The Real Impact of the Affordable Health Care Act

Despite the outcry from large franchise companies like Darden, KFC, and Jimmy John’s last fall, the impact of the Affordable Care Act may not be as great as expected. According to an article in Forbes, 96% of the small businesses in the US have fewer than 50 employees, so many will be excluded from the new requirements. As most companies make their way through the pages and pages of details on the new program, many are cutting their cost outlook by as much as 80%.

Chances are if you have a company with 50 or more full time employees, you are already preparing for the changes ahead. As staff levels in 2013 establish your status for 2014, time is running out for you to decide how you will comply with the new law and finance the expense. To determine your status, you can either take an average number of employees over the entire 12 months or calculate the number of employees for a consecutive 6 month period.

So if you’ve haven’t decided yet, consider the following case study from the New York Times on a wholesale bakery in San Diego to help you understand the REAL impact:

Bakery in the Sun

 95 employees

 Option 1  - Pay for Insurance

Insurance companies have yet determined the cost of a policy that meets the law requirement so these figures are preliminary. But basically, it breaks down to a little under $200 a month per employee since the company and the employee each pay half.

Cost $108K

Options 2 - Pay the Penalties

For companies who opt not to provide insurance will be penalized with a “employer shared responsibility payment.” Those penalties are $2K per employee for the year but the law exempts the first 30 employees. An added benefit to this option would be that the company would not have to spend the time and money managing the plan which could easily cost another $10K.

Cost $130K

Option 3 - Reduce the Staff and Outsource 

The company could reduce staff levels to under 50 employees by outsourcing certain jobs, hiring drivers as independent contractors, cutting the least profitable routes or reducing the variety of items produced. Which raises concerns over quality and efficiency. More so, how much more expensive would it be to outsource those jobs then just paying for the coverage.

Many restaurants are considering raising pricing or reducing product produced in order to combat these cost but this could adversely affect sales. Ironically, companies who surpassed the competition could lose competitiveness in terms of price if they raise pricing.

There are several positives the should be mentioned as well. Offering health benefits strengthens the health of your employees, your community and your business. As our example illustrates, paying the cost of insurance could be less than paying the penalties. Plus the costs could be even lower as many employees under the age of 26 will be covered under their parents policies, others will have spouses with coverage and some will simply choose not to take it.

While the concerns and uncertainty are valid, there are many reasons to believe that most restaurants will find ways to combat these costs and provide coverage to their employees which is the point of the Affordable Care Act.  And as more companies pay into the system, the cost increases will slow down and insurance companies will come up with better options for employers after the first year.

If you are in need of some assistance determining costs and requirements for your business, a restaurant coach could do the work for you.

Originally published 5/2/13