson, executive vice president of Austin, Texas-based Fringe Benefit Group, which specializes in health benefit plans for hourly, part-time and seasonal employees.
According to Robertson, most restaurant operators haven't been able to purchase major medical insurance for hourly and part-time employees for many years.
"Typically, the hourly and part-time employees aren't offered major medical insurance and they generally would have a very hard time purchasing it anyway because they can't afford to make a significant contribution," said Robertson, "The premiums across the country on average are $400 a month for an individual, let alone a family. That's hard to do for a lot of people."
In an industry where 100-percent yearly turnover is the norm, most employers put on the benefits brakes, at least for a time.
"It doesn't make sense to offer benefits from the get-go in this industry, as in the first three- or six-month period" of employment, Richmond said. "You want to see how the turnover is going to pan out. You really want to offer benefits to those employees who are going to stick around. It's an incentive to not only take care of your employees, but retain them."
Offering benefits to short-timers is expensive. Health insurance benefits those employed by Richmond's clients range from $6,000 to $15,000 per employee, from full-time hourlies to executives respectively.
"It's interesting in the foodservice world as it relates to hourly and part-time employees, because employers depend on this workforce," said Robertson. "The wages that employers can afford to pay them are only so much in order to run the businesses profitably and be sustainable. That means they really can't afford to put a $400-a-month premium on each employee, especially with the turnover that occurs."
Fringe Benefit Group isn't out to fix the problem of rising costs. Instead, it fills the coverage gap for hourly and part-time workers who struggle to pay minor medical expenses, such as the cost of doctor's office visits and yearly exams.
"Our programs offer first-dollar coverage to help people be able to go to the doctor for things like wellness exams and emergency room visits," said Robertson. "This type of program is much lower in cost than a major medical program, and much more flexible in plan design. With this, in the very least, the employees have a way to seek preventative services."
A number of restaurant franchises and chains have signed on with such programs, including Applebee's, Up The River, Denny's, Sonic, Pizza Hut and others.
"These types of plans are seeing a broad movement forward, a recent momentum," Robertson said. "But they need to be placed properly. People need to know exactly what the coverages are, because it's not the do-all end-all. We're not selling a catastrophic plan, but it fits very well for hourly and part-time employees, a population that turns over quite a bit."