Do You Want Health Insurance with Your Entrée?

February 20, 2014 | By Lawrence J. Tabas

The Los Angeles Times is reporting that restaurant-goers are paying more than just tax and tip when dining out—a new policy at an L.A. restaurant means that diners will also be contributing to covering the cost of the restaurant’s employees’ health insurance premiums. Republique, an upscale restaurant featuring a café and bistro, is now adding a 3% surcharge to customers’ bills to cover the cost of health insurance coverage for its employees, from servers down to dishwashers. The owners of Republique pointed to the Affordable Care Act (“ACA”) as the major impetus for the new policy. Under the ACA’s so-called Employer Mandate, applicable large employers must offer health insurance coverage to their employees or face penalties. By passing some of the cost of employee health insurance coverage to consumers, the owners of Republique hope to meet their obligations under the ACA.

The Employer Mandate requires employers with 50 or more full-time employees to offer health insurance coverage to their full-time employees that meets minimum coverage and affordability standards under the ACA. Recent regulations state that employers with 50 to 99 employees do not have to comply with the employer mandate until 2016. Moreover, employers with 100 full-time employees or more need only offer coverage to 70% of their full-time employees in 2015 to be compliant with the regulations. Both categories of employers will need to offer coverage to 95% of employees to be compliant with the regulations starting in 2016.

The potential penalties for violations under the ACA ($2000-$3000 per full-time employee depending on the circumstances) have given employers a reason to get creative in finding ways to avoid being subject to the Employer Mandate. Some employers have decided to cut their workforce, keeping their number of full-time employees just below the 50-full-time employee threshold. Others have opted to retain all of their employees, but to move them to part-time schedules. The owners of Republique have taken a novel tack in the wake of the ACA’s implementation: explicitly passing the cost of compliance with the Employer Mandate on to consumers. This same tactic has been tried in the past in other places, like San Francisco, to comply with local laws. The owners of Republique felt that keeping their employees full-time would be better not only for the restaurant, but also for the employees themselves.

The surcharge has met with a mixed response from restaurant patrons and the internet community as a whole. While some customers are comfortable with paying a little extra to ensure that Republique’s employees have health insurance coverage, others have decried the 3% addition to their bills as an “Obamacare” surcharge. Concerns have also been raised that the surcharge money is not actually being used for its intended purpose. A Wall Street Journal Article from 2011 found that businesses subject to a San Francisco law requiring employers to provide health insurance to employees were only using a fraction of health care surcharge proceeds to pay for employee health care premiums. While the debate will likely rage on about business tactics in the face of the Employer Mandate, it is clear that we can expect to see innovative and interesting solutions by employers to try to avoid or lessen any potential liability under the ACA.

The Health Law Gurus™ will continue to follow the implementation and effect of the Employer Mandate.

We encourage you to share your thoughts and opinions about Republique’s 3% surcharge with us and our readers in the comments section below.

To view the Los Angeles Times Article, click here.

To view the Wall Street Journal Article, click here.

About the Authors

Lawrence J. Tabas


Lawrence is the Chair for Obermayer’s Health Care Law Department and Election Law Practice Group. Lawrence’s Health Care Law legal experience includes the representation of Pennsylvania County governments in Behavioral Health Managed...

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