Restaurants face full plate of issues in health care law

— Niko Karatassos, director of operations of Buckhead Life Group, which employs about 1,500 people at restaurants that include Atlanta Fish Market and Chops Lobster Bar

2014 can’t come soon enough for Atlanta restaurant workers and may be coming too quickly for their bosses.

That’s when the federal Affordable Care Act, which was passed by Congress in 2010, phases in one of the most controversial parts of the health care law: the mandate that employers of 50 or more full-time workers offer them health care coverage.

While the nation’s health care system is largely employer-based, in the restaurant industry, only chefs, managers and those on the management track are generally given coverage. That leaves some others, such as waiters, busboys and dishwashers, dependent on indigent care largely financed through tax dollars and larger premiums for others who are insured.

The stakes are high because restaurant sales are expected to reach $632 billion in 2012, according to the National Restaurant Association. That’s an improvement over the shaky years during the recession when many eateries failed — including several icons in Atlanta — making operators sensitive to any changes that might halt that recovery.

Restaurant operators said profit margins are tight in the industry, and they warn that to meet the guidelines of the health care law, they will have to reduce full-time hours, freeze positions or close underperforming stores. That’s significant, they said, because the restaurant community, which employs some 12.9 million Americans nationally, is a lifeboat for many, including the unskilled, students and the recently unemployed who use restaurant work to make ends meet while they search for a position in their field.

Supporters of the law disagree. They say the industry’s doom-and-gloom scenario is hyperbole meant to persuade lawmakers to gut the legislation.

Saru Jayaraman, a co-founder of Restaurant Opportunities Centers United, said offering health care and maintaining a profitable restaurant aren’t mutually exclusive.

“We have about 70 responsible employer partners around the country, many of whom manage to provide health care and maintain a healthy profit, ” said Jayaraman, whose group advocates for improved wages and working conditions in the nation’s restaurants. “The ‘low profit margins’ argument does not hold water when comparing most restaurants to these successful, profitable businesses that profit by taking care of their workers.”

But Aziz Hashim, president and chief executive officer of National Restaurant Development, said his Atlanta-based company may have to go on a diet to meet the mandate.

Hashim said it will cost NRD — which franchises pizza, burger and chicken restaurants, including Atlanta-based Popeyes Louisiana Kitchen — between $800,000 and $1.3 million annually to conform to the law. He may have to close or sell as many as 10 of the company’s approximately 50 stores.

“The net effect for me is I will be downsizing my business,” Hashim said. “Instead of growing, we’re going to be contracting.”

Niko Karatassos, director of operations of Buckhead Life Restaurant Group, which employs about 1,500 people, said the mandate will substantially increase his costs.

“It doesn’t matter who you are, it’s going to affect growth, it’s going to affect pay, it’s going to affect costs,” said Karatassos, whose restaurants include Atlanta Fish Market and Chops Lobster Bar.

Backers of the health care law say the restaurant industry will see gains by offering insurance coverage because it leads to healthier workers and increased productivity, it makes the industry more attractive as a long-term employer, and it creates a safer atmosphere for diners.

“Workers without insurance often work sick, which may harm the health and safety of customers,” said DeLane Adams, a spokesman for Georgia AFL-CIO.

Jim Jones, who has been in the industry for most of his adult life, said coverage will mean he won’t have to pay out of pocket to see a doctor when he gets sick. Jones, who works at a Buckhead restaurant, said he has had insurance off and on during his career, but only when there has been a strong group plan.

“It is very cost-prohibitive for me,” Jones, 56, said of the plan at his current job. “I haven’t had any problems because I take fairly good care of myself. I eat right, I sleep right. [But] if something were to happen to me, I don’t know what I would do.”

Operators that offer insurance said it’s difficult to meet the minimum employee participation, largely because a great proportion of workers in the industry are under age 30 and choose to decline coverage because they feel “invincible” by their youth. Restaurateurs who decline to provide insurance will face a penalty of anywhere from $2,000 to $3,000 per full-time employee. Their workers will be offered coverage through state or federal exchanges.

“Most employers want to have insurance for their employees, but there is an affordability issue,” said Karen Bremer, executive director of the Georgia Restaurant Association.

William Custer, a Georgia State University health care expert, said that may be less of an issue because one of the law’s provisions — which has already been activated — allows the young to remain on their parents’ insurance up to age 26.

Others in the restaurant industry say the law is turning away entrepreneurs who want to expand in the industry. Instead, they are considering ventures in businesses that require fewer than 50 workers, such as commercial sign manufacturing, education services or language translation companies, said Leslie Kuban, a franchise business consultant for FranNet, which helps individuals looking for franchising opportunities.

And Doug Pendergast, president and chief executive officer, of the Krystal burger chain, said: “The largest impact has been the uncertainty surrounding the details of the law. This uncertainty has caused many franchise partners to delay new store investments.”

Tony Holmes, a partner in the Atlanta office of the global consulting firm Mercer, said there is no doubt that everything operators know is going to change. But, he said, it’s too early to sound the alarm because there are numerous questions about the law that remain unanswered or could be tweaked once the presidential election is settled.

“The ultimate impact will be in the details,” he said. “It’s very fair to say that it will be impactful. But there are a lot of unknowns, and there are a lot of legitimate considerations in the middle.”

Despite the challenges, Hashim, the head of National Restaurant Development, said his business will eventually move forward and grow. Once the law is in full effect, businesses will be able to adjust accordingly, including his.

“We will have to be much more selective,” he said. “We will have to make sure that the revenue is there to pay for all the new charges.”