A Michigan restaurateur and National Restaurant Association member yesterday gave the Subcommittee on Health of the House Energy & Commerce Committee a look at what it takes to run a restaurant business in the U.S.—and a daunting prognosis for what the new health care law could mean for businesses like his.
On behalf of the National Restaurant Association, Larry Schuler described for Congress how the law will significantly impact his employees and how he runs his business, and urged early action to make fundamental changes to the Patient Protection and Affordable Care Act (PPACA) of 2010.
As the regulatory implementation moves quickly forward, the Association has attempted to constructively shape the regulations. Schuler says that without repeal or drastic changes to mitigate the most harmful effects of the new health care law, it will have drastic negative consequences on the restaurant industry and its employees.
The committee’s hearing was on “True Cost of PPACA: Effects on the Budget and Jobs.”
“We believe that offering health care coverage is the right thing to do and we are very proud of the fact that we have offered full medical coverage to our employees for a long time. However, faced with these very large increases in coverage costs, it will be extremely difficult for us to absorb these costs and continue offering coverage,” Schuler says.
Schuler owns and operates three restaurants—one of them is a fourth-generation family restaurant opened by his great-grandfather in 1909. Schuler is now reexamining his plans to expand his business and create jobs in light of PPACA’s costs and administrative complexity. “Entrepreneurs like me are used to dealing with uncertainty and risk. We do so by preparing as best we can for the unknown. We have a glimpse of what is to come and have already begun preparing for the full implementation of this new law to preserve our businesses,” he adds.
Schuler predicts that as a result of the new health care law defining a full-time employee as those working 30 hours per week, instead of the current 40 hours per week, and the requirement for employers to offer full-time workers health care benefits, the industry will have to more closely manage employees’ hours.
In practice, labor and training costs are already one of the most significant line item costs for restaurants. For employees, it may mean the need to get second and third jobs to make up for lost hours and income.
If the law is not repealed, Schuler urged the committee to make fundamental changes in how the law is implemented. Congress’s goal must be to avoid job dislocation, not just in 2014, when U.S. businesses will be covered by the law’s requirement that large employers provide minimum essential benefits to full-time employees or pay penalties, but before then, as employers begin planning for the law.
Schuler notes that the restaurant industry differs in significant ways from other industries, making compliance especially challenging for many restaurants. The restaurant industry is the nation’s second-largest private-sector employer. Its nearly one million locations employ 12.8 million Americans, nearly 10 percent of the U.S. workforce. The industry is dominated by small businesses, with more than seven in 10 restaurants operating as single-unit establishments.
The industry’s workforce is also unique. More than half of the industry’s employees are under age 25; restaurants have a high proportion of part-time and seasonal employees; and the industry has a relatively higher turnover rate than other businesses.
Labor costs are already one of the most significant line items for restaurants, accounting for about a third of the restaurant dollar. Restaurants have narrow pre-tax profit margins, averaging between 4 percent and 6 percent of sales, depending on the type of operation, according to National Restaurant Association research.
The NRA has been working since PPACA’s enactment to help shape the regulations that implement the law. But some of the law’s fundamental problems can’t be fixed through the regulatory process, Schuler says. “There are limits to the scope of change we can achieve through regulations.”
The nation’s restaurant industry looks forward to working with Congress “to improve health care for our employees without sacrificing their jobs in the process,” Schuler says.