Are Private Exchanges the Solution For Restaurant Healthcare Coverage?

There’s been a lot of uncertainty around the Affordable Care Act (ACA), what with shaky website rollouts and patchy state-led networks.  In an effort to be prepared for the upcoming healthcare coverage mandate, many restaurant businesses are looking into private exchange marketplaces as a viable alternative for healthcare insurance coverage. Some well known chains have already made the move. Here are the pros and cons for choosing private over public healthcare exchanges.

The Pros of Restaurants Using Private Exchanges for Healthcare Coverage

Private healthcare exchanges run independently from the federal government. In theory, they represent a way to decrease risk, improve predictability and save money when offering employees coverage. From the employer perspective, a private exchange is appealing because you can know exactly how much you are going to spend per employee. In addition, some employers feel that the design of many private exchanges is laid out in such a way as to make employees’ options very clear, thereby limiting confusion and facilitating clear communication between employee and employer. Early reports from restaurants who have switched to a private exchange are positive, encouraging others to consider the potential cost savings found there.

The Cons of Restaurants Using Private Exchanges for Healthcare Coverage

While private exchanges may help employers limit their costs, not all employees are convinced that the benefits are in their favor. There seems to be some confusion in the sentiment, with 50% of employees surveyed last fall saying that they thought a private exchange would “give them greater choice and flexibility to choose benefits” while the other half said that going to a private exchange is, “merely my employer trying to cut costs.”

Public appearances aside, the biggest downside for employees using a private healthcare exchange is that they will then be excluded from eligibility for an insurance subsidy on the federal public exchange. Since many restaurant employee incomes are low, they would likely pay less for subsidized healthcare coverage on the federal exchange than they would on a private exchange.

Last but not least, private exchanges are only a good method of lowering costs if premiums don’t go up and up each year. If that happens, the employer will still end up increasing their cost of subsidy in order to give their workers access to an equivalent out-of-pocket expense.

Restaurants Turn to Private Exchange in Preparation for the 2015 Mandate

Starting January 1^st, 2015, any company with 50 or more full-time-equivalent employees must offer their workers affordable healthcare insurance or else face penalties. There have already been a number of well known chains who have made the move, including Darden Restaurants, Inc. (Red Lobster, Olive Garden, Longhorn Steakhouse brands) and DineEquity, Inc. (Applebee’s, IHOP, Bob Evan’s Farms).

Theoretically, a private exchange should cut costs for restaurant owners, but how much it does is highly dependent on a number of variable factors. The whole system is still in its experimental stages, and only time will tell whether choosing a private exchange over the public exchange is truly the most beneficial choice for restaurant businesses to make.

Healthcare Reforms are Coming – Here are the Action Steps Employers need to Take Now

The Patient Protection and Affordable Care Act (PPACA) stands to reform America’s healthcare system significantly, and business owners across the board are struggling to understand what the changes will mean for them. Some feel that the PPACA impacts the restaurant industry more than most due to high numbers of part-time and low-wage employees in the sector.

Although the PPACA does not fully take effect until 2014, reporting requirements begin coming in to play at the end of 2012. As an employer, it’s important that you take action now to ensure conformation to those requirements as well as to clearly understand how the PPACA will affect your business.

Required Healthcare Reporting for the 2012 Tax Season

The main thrust of the healthcare act is that employers with more than 50 full time employees will be required to offer them affordable health care insurance or pay a per employee penalty for avoidance. This insurance must also meet a ‘minimum value standard.’ How that minimum standard is determined and whether or not your business’ health care plan meets that standard is still in deliberation by the administration.

Starting at the time of filing for the 2012 tax year, employers who file more than 250 W-2 forms each year, and currently offer health care plans, must report the value of their employees’ health care benefits on their W-2 forms. Health care benefit reporting on W-2 forms is optional for smaller businesses until the 2013 tax year. The data gathered is for informational purposes only – employees will not be taxed on the value.

