Health Care Reform: Employer Mandate and Penalties

Health Care Reform (PPACA-Patient Protection & Affordable Care Act) is probably the topic at top of mind for all restaurant owners in California. On July 9, 2013, the Internal Revenue Service (IRS) issued Notice 2013-45 to provide formal guidance on the delay of the Affordable Care Act (ACA) large employer “pay or play” rules and related information reporting requirements. The provisions affected by the delay are:

  • § 4980H employer shared responsibility provisions;
  • § 6055 information reporting requirements for insurers, self-insuring employers and certain other providers of minimum essential coverage; and
  • § 6056 information reporting requirements for applicable large employers

What this means for restaurant owners who have over 50 full-time equivalent employees* is that they do not have to make an offer of coverage until 1/1/2015 (penalty for not doing so is $2,000 per employee the first year), or comply with the burdensome reporting requirements until then either. While this is a much-welcomed relief, the pain is still coming. 2014 is the time to evaluate your full-time to part-time employee ratios. Many operators are adjusting to levels that keep their exposure to offer coverage at a minimum while still maintaining efficiencies.

It is important to note here that the only portions of the law that were delayed are those discussed above. All other aspects of the ACA are still moving forward as planned, most notably the individual mandate. Your employees still have to obtain coverage for themselves this year or face a penalty (1% of income the first year). Full and part-time employees can seek coverage individually, but full-time employees who do so, and work for a large employer (50+ equivalents), will lose any government subsidy they may be entitled to once their employer begins to offer coverage (part-time unaffected).

* Full-time equivalents are calculated using the following formula: Total full-time employees + (total part-time employees X average hours per month / 120). For example, if you have 20 full-time employees and 60 part-time employees (working an average of 24 hours per week), your full-time equivalent number would be: 20 + (60×96/120) = 20 + 48 = 68 full-time equivalents.

Worker’s Compensation Rates

Worker’s Compensation Insurance rates in California continue to rise. Due to plaintiff ability to litigate claims and rising costs of medical procedures, Worker’s Compensation is not going to see any rate relief in the near future. In fact, Insurance Commissioner, Dave Jones, approved a 7.6% increase for 2014. Since Commissioner Jones took office in 2011, the State of California has taken a whopping 70.5% rate increase on average across all class codes. Our previous two commissioners have dropped rates by 56.4% and 9.9% respectively. With no relief from the State in sight, it is even more important for restaurant owners to take ownership in their Worker’s Compensation program and put a stop to claims. Only with an attractive Experience Modification will employers be able to survive. They are many programs and techniques available to keep claims at a minimum and reduce the cost of Worker’s Compensation.

Cyber Liability

News of data breaches are in the news more and more now as thieves are looking for more sophisticated ways to commit crimes. With the recent exposure at Target stores, we now realize just how easy it is for data to be compromised and that it can happen again almost anywhere. As with all new hazards, the insurance industry has responded and developed a policy that can cover some of the liability restaurant owners are exposed to when a data breach occurs. Things like consumer notification of a breach and consumer credit monitoring can become expensive for a large breach and cyber liability insurance can help pay for some of those costs. We have included the top 10 reasons to carry cyber liability below to illustrate the point:

  • Complying with breach notification laws cost time and money
  • Third party data is valuable and you can be held liable if you lose it
  • Data is one of your most important assets, yet it is NOT covered by standard property insurance policies
  • Systems are critical to operating your day to day business, but their downtime is NOT covered by standard business interruption (business income/time element) insurance
  • Cyber-crime is the fastest growing crime in the world, but most attacks are NOT covered by standard property or crime insurance policies
  • Retailers (including restaurants) face severe penalties if they lose credit card data
  • Your reputation is your number one asset, so why not insure it?
  • Social media usage is at an all-time high and claims are on the rise
  • Portable devices increase the risk of a loss or theft of sensitive data
  • It is not just big business being targeted by hackers, but lots of small ones too; they are just not in the news

Tim Milaney is the Client Relationship Manager at ISU Peterson Milaney Insurance. ISU Peterson Milaney Insurance caters to the needs of the restaurant industry. We have formed a special program for the express purpose of providing employers with industry-specific insurance, risk management, and loss containment services. As a member of the California Restaurant Association, we understand the unique needs of restaurant operations in California.

Author: Corbin Wade, ISU Peterson Milaney