Nevada Restaurant Owners on Obamacare: ‘We Can’t Pay For This’

Published December 26, 2012

Nevada restaurant owners—increasingly anxious about the future of their businesses under the Affordable Care Act—are echoing statements by national restaurant chains about the excessive costs President Obama’s health care law will impose on them.

“I don’t know what secret [the politicians] know, where they just assume we can write them a check,” said Sam Facchini, owner of Metro Pizza in Las Vegas. “We can’t pay for this. Most of us [restaurant owners] operate on a thin margin, and trying to stay in compliance [with the law] will make things much tighter.”

The biggest concern restaurant owners express about the law is Section 1513, the Employer Mandate. Going into full effect in January 2014, it requires businesses with 50 or more full-time employees to provide federally approved health insurance plans or pay penalties of up to $2,000 per employee.

Nevada will be hit hard, according to the Nevada Restaurant Association, because the state’s restaurant industry is the second highest contributor to state taxes and employs nearly 150,000 people.

Shift to Part-Time Work

Because the law defines “full-time employee” as an employee working 30 hours per week, some businesses—including Darden Restaurants, parent company of the Olive Garden and Red Lobster eateries—have stated that, to avoid penalties, they may shift more employees to part-time work. Other restaurant corporations, including Papa John’s and Applebee’s, have stated they plan to cut back on hours and cancel plns for new locations.

“They were public about it, but it’s a reality within our entire industry,” said Facchini. “Thirty hours is not reflective of any industry, let alone our industry, where there’s a lot of different shifts and time frames required depending on how a business is doing.”

The Supreme Court’s June ruling upholding the constitutionality of the law does provide an escape hatch for employers in most states—those that, unlike Nevada, chose to not set up a nominally state-run exchange. Early in 2011, Nevada Gov. Brian Sandoval and legislators rushed to authorize one of the Obamacare exchanges, meaning Nevada’s restaurant owners and other large employers will have no insulation from the law’s mandates.

“What happens when [lawmakers] realize we can’t afford to pay for it, or that $2,000 isn’t enough to pay for [the law]?” asks Facchini. “Do they kick it up to $2,500? $3,000? The costs will eventually hit the employees and customers.”

Metro Pizza employs approximately 200 workers in Nevada, which could mean upwards of $400,000 worth of penalties per year, should the company not comply with the law. Darden Restaurants—employing nearly 1,500 people across the state—could face $3 million in penalties annually.

Encouraging Avoidance

Todd Clore, owner of Todd’s Unique Dining in Henderson, says the law encourages more employers to try to avoid its provisions than comply with them.

“We’re all looking for ways to avoid it,” Clore said. “It changes the way we operate, from hiring to payroll to pricing, and it hurts small guys the most.”

Jim Rees, co-owner and partner of Hash House A Go Go, which has five locations in Nevada, says cutting employee hours below the 30-hour threshold may be the only way to avoid penalties.

“I’d hate to see great employees forced to work two or three jobs because a law makes it impractical for an employer to let them work more hours,” said Rees. “The two things we hate doing are cutting employees and raising prices, but the way the law’s written means we could have to deal with both of those outcomes.”

Recently, a Denny’s franchise owner in Florida received criticism for announcing he may charge customers a 5 percent “Obamacare surcharge.” Industry members say these costs are an economic reality.

“If a company’s costs increase, it has to make up for the increase somewhere, and that usually comes from a price increase,” Facchini said. “Restaurant customers are much more price-sensitive than customers in other industries, and they’ll only tolerate so much before eating somewhere else.”

Preventing Hiring and Expansion

Many restaurant owners acknowledged Obamacare could force them to cut staff hours, but the law could also prevent owners from opening new restaurants and hiring more employees. Rees thinks industry expansion will be weighed more carefully once the law is in effect.

“[Obamacare] does make you consider if you can add more employees without taking a hit,” he said. “A new restaurant is exciting for a lot of parties involved, but when you see companies already searching for ways to accommodate current employees under the law, you wonder if they can justify bringing in new ones.”

Facchini said the law’s objective of increasing insurance coverage is well-meaning, but it will backfire.

“The way it’s funded is fraught with all kinds of peril,” Facchini said. “If a company folds because it can’t afford to operate, then you have more people without jobs and insurance, which is the opposite of what lawmakers wanted to accomplish with this [law].”

Clore is among the employers who hope the law will be revised before its provisions take effect in 2014.

“It’s such a complicated law that my gut says we’re going to see some changes before it becomes enforceable,” Clore said. “Someone’s going to realize we’re just little guys trying to run restaurants and have already taken big enough hits.”

Kyle Gillis ([email protected]) is a reporter for Nevada Journal.