All Employers must Inform Employees of Their Exchange Options by March, 2013

The law mandates that all states open insurance exchanges wherein individuals and small groups can purchase ‘essential health benefits’ by 2014. The idea is to create a competitive marketplace where a variety of plans are offered by a variety of private insurance companies, allowing an individual to select the plan which suits them best.

As of March 1^{st ,} 2013, all employers are going to be required to inform their employees and new hires about the insurance exchange in their state, as well as provide them with the information they need to access it. The current proposal is that this notification would have to include information such as the employer identification number and the calculated employee contribution for the lowest-cost plan available. The government is ironing out the last details of this requirement and guidance will be issued to employers about how to conform.

Understand how the Healthcare Act will Affect Your Business Now and Save Headaches Later

The healthcare law has different impacts and requirements for different classes of business and it’s important to understand how your business is going to be affected so that you can prepare properly. The documents are complicated and there are going to be additional costs that will need to be managed. You need good legal advice, savvy insurance consultants, and long discussions with your tax adviser to help you navigate these new requirements most successfully.

Many restaurant companies are still unclear exactly how this health care law may impact them so getting this early analysis can be critical. Doing so not only ensures that you navigate the new requirements successfully, but also that you do right by your employees while still making sound business decisions.

Understanding the Details of How the Healthcare Act Is Going to Affect Your Business

While the Patient Protection and Affordable Care Act stands to vastly improve America’s healthcare system, it does have substantial impacts for employers. In a nutshell, it’s going to require anyone who employs more than 50 people full time to offer those employees health care insurance that meets a minimum standard of value.  How much these new requirements are going to cost will vary depending on your operation and how the regulatory process ends up defining ‘affordable minimum value’ – a discussion which is still in deliberation.

Some experts feel that serviced-based industries such as restaurants may feel the impacts of these new regulations more acutely than non-service sectors, and as such, it’s important to understand the details of the coming reforms.

How to Determine if Your Business Will be Subject to the Employer Mandate

If your business employs more than 50 people full time, in this instance defined as those who average at least 30 hours a week per month, you will be subject to the healthcare mandate. You will not be required to offer health care benefits to part-time employees; however, the number of part-time employees that you have does factor into the determination of whether or not you meet the 50 full-time employee threshold. The following formula determines whether or not you meet that threshold, and will be calculated on a monthly basis:

The number of full time employees you have + the total number of hours worked by part-time employees for that month, divided by 120 hours = the number of full time equivalents.

What if I Own More than one Restaurant Company? Are They Considered Separately?

If you own more than one restaurant, you need to get together with your tax advisor to determine whether or not you are considered a single employer as defined by the ‘common control’ clause in the tax code. If you are considered a single employer, all of your full time employees in all of your restaurants will be combined together to calculate whether or not you meet the 50 full-time equivalent threshold.

Do I Have a Choice in this Matter? How Much am I Going to have to Pay and what kind of Penalties are There?

Employers subject to the employer mandate can choose not to offer coverage to their full-time employees. However, if you go this route and even one of your employees uses a premium tax credit to access coverage on the insurance exchange, you will be subject to paying a penalty of $2000 per full-time employee annually.

You can also be penalized if the insurance plan that your company offers is not considered affordable. If the amount of your employee’s contribution is greater than 9.5 percent of their annual household income and they apply for coverage on the exchange using a premium tax credit, you can be subject to penalization in the amount of $3,000 per full-time employee. The IRS and the exchange for each state will verify the household income of your employee based on their tax filings.

If you do choose to offer health care coverage to your full-time employees, you can expect to provide affordable coverage of minimum value with at least 60 percent actuarial value in order to meet the requirements dictated by the reform. You will have 90 days from the time of hire to offer new full-time employees their health care coverage.

All in all there’s a lot to know about the changes coming, and although the law doesn’t go into effect until 2014, several of the reporting requirements are coming due by the end of 2012 and the beginning of 2013. See the following blog for more information about action steps you need to take now to ready your business for the reforms.