For restaurants, health expenses will increase, and it’s not just the cost of health care
With winter behind us and summer approaching, it’s time to start planning for the year of the 2023 benefits plan. It’s the season for reviewing plans, benchmarking and forecasting. .
The key to success in this process is to view national trends and data through the lens of a conservator. As we often point out, benefit strategies and results in the restaurant business are different from other industries.
While COVID-19 disease may be on the decline, the impact of the COVID-19 pandemic on the needs and expectations of the restaurant workforce is becoming increasingly apparent. All employers should expect cost increases in their benefit programs not only due to the medical trend, but also due to demand for increased benefit levels.
Additionally, we see two other trends emerging that can lead to an increase in your overall spending. “Exhausted” and “overworked” are common descriptions for today’s employees. Thus, many employers are tailoring wellness 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 industry, 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 welfare benefits. Second, employers will need to spend more on technology to meet employee needs. More and more employees are looking to register online, understand benefits online, and view more personalized information online. While costs will increase, this situation is not only catastrophic; we believe careful and thoughtful spending could improve your position as an employer of choice.
Health care costs are rising
The measuring factor for the increase in the cost of a medical plan is the trend. It’s a mix of medical inflation (the annual cost of an x-ray), utilization (the number of x-rays performed), and government cost shifting (mandatory benefits and restricted reimbursement by Medicaid and Medicare). In recent years, medical technology has been driving the trend, but in today’s economic environment, medical providers are raising their prices. Additionally, a bubble has emerged due to delayed care. According to the One Medical Research Study, Navigating the Deferred Health Care Crisis, 54% of employees deferred preventive and elective care during shutdowns. As a result, the demand for services will increase, leading to an increase in the utilization component of the trend.
Cost sharing, richer plans
The ACA’s affordability guidelines and not a pre-determined percentage share determine the share of employee medical premiums in the restaurant industry. As such, restaurateurs often bear the brunt of medical plan costs, at least at the employee-only level. In today’s employee-driven market, we’ve seen only a small number of restaurants increase the cost of employee benefits; they just didn’t want to risk losing even one employee. Job seekers are few and few are those who pay more attention to benefits and not just the hourly rate.
Benchmarking and Forecasting
Benchmarking is very tricky for restaurateurs and we recommend caution in its use. Consider the following:
- The most targeted statistic is the cost of the medical and Rx plan per employee. Often this number is a mix of costs for employees only and for dependents. Given that a typical employer will have around 40% of their employees taking out dependent coverage (dependent penetration) and the restaurant industry averages around 10%, the comparison to the norm is flawed.
- Often your competition for employees is not with other restaurants but with other service industries. This dynamic has grown during COVID as a large number of employees have chosen to leave the restaurant industry.
- There are significant differences in the benefit structures between large operators versus small operators and franchise operators versus branded operators.
Likewise, forecasting costs and establishing budgets will mean understanding medical costs as well as the hiring market. Consider these factors:
- According to PwC, the medical trend is expected to be 6.6% in 2022, compared to 7.0% previously. With the rise in the general inflation rate, will it be as low?
- 95% of all workers plan to leave their job and 1/3 of all women plan to leave the labor market.
- In 2021, smaller plans that are often fully insured (fewer than 500 participants) saw a 9.6% increase rate. This compares to 5.0 percent for large employers. The delta should continue.
- Generally, the net increase in medical plan costs for employers was 17% less than the gross increase due to plan design changes. In 2021 the difference was 0% and for 2022 it is expected to be only 3.4%.
The challenge: Costs are expected to continue to rise at a significant rate, but due to the employment situation, employers are choosing not to share the costs with their employees; either by increasing contributions or by reducing plan design. The focus should be on how to make the plans more effective. The best opportunities to consider are:
- Financing mechanisms
- Alternative stop loss layouts
- Prescription drug contracts
More benefit options, more services
Voluntary supplementary insurance schemes, such as accident, critical illness and hospitalization, remain popular in the restaurant sector. Typically, employees pay all, and if underwriting guidelines are set correctly, they can be attractive options every year. Paid time off (PTO) strategies may need review or even revision for two reasons. First, states and municipalities are adopting PTO orders; and many groups create consistent plans for all employees. Wellness programs such as Employee Assistance Plans (EAPs) are under consideration, as are financial literacy and education programs. Assistance to caregivers, whether in finding skilled care for children or the elderly, is also a sought-after benefit. Other benefits for caregivers include maternity, adoption and flexible scheduling. While these benefits are very attractive, the challenge in the restaurant industry is knowing who these benefits are offered to. Our most recent article in MRM provides more detail on PTO strategies for the restaurant industry.
We believe that automated benefits administration is an integral part of every restaurant. Eligibility management, ACA monitoring and reporting; and dealing with additions and deletions is too complex to handle with paper. Mistaking eligibility can lead to significant liability, and if the above trend toward more benefit offerings is accurate, the need for increased technology will become even more vital. For example, the technology can collect data on leave management, ensuring policy consistency. These factors have led 75% of employers to continue to embrace digital transformation during the pandemic.
We also support the support of a registration call center to provide individual registration service. While some employees prefer electronic registration, many are more comfortable discussing their options with a call center representative.
For employees, a site with all the resources provided to every employee becomes an easy point of reference for your business. Technology shouldn’t limit your need to provide more services; if so, it might be a good time for an upgrade.
Costs are rising. Spend money efficiently
Our recommendation to catering employers is to plan for rising healthcare costs in 2022, and likely in the years to come. Also expect an increase in employee wellness needs, including PTO benefits. Technology is increasingly becoming the focal point of your company’s HR resources. Planning for 2023 will be complicated, especially for the restaurant sector. With thoughtful preparation, these increased expenses could lead to a more satisfied and engaged workforce.