For restaurants, the health care expenditure will increase, and it’s not just the cost of health care
With winter behind us and summer approaching, it is time to begin planning for the 2023 benefits plan year. ‘Tis the season for plan review, benchmarking and forecasting.
The key to success in this process is viewing the trends and national data through the prism of a restaurant operator. As we often emphasize, benefit strategies and results in the restaurant sector are different from other industries.
While COVID-19 the disease may be waning, the impact of the COVID-19 pandemic on the needs and expectations of the restaurant workforce are becoming increasingly apparent. All employers should expect cost increases in their benefit programs not only due to medical trend, but also due to the demand for increased benefit levels.
In addition, we see two other trends emerging that can drive an increase in your overall spend. “Burned out” and “overworked” are frequent descriptions for employees today. As such, many employers are adapting well-being and paid time off (PTO) programs to support employees with their physical, financial, emotional and social needs. While programs like these have not been seen in the restaurant sector, the competition for employees has changed; it’s not just the restaurant down the street, it’s the distribution center or a big box retail store. These new labor competitors most likely offer well-being benefits. Second, employers will need to spend more on technology to meet employee needs. More employees are looking to enroll online, understand benefits online and see more personalized information online. While costs will increase, this situation is not just doom and gloom; we believe careful and thoughtful spending could improve your position as an employer of choice.
Health Care Costs Are Increasing
The factor for measuring the increasing cost of a medical plan is trend. This is a blend of medical inflation (the year over year cost of an x-ray), utilization (the number of x-rays that are performed), and government cost shifting (mandated benefits and restricted reimbursement by Medicaid and Medicare). In recent years, medical technology has been driving trend, but in today’s economic environment, medical providers are raising prices. Additionally, a bubble has emerged due to deferred care. According to the One Medical Research Study, Navigating the Deferred Health Care Crisis, 54% of employees deferred both preventative and elective care during the lockdowns. As a result, the demand for services will increase, leading to an increase in the utilization component of trend.
Cost Sharing, Richer Plans
ACA affordability guidelines and not a predetermined percentage sharing drive the employee share of medical premiums in the restaurant sector. As such, restauranteurs frequently bear the brunt of medical plan costs at least at the employee-only tier. In today’s employee-driven market, we have seen only a small number of restaurants increase the employee cost for benefits; they simply did not want to risk losing even one employee. Job applicants are not plentiful, and the few are paying more attention to benefits and not just the hourly rate.
Benchmarking and Forecasting
Benchmarking is very tricky for restaurant operators and we recommend caution with its use. Consider the following:
- The statistic with the greatest focus is medical and Rx plan cost per employee. Often, this number is a blend of employee only and dependent costs. Since a typical employer will have about 40% of their employees purchasing dependent coverage (dependent penetration) and the restaurant industry averaging around 10 percent, the comparison to the norm is flawed.
- Often your competition for employees is not with other restaurants but with other service industries. This dynamic expanded during COVID as large numbers of employees chose to leave the restaurant industry.
- There are significant differences in benefit structures between large operators versus small operators and franchise operators versus brand operators.
Likewise, forecasting costs and building budgets will mean understanding medical costs as well as the hiring market. Consider these factors:
- According to PwC, medical trend is forecast to be 6.6 percent in 2022, down from 7.0%. With the rise in the general inflation rate, will it be this low?
- 95 percent of all workers are considering quitting their jobs and 1/3 of all women are considering leaving the workforce.
- In 2021, smaller plans that are often fully insured (fewer than 500 participants) saw a 9.6-percent rate of increase. This compared to 5.0 percent for larger employers. The delta is expected to continue.
- Typically, the net medical plan cost increase for employers has been 17 percent lower than the gross increase due to plan design changes. In 2021, the difference was 0 percent and for 2022, it is forecast to be only 3.4 percent.
The challenge: costs are expected to continue to rise a significant rate, but due to the employment situation, employers are choosing not to share the costs with their employees; either through increased contributions or reduced plan designs. The goal should be how to make plans more efficient. The best opportunities for consideration are:
- Funding mechanisms
- Alternative stop loss arrangements
- Prescription drug contracts
- Concierge services.
More Benefit Options, More Services
Voluntary supplemental insurance plans, accident, critical illness, and hospital indemnity for example, remain popular in the restaurant sector. Typically, they’re employee pay all, and if underwriting guidelines are set properly, they can be attractive options every year. Paid time-off (PTO) strategies may need review, and potentially revision for two reasons. First, both states and municipalities are adopting PTO ordinances; and many groups are creating consistent plans for all employees. Well-being programs such as Employee Assistance Plans (EAPs) are in consideration, as are financial literacy and education programs. Caregiver assistance, whether to find qualified care for children or seniors is also a sought after benefit. Other caregiver benefits include maternity, adoption, and scheduling flexibility. While these benefits are very attractive, the challenge in the restaurant sector is to whom are these benefits offered. Our most recent article in MRM provides more detail on PTO strategies for the restaurant sector.
We believe that automated benefits administration is integral to every restaurant. Eligibility management, ACA tracking and reporting; and dealing with additions and deletions is too complex to be managed with paper. Making an eligibility mistake can result in significant liabilities and, if the above trend towards more benefit offerings is accurate, the need for increased technology will become even more vital. For example, technology can collect data on leave management, providing consistency of rules. These factors led 75% of employers to continue to embrace digital transformation during the pandemic.
We are also proponents of support from an enrollment call center to provide individual enrollment service. While some employees prefer electronic enrollment, many are more comfortable discussing their options with a call center representative.
For employees, one site with all the resources provided to every employee becomes an easy reference point for your company. Technology should not limit your need to provide more services; if it does, it might be the right time for an upgrade.
Costs Are Increasing. Spend Money Effectively
Our recommendation for restaurant employers is to plan on rising health care costs in 2022, and probably in years beyond. Also, expect increasing employee needs for well-being, including PTO benefits. Technology is increasingly becoming the focal point for your company’s HR resources. Planning for 2023 will be complicated, especially for the restaurant sector. With thoughtful preparation, these increased expenditures could lead to a more satisfied and committed workforce.