Roosevelt Institute | Cornell University

Paying not just for your meal, but also for your waiter's health insurance

By Sofia HuPublished October 21, 2014

In a growing trend, restaurants are adding a 3% tax to pay for their employees' medical insurance. For an industry where workers are often paid low wages and overlooked, this is an effective step to addressing their health needs.

By Sofia Hu, 10/21/2014

The movement began in San Francisco, where 50 restaurants implemented the tax when the city mandated healthcare for workers in 2007. Six years later, these restaurants came under fire when an audit of the surcharges revealed that restaurants collected $14 million in 2011 through the tax, but only spent about a third of that money on medical coverage. One restaurant reportedly only spent 10% of the surcharge on employee healthcare.

The tax had since spread to a few Los Angeles restaurants. According to the LA Times, Bill Chait—an owner of a high-end restaurant that added the tax this summer—said the tax has been generally well-received, though some diners have voiced their opposition to the tax. One customer called the LA restaurants' taxes "outrageous" on Yelp.

Despite the San Francisco controversy and some consumer opposition, the healthcare tax may become increasingly popular. Under the Affordable Care Act, in 2016, businesses with over 50 employees will have to offer health insurance to their workers. This mandate has not gone into effect yet, but the LA restaurants have already began offering insurance ahead of the mandated ACA schedule.

The restaurants' tax is a bold yet appropriate move. Some restaurant owners have decided to avoid healthcare costs by employing more part-time workers, in effect giving restaurant workers less opportunity to work and earn a living.

In comparison, the healthcare tax prioritizes the needs of workers by establishing a definite financial source for their health insurance. Workers for those LA restaurants have voiced their support for the tax. According to the LA Times, one such worker named Sarah Huxhold said, "I'm really excited about having insurance again. There is no way I can pay for those things out of pocket."

Some critics have interpreted the tax as another move by greedy restaurant owners to increase their profit margins. In fact, restaurants had an average profit margin of 5.1% in 2013, according to the Wall Street Journal.

Ensuring that workers in one of the more physically intensive industry receive health insurance is a no-brainer. When workers and restaurants cannot afford to pay healthcare costs, it follows that the cost is passed onto the customers, who are generally more well-off. The healthcare tax reminds relatively wealthy customers that their hosts, waiters, and cooks do not always have the ability to access healthcare and pushes the issue of healthcare into the forefront of public discussion.

As Lanhee Chen, a writer for the BloombergView put it, the tax is an "active form of redistribution—from patrons who arguably can ‘afford it' to workers who need the help."

The LA restaurants who have added the taxes have appropriately handled the needs of their workers. However, it is important to note that the healthcare surcharge is a movement that so far only includes high-end restaurants.

Fast food and franchised restaurants are substantially different from those restaurants, since these corporations— like McDonald's, Burger King, and Wendy's — can afford to provide good health insurance to their workers but do not. For example, in California, about 40% of fast food workers were insured between 2007 and 2011.

Restaurant workers can barely afford to buy health insurance. Fast food workers earn on average $7.73 per hour. Tipped restaurant workers do better, earning $11.82 on average. Fast food executives make on average $24 million a year.

Workers in the food service industry face strong economic and health inequality. The healthcare tax is a step to remedying that and to increasing the overall health of the industry (and thereby the health of the nation). As the Affordable Care Act mandate on employers comes into effect, the government should implement legislation to enforce accountability and ensure the tax is appropriately spent, so that more customers and restaurants — whether fast-food or not — will recognize and address the health needs of their hosts, waiters, and cooks.