Altruism or ACA-Motivated? LA Restaurants Charge Customers for Health Care

By Lisa A. Weder

When a San Franciscan health care mandate was handed down to local businesses in 2008, Californian restaurant owners took notice. The Bay City’s “pay or play” mandate, which required operating area businesses to provide health insurance coverage for employees or contribute to the city’s “public option” health access program (Healthy San Francisco), has been referenced as an influence on Los Angeles-area (LA-area) restaurant owners to tack on dining surcharges to help pay for employees’ health insurance.  It could be argued, however, that the inspiration comes from the impending tax law changes of 2015 and 2016.

Pre-ACA. Interestingly, the San Francisco mandate preceded the 2010 passage of the large employer mandate of the Patient Protection and Affordable Care Act (ACA) (P.L.111-148). Within two years of the California mandate’s implementation, 67 percent of employers were reported as having offered health care coverage, including businesses that were outside of the San Francisco area. In fact, the Wall Street Journal had reported in 2008 that San Francisco restaurants had begun adding a surcharge to their customers’ dining bills to help cover health expenses for employees. Law suits arose against the city, with questions surrounding rules about state or federal control over employee benefits.

Tick tock. Although the ACA’s “pay or play” mandate was to be enforced in 2014, the Treasury and the IRS issued final regulations in February 2014 to delay its implementation until January 1, 2015, in order to give businesses time to adapt and prepare for its requirements. The ACA mandate will impose penalties during 2015 and 2016 based on employers’ size. Generally, the employer mandate requires that in 2015, any busi­ness with 100 full-time employees or full-time equivalent (FTEs) employees must offer affordable, minimum health coverage or pay a penalty. For 2016, the required amount of employees drops to 50.

Surcharge. Nonetheless, the Los Angeles Times reports that LA-area restaurants have been imposing a three-percent “Healthy LA” bill charge onto customers’ bills. Restaurant owners imply that this surcharge provides much needed health care to their employees, including Josh Loeb, a high-end restaurant owner, who stated that “It’s not because we support Obama or don’t support Obama, or are Democrats or are not Democrats.” He insists that the focus is solely on improving his employees’ lives. Another LA-area restaurant owner noted health care inequities between servers and cooks because servers typically earn higher incomes due to tips.

Jot Condie, chief executive of the California Restaurant Association, conveyed doubts that a health care surcharge would be widely adopted across California, but added that more restaurants might agree to an all-inclusive service fee to fund employee health care costs; the fee would replace tipping.

It is hard to tell whether restaurant owners are grasping at ways to meet the ACA’s mandate provisions or are motivated by altruistic concerns. No matter what the motivation for the surcharges may be, LA-area restaurant employees who struggled to afford care are breathing a sigh of relief.