Noe Valley Voice May 2008

Restaurants Add Surcharges for Employees' Health Care

By Pat Rose

A new city ordinance requiring San Francisco businesses to provide health insurance for their employees has left some Noe Valley restaurants and patrons with a sour aftertaste.

Diners have found it more expensive to eat out after the law went into effect January, and several local owners grumble that the city should have adopted a different strategy to fund employee health care.

The gripes are in response to the San Francisco Health Care Security Ordinance, a 2006 measure that requires all businesses with 20 or more employees to pay a specific minimum amount of money toward their workers' health care. But it has been customers at larger restaurants who have seen upfront evidence of the law's financial impact. In Noe Valley, several restaurants covered by the ordinance have responded by adding a surcharge to customers' bills to defray the costs.

They range from a $1 per person charge at Savor Restaurant to a 4 percent add-on to the bill at Pomodoro--both popular 24th Street eateries.

Savor's extra fee is listed on the menu as a "San Francisco Health Insurance Surcharge." Savor co-owner Zaid Fakhouri says the charge is the only way his restaurant can comply with the new law and stay in business.

"We cannot raise our prices," he says. "Increasing our prices would put us out of business."

Customers' response to the surcharge has been mixed, says Fakhouri, who employs 34 workers. "Tourists visiting from outside the country have become particularly upset by the charge. They say, 'Why should we have to pay for this?'"

But other patrons, including Noe Valley resident Marianne Evans, appreciate the cafe's honesty.

"I'd rather have the restaurant tell me what the charge is for than have them raise their prices. I don't mind paying for health care," she says.

Pomodoro, which has 31 workers, opted to add a 4 percent surcharge to each diner's check. The Italian restaurant (formerly called Pasta Pomodoro) originally gave customers a card explaining the reasons for the extra cost.

The card was met with a negative response, though, so the restaurant pulled it. Pomodoro owner Adriano Paganini says the card was misinterpreted as a political statement by the restaurant about health care. Instead, the restaurant has put an explanation of the charge on its menu.

Employers Challenge Law

Under the new law, medium-sized businesses with 20 to 49 employees are required to spend $1.17 an hour per employee with a cap of 516 hours per quarter on health care coverage. Businesses may choose to comply with the requirement either by providing health coverage themselves or by paying a fee to support the city's health program, "Healthy San Francisco." The program is the first in the nation to provide health care for the uninsured.

"Everyone is for health care," says Mark Pastore, owner of Incanto Italian Restaurant and Wine Bar on Church Street. "But as someone who has written a check every month for employee health coverage, I think these mandates wind up being a tax on smaller businesses like ours."

Pastore has provided full health care coverage for his 35 fulltime employees since he opened six years ago. Under the new law, he must now provide additional health care for his part-time employees, who were not covered under his original plan.

Pastore points out that under the city's health insurance ordinance, he pays for more than just the cost of employee health care. He also pays for an estimated 80 hours of bookkeeping a year necessary to track the reporting required by the city.

Incanto has not added new charges to customers' bills in response to the city's more recent health legislation. That's because the restaurant already had a surcharge in place, Pastore says.

"We began charging a 5 percent service charge on Incanto's menu four years ago, when San Francisco started passing ordinances aimed at employer mandates including an indexed annual minimum-wage increase and sick-pay mandates."

He feels the mounting regulations are having a harmful impact on the city's restaurants.

"San Francisco has lost 215 restaurants in the past four years. The city has the highest minimum wage in the U.S. It costs $150,000 more annually to open a restaurant in San Francisco than it does in New York City," he says. "It's the workers and businesses at the margins that will be hurt by this."

Pastore, along with the Golden Gate Restaurant Association, had suggested that the city increase the sales tax by a quarter of a percent to fund "Healthy San Francisco" instead of putting the health care burden directly on businesses. That solution was rejected, and the association challenged the ordinance in federal court on the basis that the employer requirement was preempted by federal health statutes.

A federal judge ruled in favor of the employers last December. San Francisco appealed and was granted a stay of that ruling in January. The city's appeal was heard before the Ninth U.S. Circuit Court of Appeals in April. A ruling from that court is expected soon.

"We totally support 'Healthy San Francisco,' but we believe the city already has funding within their billion-dollar annual budget for public health to fund most of the program," says Kevin Westlye, executive director of the restaurant association.

"To make up the rest of the needed funds, we proposed a quarter penny sales tax to fully fund the program," says Westlye. "We considered that to be an affordable and legal funding mechanism, but it was rejected. We hope they [the city] will reconsider after the employer mandate is found to be illegal."

"This ordinance is a bad move for all businesses in the city," says Savor's Fakhouri. "I hope the city will reconsider and let us provide the coverage."