Affordable Care Act: What's Next for Franchising?

The Affordable Care Act has introduced widespread changes to the healthcare landscape. It has increased the availability, quality and affordability of health insurance for the general population, regardless of age, gender or pre-existing medical conditions. But the ACA has also altered the guidelines for employee-sponsored insurance, which has thrown many small- and mid-size businesses—including franchises—for a loop.

In January 2016, it was announced that the ACA employer mandate will require employers with 50 or more full-time employees (defined as an average 30+ hours per week) to offer a minimum coverage health plan at affordable rates. Employers who opt to not offer insurance will face penalties of $2,000 to $3,000 per worker per year.

Long story short, a franchisor with more than 50 employees across franchise locations is no longer considered a small business, pushing a lot of franchises into a large-business designation. This means, more franchises than ever before will have to adopt the ACA’s insurance changes this year, and many argue that this could result in higher premiums and more trouble for business.

According to Don Fox, CEO of Firehouse Subs, a Jacksonville, Florida-based sandwich chain, franchises that fall within the parameters of this new law have three options: 1. You offer the insurance to qualifying employees; 2. You willingly opt out of offering health insurance, accepting that you’ll have to pay the penalty at the end of the year; and 3. You reduce your number of full-time employees. For Firehouse Subs, Fox realized that option No. 1 was the best route to take—for his employees and for his business’s bottom line.

With more than 30 company-owned locations throughout the country, Firehouse Subs employs nearly 500 workers. With an average of four full-time employees working 30 hours or more a week at each of the restaurants, Fox would have been required to offer insurance come 2015 (in January 2015, the ACA required that businesses with 100 or more full-time employs had to offer healthcare coverage). But in 2013, a year before the mandate hit, he decided to get ahead of the game and offer health insurance to all eligible employees a year early.

“We decided not to wait,” Fox said. “I felt it was really important to get a leg up before 2015, when the law really counted in terms of fines and penalties. We then used last year to get some real-world learning experience and prepare us for the changes to come in 2016.”

Firehouse Subs has always offered insurance to salaried managers and corporate employees, but Fox explains that adding 30-hour-a-week workers has raised their insurance costs. And while the changing laws have proved to be more expensive for the business, in the end, he said that his decision to comply has had nothing but positive results.

“It’s not an inexpensive proposition by any means, but we found that by really embracing the change, it’s helped improve our restaurants overall. By offering health insurance to more of our employees, we’ve added a certain quality of life value that has decreased our turnover rate by 48%--the lowest it’s ever been. It promotes an increase in loyalty and an increase in productivity. We’ve also seen strong financial gains in the past two years,” Fox said. “We truly decided the best thing to do was make lemonades out of lemons. Three years in, I feel great about making this decision. It reinforces my belief that we’re getting a huge return on investment.”

But Fox recognizes that not all businesses are financially healthy enough to have that same luxury.

“The government tends to think that just because you’re a large employer, that you’re profitable. But that’s not the case. Some companies are struggling. And if you’re struggling, and you suddenly have this added burden of offering health insurance, what are you going to do? A lot of times, businesses feel like their only alternative is to reduce the hours—or the staffing—for full-time employees to avoid paying higher premiums,” Fox said.

The third approach that Fox has seen involves offsetting the added costs of health insurance by cutting employees or their hours. According to Ben Casselman, the chief economics writer for the Website fivethirtyeight.com, the new health laws have likely led a few hundred thousand workers to see their hours cut or capped. And while it’s a small number in the context of an economy with 150 million workers, most of those workers are among the most vulnerable: low-wage, part-time workers who likely have few other options. Fox believes it’s ultimately a losing proposition for all parties involved—a business is losing the employees and hours it needs, and employees are losing the money and benefits they need.

“If you embrace reducing hours as a coping mechanism, you’re not only hurting your bottom line, but you’re punishing the employees who never deserved to have their hours cut in the first place,” Fox added. “It’s hard for the operators, too, because a lot of the time they have no choice but to make those changes in their employees’ schedules.”

Finally, Fox said there’s one other option—businesses can forgo health insurance altogether, instead choosing to pay one large penalty sum come tax season.