L.A. Restaurants Increasingly Charging Health Care Surcharge

More than a dozen Los Angeles-area restaurants have begun charging their customers a 3% surcharge to cover the cost of employees' health insurance, the Los Angeles Times reports.

Observers say the trend of passing on the cost of employee health care to consumers could catch on in other parts of the state (Li, Los Angeles Times, 10/6).

Background

The surcharge is similar to a program in San Francisco -- called Healthy San Francisco -- aimed at providing health insurance coverage to adult residents who earn too much to qualify for Medi-Cal, but not enough to purchase private insurance. Medi-Cal is California's Medicaid program.

To cover the costs of providing employee health benefits under Healthy San Francisco, many restaurants place a surcharge on diners' bills. The program receives no funding from the state (California Healthline, 1/3).

Details of Surcharges in Los Angeles

The surcharge was first introduced in a Los Angeles restaurant in late 2013. By last month, more than 12 restaurants in the area had implemented the fee.

Los Angeles restaurants that have implemented the fee say it is the only way they can offer health insurance to their workers while maintaining profits. They say the surcharge is more effective than increasing menu prices to pay for health coverage because rent and liability insurance often are calculated based on revenue. Therefore, the charge would have to be greater than 3% to cover increased costs for rent and insurance.

Some restaurants say the surcharge also helps to make pay more equal between servers and back-of-the-house staff, such as cooks, who are barred from taking tips under state law.

Restaurant owners say most customers have reacted positively to the new surcharges, but some have complained that the fee should be eliminated or incorporated into menu prices.

Restaurants Considering All-Inclusive Fee

Meanwhile, some restaurants are considering implementing an all-inclusive service charge. The fee would replace tips and help cover the cost of workers' health coverage.

Jot Condie, CEO of the California Restaurant Association, said that she doubted many restaurants in the state would adopt the health insurance surcharge but that more could consider an all-inclusive fee.

Condie said, "Once it starts, you are going to see other segments in the industry ... dip their toe in. If they see it's manageable and customers do not revolt" (Los Angeles Times, 10/6).