Are Surcharges the Solution to Pay for Healthcare?
Last year, on the first day of October, several Los Angeles restaurants started adding a 3 percent surcharge to their guests’ bills in order to fund employees’ healthcare coverage. It was a strategic shift in policy, motivated in part by the burden insurance premiums would place on already thin profit margins.
The move raised more than a few eyebrows, but a year later it’s still in effect, and three Rustic Canyon restaurants—Rustic Canyon Wine Bar and Seasonal Kitchen, Huckleberry, and Milo & Olive, all located within a three-block radius in Santa Monica, California—are reaping the results, even when the surcharges have fallen a little short of the money needed for premiums.
While there was some initial controversy over the decision, Rustic Canyon owner Josh Loeb says his patrons have been supportive. “In the beginning, there was mostly support and mostly enthusiasm from our customers,” Loeb says. “Our neighborhood restaurants in Santa Monica have a lot of regulars, so it’s probably a little easier than at a tourist-based restaurant or [one where guests visit less frequently].”
Loeb adds that initially some people expressed concern over the policy, but the frequency of that has subsided. “If anybody has a real issue with the surcharge—for whatever reason—and they don’t want to pay it, we don’t question it. We just tell them we’ll take it off,” he continues. “I’d say that happens maybe once every couple of weeks in our restaurants. We’re pretty high volume, so it’s not a huge thing.”
To provide transparency, the Rustic Canyon restaurant group offers a summary of the healthcare surcharges on its website. It shows how much money each of the restaurants collected for healthcare and how much was spent on premiums. Only Huckleberry, which produces the highest sales for the company, actually exceeded the requirements [over $9,450.94 for premiums of $22,394.35], while the other two fell short [Rustic Canyon Wine Bar under by $1,289.78 for premiums of $21,948.91, and Milo & Olive short $2,865.50 for premiums of $27,656.11]. Two new additions to the Rustic Canyon family, Cassia and Esters, plan to offer health insurance as well.
“We wanted to make it totally clear [how] the charge is allocated, kept separate, and used,” Loeb explains of its disclosure page. “If there’s a deficiency and we’re short, we just pay it, and if we have a surplus, then we keep the funds and that allows us to put it toward premiums for the coming year, when it comes time to negotiate a better plan with higher-level coverage. … Hopefully we’ll have overages everywhere and can upgrade the benefits to our staff.”
Some L.A. restaurants, like Republique on La Brea Avenue, say the charge is not political. Still, businesses with more than 100 employees are required by the Affordable Care Act to provide healthcare coverage for their employees, and January 1 that requirement will be extended to businesses with 50 employees. For the Rustic Canyon family, whose venues range from about 35 to 100 employees, the issue of politics was not a concern.
“The only thing the ACA really did is push us toward doing something that we wanted to do anyway,” Loeb says. “We wouldn’t be able to absorb [the cost] as a restaurant and still make a profit. [The surcharge] allows us to keep everything separate so we’re not confusing our expenses, and it allows our staff to have healthcare.” He says his company made a pledge to its part-time employees who wanted to work 30 hours [the minimum required for healthcare coverage]. They would assist with the work and coverage, even if the extra time might not always be necessary.
Interestingly enough, while kitchen and management employees all took advantage of the healthcare plan, some of the younger employees did not. The Rustic Canyon Wine Bar crew range in ages from late 20s to 40s, while the staff at Huckleberry is younger. “It’s a first job kind of thing and a lot of people are under 26,” Loeb explains. “We offer them healthcare, but they still want to be covered under their parents’ plan because it gives them more security. A lot of the people are not necessarily here for a long-term position, so for them to go off their parents’ healthcare when they might be leaving the job in nine months or a year doesn’t make a lot of sense. At Huckleberry, we had more people decline the healthcare than at any of our other places.”
It could be argued that—instead of placing the notice about the 3 percent surcharge on menus—restaurants could simply raise their prices. However, Loeb feels that having it listed on the menu helps customers understand the costs involved with running their businesses.
“The minimum wage [in California] is going to go up pretty significantly in the next few years, and the argument is always, ‘Just raise your prices, just raise your prices,’” Loeb explains. “First of all, we’re competing with a lot of restaurants that don’t offer healthcare. We almost exclusively use organic ingredients; we’re in a drought in California; our vegetables and produce—everything comes from here. We’ve had increases in our water bills. We’ve had increases in our electric bills. Everything is shifting; everything is constantly increasing. There’s only so much you can put into your prices before your prices just look absurd to people. And if you’re competing against other restaurants that aren’t using the same quality ingredients, and aren’t offering healthcare and so forth, people don’t always take time to digest what actually goes into the price of one restaurant versus another.”